Regulations and the FCC: A Commissioner's Wisdom

To be generous, it's rare when a regulator understands the ills of regulation.

But that is the case with FCC Commissioner Robert McDowell. His job is, in essence, to be a regulator. Yet, he possesses a strong understanding of both the economics and the history of regulation gone awry.

McDowell was on Capitol Hill on March 19 testifying before the House Subcommittee on Financial Services and General Government. And part of his testimony focused on spectrum policy, given that Congress passed legislation in February that puts television broadcast spectrum up for auction. There has been considerable debate over how this auction should be handled, with some advocating that the FCC micro manage the auction by effectively picking winners and losers.

McDowell countered such regulatory activism in his testimony. He stated:

"Meanwhile, a debate continues over whether or how the FCC should shape the outcome of this process. History has proven that regulators' attempts to over-engineer spectrum auctions often result in harmful, unintended consequences. Thus, I hope all of us can apply the lessons learned from the Commission's past missteps as we implement this new legislation. I am committed to working with my colleagues to ensure that our auction rules are minimal and ‘future proof,' allowing for flexible uses in the years to come as technology and markets change... I am confident that the FCC can get it right this time. And ‘getting it right' means avoiding regulatory hubris by keeping the government's hands off of the marketplace's steering wheel as much as possible."

McDowell correctly notes that regulation has consequences, and those often include consequences of the unintended variety. Especially in an industry so dynamic and innovative as telecommunications, there is simply no way for regulators to understand where the market might be headed, and therefore, it would be dangerous, not to mention arrogant, for the FCC to dictate where spectrum should be allocated, as opposed to leaving resource allocation to the market which ultimately is guided by consumers.

It is worth noting that in late March, the House voted by a 247-174 margin to reform the FCC. In a letter of support sent to the House on the Federal Communications Commission Process Reform Act (H.R. 3309), SBE Council President and CEO Karen Kerrigan explained: "H.R. 3309 would bring greater transparency, consistency and effectiveness to the FCC's regulatory process. For example, it would establish and clarify procedures for when the FCC issues rulemaking notices, including citing the FCC's authority for adopting and amending a rule. Also, the economic impact of a rulemaking would need to be considered, with the FCC required to assess the presumed market failure and consumer harm, the governmental failures warranting FCC action, as well as the burden of existing regulation. For good measure, it would have to be determined that the benefits justify the costs of new regulatory action. In addition, H.R. 3309 would establish greater openness when it comes to the Commission's deliberations, agenda, meetings, and dissemination of information."

Unfortunately, the Senate appears uninterested in dealing with this legislation, while the White House stands opposed. In addition, while efforts were made to set limits on the FCC's regulatory discretion on spectrum auctions in the bill passed in February, that effort also was denied and excluded by the Senate.

So, we are left hoping that Commissioner McDowell's view prevails at the FCC, and that his optimism that the FCC will get it right is well placed.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.