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  2. November 2015

November 2015

Eroding the Rule of Law: Regulation as Cooperative Bargaining at the FCC

Over the past twenty years we have seen the emergence of an important phenomenon in the practice of modern regulation—cooperative bargaining between the regulator and the regulated over a “bundle” of seemingly unrelated issues.

Because of the multiplicity of issues being adjudicated “simultaneously” materially affects the nature of the resulting bargains, the rise in cooperative bargaining reduces the likelihood that past regulatory action will produce useful legal precedents for regulated firms. Also, regulation “as practiced” now may allow an administrative agency to expand greatly its power beyond its statutory mandate via “voluntary” concessions by regulated firms that are only a part of a larger bargain across multiple issues (e.g., mergers and acquisitions, waiver requests, declaratory rulings). To examine this important phenomenon, we use the Federal Communications Commission as a case study (although we expect issue bundling occurs at other regulatory agencies as well). We begin by presenting evidence on issue bundling by the FCC in the form of consent decrees to settle outstanding enforcement actions that were entered into either during or immediately following merger approval windows. Next, we provide a series of case studies in which the Commission has engaged in “issue bundling” in the form of “voluntary” commitments in exchange for obtaining regulatory relief from the Commission.

As we show, the concessions have little to do with the merits but were instead used by the Commission to achieve political outcomes that could not otherwise be legitimately achieved through generic, industry-wide rulemakings. We then turn to the game-theoretic analysis of issue bundling and discuss the basic theoretical results, as well as some caveats and possible extensions. Conclusions and policy considerations are at the end.

The FCC, still lawless

[Commentary] The tendencies of the Obama administration's Federal Communications Commission to exercise power in a lawless manner have become more manifest as the year has progressed. The long and short of it is that, this year, the agency increasingly has arrogated to itself the power to impose sanctions upon those it regulates for actions the regulated parties could not have known in advance to be unlawful.

This conduct ignores fundamental rule of law and due process norms because the agency is asserting authority to penalize regulated parties without adopting, in advance, knowable, predictable rules. It may not be surprising that companies regulated by the FCC — in other words, firms whose businesses are subject to the agency's favor or not — choose to settle cases based on questionable assertions of agency enforcement authority. And it is not surprising that government officials relish exercising such unbridled authority. What may be surprising is that, as the Obama administration resorts to expanding administrative agency power across the board to achieve regulatory objectives it otherwise could not achieve, is that so little attention is paid to what is happening at the FCC. A government of laws, not of men, requires a rule of law regime in which the rules are knowable and predictable — not one in which those subject to the government's enforcement authority are expected to be mind readers.

[May is president of the Free State Foundation]

Start-Up Leaders Embrace Lobbying as Part of the Job

Today’s tech companies — even the youngest ones — have accepted lobbying as an essential part of doing business.

In addition to knowing the language of computer code, founders are speaking the language of Washington, keenly aware of the potential regulatory battles that could be on the horizon. It is a sharp shift from past generations of tech companies, whose founders almost made it a point of pride to be distanced from, or above, politics and politicians. The antitrust troubles and headaches encountered by the older companies, including Microsoft and Google, play some role in the new thinking. The real change, though, came after Uber, the ride-hailing service, and Airbnb, the home-sharing site — two of the largest start-ups — started facing a barrage of questions about their operations.

China Cuts Mobile Service of Xinjiang Residents Evading Internet Filters

The Chinese government is shutting down the mobile service of residents who use software that allows them to circumvent Internet filters in Xinjiang, a new measure in the country’s fractious western territory.

Shortly after terrorist attacks in Paris, the local police began cutting the service of people who had downloaded foreign messaging services and other software, according to five people affected. The people, who spoke on the condition of anonymity over concerns about retaliation from local security forces for speaking to foreign news media, all said their telecommunications provider had told them to go to a local police station to have service restored.

Don’t Regulate Internet Platforms, Embrace Them

[Commentary] Internet platforms such as Google, Facebook, and Spotify are creating an awkward quandary for regulators. They have grown rapidly and gained significant market share and yet they have an uncanny habit of creating terrific value for consumers and other players across the economy. With a combined market of 500 million consumers, the European Union should be fertile ground for the kind of market innovation that Internet platforms enable. Rather than knocking them down a peg or two, European regulators should embrace them and ask what they can do to promote technologies that the continent has been comparatively slow to develop.

[Kennedy is a senior fellow at the Information Technology and Innovation Foundation]

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