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The seal of the Federal Communications Commission hangs behind commissioner Tom Wheeler's chair inside the hearing room at the FCC headquarters February 26, 2015 in Washington, DC. (Mark Wilson/Getty Images)

Ad Hockery Makes A Mockery Of An FCC Proceeding

Harold Furchtgott-Roth

Administrative law is designed partly to ensure that federal regulations are created in a transparent manner so that ordinary citizens and businesses can participate, if so inclined. When standard administrative procedures are discarded for ad hockery, there is usually a sad story to be told.

Wholesale telecommunications services that are not voice services are often labeled “business data services.” For decades, the Federal Communications Commission has considered whether to regulate business data services. It was a fairly straightforward issue in the 1980s and 1990s when data services were transmitted primarily on copper networks and there were few technological variations. Even so, the FCC, in those more deregulatory eras, eschewed most forms of regulation, allowing competition to discipline the market. Moreover, the FCC did not resort to collecting business confidential information in an effort to regulate the market.

Ten years ago, the FCC again looked extensively at the issue of regulating business data service rates. By then, many new fiber-based technologies for delivering business data services had greatly complicated the market. Businesses could and did negotiate prices for new technologies. The FCC did not collect special data for purposes of the rulemaking. The FCC left in place a largely deregulated market for business data services.

Now the market for business data services is even more complex, and quite likely more competitive, than it was ten years ago. Faced with this fact pattern, the FCC of 20 years ago and 10 years chose not to increase regulation. But the current FCC seems determined to reach the opposite conclusion.

The FCC has scores of rulemaking proceedings each year. Typically, the Commission relies on outside parties to provide and analyze information, and that is the practice the FCC followed for business data services in the past. Consistent with administrative law, the FCC typically makes its rules based on publicly available information. But publicly available information would almost certainly result in the same outcome the Commission has reached in recent decades.

Potentially to reach a different conclusion, last year the FCC Wireline Bureau initiated an investigation to collect sensitive business information from telephone companies and other businesses about the availability and prices of business data services ostensibly under Section 251 of the Communications Act. Never mind that the Communications Act specifically prohibits the FCC from collecting such cost information under a related section.

In the highly competitive wholesale communications services industry, providers compete through closed bids to provide buyers with the lowest combination of prices for the best services. Many businesses would pay handsomely for the confidential information about their competitors’ wholesale offerings and prices. That is the type of information that the FCC sought in its inquiry.

Most businesses, no doubt, tried to comply with the FCC’s request for sensitive information. The information is highly confidential. Moreover, in many instances for the most sophisticated packages, it is impossible to separate a price for an individual service when the offering and the pricing are for a combination of a several different services. The net result is that the FCC collected much information, but not uniformly with the granularity and consistency it sought.

Rather than release the confidential information to the public, the FCC hired an outside economist to analyze the information. In adjudicatory proceedings, it may make sense for the FCC to hire an outside economist, but there is little sense to the FCC, with dozen of economists on staff, to hire an outside economist to analyze confidential information that the FCC has collected. To top it off, the FCC released the study it commissioned at taxpayer expense only on the last day of the comment period, so that the public has no opportunity to assess and respond to a study the FCC appears intent on using in the rulemaking process.

Nor is there any good reason for the FCC to use this highly confidential information—that the public can neither see nor analyze—to promulgate rules for the public. Using secret information to formulate public regulations is the antithesis of good administrative law. But that is precisely what the FCC is planning to do.

The FCC has provided some summary statistics for the information it collected. The summary statistics reveal the weaknesses of the underlying data. For example, although the FCC had more than 2.6 million observations, more than 80% were for DS-1 lines, a 1990s technology with 1.5 Megabits/second. If that sounds slow, it is. Another 8% of observations were for DS-3 lines, or 44 Megabits/second. High-speed, packet-based technologies, the ones that most businesses seek today, were only a small portion of the sample.

Further, 91% of customers were other telecommunications companies. Relatively few customers were simply residential or commercial buildings. The sample was heavily drawn from large metropolitan areas. For example, the average employment in a zip code in the FCC sample was nearly 22,000. In contrast, the average population per zip code in the United States is approximately 7,500. Our workforce is less than 50% of the population, so the average employment per zip code in the broader population is likely about 3,000, or less than 1/7th of the FCC sample.

The net result is the FCC may adopt rules to regulated business data services based on secret data subject to unknowable analysis that ultimately had unknowable and unverifiable results. The FCC has administrative law to write federal rules based on public information and a public record. When a federal agency abandons administrative law in favor of ad hockery and secret information, we are all the poorer.

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