FCC: Ready for reform yet?

commentary In a surprising and disturbing break with long-standing agency practice, the FCC on Tuesday released a draft report on the proposed merger between AT&T and T-Mobile prepared by its staff--days after the parties withdrew their application with the agency.

The move could fuel calls for serious reform of the agency's increasingly free-wheeling behavior.

The two companies withdrew their application on Thanksgiving, following word that FCC Chairman Julius Genachowski planned to ask the other commissioners to refer the merger to an administrative judge for a hearing.

That step, agency officials made clear, signaled the chairman's belief that the parties had failed to demonstrate the merger was in the "public interest"--a legal term of art the agency applies in reviewing applications to transfer radio spectrum licenses.

AT&T and T-Mobile said they withdrew their application in order to focus on an upcoming antitrust trial initiated by the Department of Justice. Antitrust standards differ significantly from the FCC's public interest review, so there was little point to the parties taking on both agencies at the same time. For example, if the companies prevail in the antitrust suit or reach a settlement with the government that changes significant terms of the deal, they would likely have had start the process over at the FCC.

On a conference call on Tuesday with reporters, senior FCC officials announced they had granted the request to withdraw the application to transfer T-Mobile's licenses to AT&T. At the same time, the officials said, the staff's draft report on the merger would be made public immediately, with confidential information blacked out. A full copy of the report, they said, would be forwarded to the Department of Justice.

Lawyers for the two companies called the decision "unprecedented." In a letter to the agency on Tuesday, former FCC Commissioners Richard E. Wiley and Henry Rivera reminded the commission that "Historically and consistently, the commission has protectively guarded its deliberative process and work product." The report, they said, is only "a draft for consideration by the commission that, if finalized and approved, would merely provide the basis for issues to be considered by an administrative law judge."

But had the parties not withdrawn their application, and had the full commission approved the referral to an administrative judge, FCC officials said, the report would have become public as part of those proceedings.

Still, the parties did withdraw their application, and the full commission never voted for a hearing to answer questions raised in the report. Consequently, according to Jim Cicconi, AT&T senior executive vice president, the draft report "has no force or effect under law, which raises questions as to why the FCC would choose to release it."

Cicconi responded today to the substance of the draft, offering evidence for the company's view that the report "lacks all credibility" and that its release "was intended more for advocacy and to impact public perceptions."

Cicconi's view of the FCC's unusual decision to release the report conflicts with the agency's version. On Tuesday, FCC officials said that their decision was based solely on the fact that agency staff had expended significant resources to produce it.

That answer came during a conference call, but it's hard to picture that explanation being made with a straight face. Staff reports rarely make it through review by the commissioners without significant changes, and interim work product is never made public.

So let's cut to the chase. Regardless of the contents of the draft report, the decision to release it without full commission review and a vote is deeply troubling. Clearly, Chairman Genachowski and at least some members of the commission's staff oppose the merger and are determined to block it. They released the report solely to bolster the Department of Justice's case and to shore up the deal's opponents, including competing providers such as Sprint, which has also filed suit to block the deal.

What's the problem? The role of independent regulatory agencies
But why shouldn't the agency wade into politics and industry skirmishes?

The answer is that the FCC is supposed to be above politics and industry maneuvering. As one of our powerful independent regulatory agencies, the FCC does not answer to the White House or the Department of Justice. Instead, it serves as "expert agency," staffed by professionals who are charged with regulating the complicated communications industry as authorized by Congress.

The president appoints the five commissioners, who by law must include two from outside his own party. But the agency is obliged to maintain arms-length distance from the White House and the Department of Justice. Commissioners can only be removed by impeachment. (Other examples of such include the Securities and Exchange Commission and the Social Security Administration.)

In effect, the agency is part executive and part legislative. And since the time of the New Deal, Supreme Court cases have long held that combination can only be Constitutional when the agencies are truly independent.

Since President Obama appointed Genachowski to chair the FCC in 2009, Congress has grown uneasy over the agency's increasingly political leanings. By issuing a report that was never voted on by the full Commission for an application that had been withdrawn, the FCC's action feeds concerns that it has strayed dangerously from its charter and ended up deep in partisan waters.

For example, Republicans and even some Democrats agreed the agency had seriously overreached its legal authority in passing new "Net neutrality" rules last December. A joint resolution to nullify the rules under the Congressional Review Act passed the House in February, and fell just a few votes short of passage in the Senate earlier this month. (The rules are also the subject of legal challenges in a D.C. court.)

The White House promised to veto the resolution, which came as no surprise. President Obama had promised the rules while on the campaign trail, and reiterated his support even as the agency became bogged down in what had clearly become a political nightmare for the agency. The suggestion that Genachowski is doing everything in his power to fulfill the president's campaign promise was hard to avoid.

The president has also called for more aggressive enforcement of federal antitrust laws, a pledge the FCC has clearly taken up. Comcast's merger with NBC Universal earlier this year, for example, was barely approved, and only then with dozens of conditions that will limit the company's flexibility for years.

Congress targets FCC for reform
The agency's surprising decision to release the draft report couldn't come at a worse time, and not just for AT&T and T-Mobile. In response to the agency's wayward behavior, Congress has increased oversight over the FCC, and this month introduced two bills aimed at reigning in the commission and reforming its processes, including how it reviews proposed mergers.

On November 2, Sen. Dean Heller (R-Nev.) and Rep. Greg Walden (R-Ore.) jointly introduced legislation to reform the agency. The two bills would limit the agency's ability to take any regulatory action without solid legal authority and sound economic analysis.

Walden chairs the House Energy and Commerce's Subcommittee on Communications and Technology, which passed the legislation out of his subcommittee on November 16. A full committee vote is expected next week. (The bills are still pending in the Senate.)

Under the proposed laws, the agency would be limited in the types of conditions it could apply to license transfers, and would be required to adhere strictly to a merger review "shot clock" that is now only voluntary and rarely followed.

Rep. Anna Eshoo (D-Calif.), who voted against the bills, argued these and related reforms would make the agency less "agile." That, of course, is precisely the point. The FCC's "agility" is what's getting the agency in trouble.

The proposed legislation, notably, would require stricter accountability in how the agency issues its reports and how it handles documents. Walden and others, including FCC Commissioner Robert McDowell, were especially critical of how the Net neutrality order was ultimately managed, for example. After a year of chaotic starts and stops, the final order wasn't made available to commissioners until after midnight the morning of the vote. And agency staff added thousands of pages of material to the record at the last minute, leaving no time for commissioners or the public to review it.

This week, Walden similarly criticized the release of the agency's recent order reforming the Universal Service Fund. Again, the agency added thousands of pages of material at the last minute, and delayed issuing a report that in the end was twice as long as had been reported.

"The length of this delay and the increasing girth of the order," Walden wrote in a letter to Chairman Genachowski, "suggest that the delayed release resulted not from the editorial privileges normally reserved for staff but from continued negotiations that occurred after the sunshine period had expired and the public understood the negotiations to be concluded." The letter asks Genachowski to explain these anomalies.

FCC's manipulations have real consequences...for consumers
Tuesday's clumsy and unwarranted release of the staff report on the withdrawn AT&T/T-Mobile application will likely add fuel to the fire calling for serious reform of the agency.

But this is no mere inside-the-beltway soap opera. Congress's eroding trust of the FCC has real consequences, particularly for mobile Internet users.

Why? Over the last two years, the FCC has been raising increasing alarm over a lack of available spectrum to satisfy the insatiable growth of mobile broadband. This so-called "spectrum crunch," the agency has warned, could bring the rapid expansion of mobile broadband Internet services to a sudden halt.

The FCC has long had a solution in mind, which is to auction underutilized television broadcast spectrum and share the proceeds with the broadcasters. But so far, Congress has refused to grant the agency authority to conduct so-called "voluntary incentive auctions." Each new instance of the FCC playing or appearing to play politics makes it less likely that lawmakers will grant any new powers to what some have called a "rogue" agency.

The agency had high hopes that auction authorization would be part of a broader budget deal reached by the Congressional "supercommittee." But that hoped died with the failure of the committee to reach agreement on anything.

There's still a chance. On Tuesday, Rep. Walden introduced a new law aimed at breaking the logjam, the "Jumpstarting Opportunity with Broadband Spectrum Act." Walden's legislation, which passed the subcommittee vote today, would give the FCC the auction authority Genachowski has asked for. (Similar legislation, with bi-partisan sponsorship by Sen. Jay Rockefeller (D-W. Va.) and Sen. Kay Bailey Hutchison (R-Texas), has already passed out of committee in the Senate.)

It's not clear how strongly Congress will react to the FCC's manipulation of the AT&T/T-Mobile staff report. But one thing is certain. Consumers need an FCC that can work with Congress, and that can complete its legislated duties professionally without even an appearance of political or industry bias.

"Chicago," a city alderman famously sniffed in 1955, "ain't ready for reform yet." But how about the FCC? If the last few years are any indication, we'd better hope the answer is yes.