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Why the FCC should die

CNET's Declan McCullagh says it's high time to get rid of the Federal Communications Commission. But what to replace it with?

It's time to abolish the Federal Communications Commission.

The reason is simple. The venerable FCC, created in 1934, is no longer necessary.

Its justification for existence was weak 70 years ago, but advances in technology since then have eliminated whatever arguments remained. Central planning didn't work for the Soviet Union, and it's not working for us. The FCC is now an agency that does more harm than good.

Consider some examples of bureaucratic malfeasance that the FCC, with the complicity of the U.S. Congress, has committed. The FCC rejected long-distance telephone service competition in 1968, banned Americans from buying their own non-Bell telephones in 1956, dragged its feet in the 1970s when considering whether video telephones would be allowed and did not grant modern cellular telephone licenses until 1981--about four decades after Bell Labs invented the technology. Along the way, the FCC has preserved monopolistic practices that would have otherwise been illegal under antitrust law.

These technologically backward decisions have cost Americans tens of billions of dollars.

More recently, the FCC has experienced a string of embarrassing losses, when its grand telecommunications plans were repeatedly vetoed by the courts. A majority of the commissioners want to force local phone companies to pay government-mandated rates when long-distance providers like AT&T and MCI use their phone lines. A federal appeals court recently shot down that scheme and gave the Bush administration until June 15 to appeal to the Supreme Court. There's already talk about higher telephone bills becoming a campaign issue this fall.

Meanwhile, the FCC is hard at work, trying to figure out how to muzzle Howard Stern and make a national example of Janet Jackson's right breast. Commissioners are planning how to order voice-over-Internet Protocol (VoIP) companies to comply with arguably unlawful wiretapping requests from the FBI.

There's already talk about higher telephone bills becoming a campaign issue this fall.
In a sop to Hollywood, the FCC has decided that any device capable of receiving digital television signals must follow a complicated set of "broadcast flag" regulations. When those rules take effect in mid-2005, they will put some PC tuner card makers out of business.

These signs warn of an agency that is overreaching. If the FCC had been in charge of overseeing the Internet, we'd likely be waiting for the Mosaic Web browser to receive preliminary approval from the Wireline Competition Bureau. Instead, the Internet has transformed from a research curiosity into a mainstay of the world's economy--in less time than it took the FCC to approve the first cell phone licenses.

Even ardent supporters of the FCC should admit that there's less justification for its existence after the Telecommunications Act of 1996, which removed some barriers to competition. Local phone customers don't need to worry about the Bells' monopolistic practices, because they effectively aren't monopolies anymore. Cable customers don't need to worry much about monopolistic practices because of satellite TV. Eventually, fiber connections will transport every kind of data.

Historical justification
The original justification for existence of the FCC was to rein in an unruly marketplace. That thinking dates back to the 1920s, when Commerce Secretary Herbert Hoover, an engineer by training, was worried about the unregulated new industry of broadcasting. Hundreds of radio stations had been launched, and the only requirement was that they register with the Commerce Department.

Conflicts began to arise. The Navy complained of the "turbulent condition of radio communication." But courts were already undertaking the slow but careful common-law method of crafting a set of rules for the new medium. An Illinois state court decided in 1926, for instance, that Chicago broadcaster WGN had the right to a disputed slice of spectrum, because "priority of time creates a superiority in right."

But Hoover and Congress didn't give the courts a chance. The Radio Act of 1927, followed by the Communications Act of 1934, gave the FCC unlimited power to assign frequencies, approve broadcasters' power levels and revoke licenses on a whim. The FCC already enjoyed the power to regulate telephone lines and eventually would accumulate the authority to regulate cable as well.

Abolishing the FCC does not mean airwave anarchy.

If the FCC had been in charge of overseeing the Internet, we'd likely be waiting for the Mosaic Web browser to receive preliminary approval from the Wireline Competition Bureau.
What it means is returning to bottom-up law rather than the top-down process that has characterized telecommunications for the last 80 years.

How to do it...
In his excellent 1997 book "Law and Disorder in Cyberspace," Manhattan Institute fellow Peter Huber describes how the privatization process could work. Huber proposes that the government sell off standard units of spectrum--10kHz for AM radio, 6MHz for television, 25MHz for cellular, 40MHz for PCS--using existing geographical contours for each type of frequency.

"Once the standard parcels are defined, they can be sold to the highest bidders," Huber writes. "To keep for how long? Forever. Just like land." If just one UHF (ultrahigh frequency) television station in Los Angeles were permitted to transfer its spectrum to a third cellular provider, Huber estimates, "the overall public gain would be about $1 billion, or so the government itself estimated in 1992." Wireless technologies would be huge winners, if the spectrum were privatized.

What if disputes over spectrum arose? The answer is simple. Whoever owned the rights to that slice of virtual real estate would locate the illicit broadcaster, march into the local courthouse and get a restraining order to pull the plug on the transmitter. Trespass is hardly a new idea, and courts are well-equipped to deal with it.

One fear is that some predatory monopolist, a Microsoft of the airwaves, would end up owning all of the spectrum. That won't happen. First, the market value of the spectrum would approach $1 trillion, out of the reach of any individual corporation. Second, antitrust laws would remain on the books. The Department of Justice could wield the Sherman Antitrust Act to challenge unlawful conduct and block mergers.

Now is the perfect time to ask whether the FCC should continue to exist. Congress is considering revisions to the 1996 Telecommunications Act, and some courageous politicians are wondering out loud whether the hundreds of pages of legalese are still necessary.

Abolishing the FCC does not mean airwave anarchy.
At a hearing last month, Rep. Chris Cox, R-Calif., asked whether "perhaps we should declare victory" and ditch the FCC. Beyond the economic cost of missed opportunities caused by regulation, it would also immediately save taxpayers $300 million a year.

It's true that imagining a telecommunications world without the FCC is not easy. But imagining a telecommunications world not dominated by Ma Bell was difficult two decades ago, and it was not easy for the Eastern European countries to imagine life without the Soviet Union.

Since then, those formerly communist nations have privatized resources formerly owned by their governments, with remarkable results. Estonia is Europe's new economic wonder: revenue from state-owned property is a smaller percentage of the economy than it is in the United States, and its economy is growing more than twice as fast as ours.

That should be a lesson. It's time for the FCC to go.