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tom-wheeler-fcc-stb-aprilThe Federal Communications Commission (FCC) under Chairman Tom Wheeler has come under increasing fire for suppressing economic analysis and being politically driven. In effect, we have not had an FCC for the past three years, at least not in the way the agency was intended to operate. So that raises the question: Do we really need the FCC? The answer is “no, but yes.”

Why do we have an FCC?

The original purpose of the FCC was largely to oversee telephone monopolies’ interstate services and regulate broadcasting, including management of radio spectrum. Following the lessons learned by the states from the regulation of railroads, utilities, and telephone companies, Congress set up the FCC as an independent agency. “Independent” does not mean sovereign: The agency is designed to operate under statutory laws, subject to federal budgeting and court appeals, and with commissioners serving fixed terms, acting as decision makers and appointed by the president, subject to Senate approval. Only courts can overturn an FCC decision.

The reason for independence is to create a regulatory environment in which businesses can make good investment decisions. The environment needs to be predictable through changes in Congress, the Oval Office, and commissioners. A politically driven agency — one that changes its mind depending on who sits in the White House, chairs congressional committees, and so forth — increases investment risk. Academic research over the past 20 years has consistently shown that politically-driven infrastructure regulation suppresses investment. Anecdotally, the FCC’s recent economics-free decision on net neutrality appears to have depressed investment by internet service providers (ISPs).

Does the need for an independent communications agency still exist?

Most of the original motivations for having an FCC have gone away. Telecommunications network providers and ISPs are rarely, if ever, monopolies. If there are instances where there are monopolies, it would seem overkill to have an entire federal agency dedicated to ex ante regulation of their services. A well-functioning Federal Trade Commission (FTC), in conjunction with state authorities, can handle consumer protection and anticompetitive conduct issues.

Content on the web competes well with content provided by broadcasters, seeming to eliminate any need for FCC oversight of broadcasters. Perhaps there is need for rules for use of the airwaves during times of emergency, but that can be handled without regulating the content providers themselves.

The only FCC activity that would seem to warrant having an independent agency is the licensing of radio spectrum. Political interference in spectrum licenses would at least dampen investment and could lead to rampant corruption in the form of valuable spectrum space being effectively handed out to political cronies.

Why do we still have an FCC?

There seem to be three reasons why we still have the FCC. One is inertia: Dissolving a federal agency is a large task, and Congress often has higher priorities. Second, the FCC is valuable to businesses and interest groups that are benefitting from its activities: The recent work on net neutrality, business data services, and set-top boxes are bestowing benefits to some segments of the industry at the expense of other segments, and at the expense of customers, who ultimately bear the brunt of regulatory rent-seeking. The FCC’s universal service subsidies have, for example, delivered profits to numerous telephone companies over the years. And the cottage industries formed in support of net neutrality, set-top box regulation, and universal service policies employ a large number of people. The third reason we still have an FCC appears to be that it is important to keep radio spectrum allocation independent of day-to-day political pressures.

What would we do without an FCC? Any legitimate universal service concerns could be handled by others: States can subsidize network access as they see fit, the Department of Health and Human Services can incorporate telecommunications and internet into its assistance to low-income households, and the FTC and states can handle consumer protection and ex post regulation. A much smaller independent agency could be created to license radio spectrum, where a spectrum license would be a property right for use and not about content. (The license holder could lease its space to others or use it itself for content or other services.)

Thus, at the end of the day, we don’t need the FCC, but we still need an independent agency.