Biden FCC Should Support Enhanced Role of Economics

Biden FCC Should Support Enhanced Role of Economics

One of outgoing Federal Communications Chairman Ajit Pai’s most important achievements has been the establishment of a new Office of Economics and Analytics (OEA) at the agency. The FCC has always had the benefit of good economists throughout the agency and also prominent academics who come to serve as chief economist, typically for one-year terms. However, unlike the FTC, with its Bureau of Economics, and many other agencies, the FCC has not had a separate economics group that could provide the agency’s leadership with an independent perspective on proposed regulations and other actions the Commission is considering.

Prior to establishing the OEA, with the exception of spectrum auctions, economics played a peripheral role in the Commission’s decisions. A major criticism of the FCC was that it adopted significant policies, such as the Open Internet Order, which reclassified broadband providers as Title II common carriers, without adequate economic analysis.

The OEA is barely two years old, which is not enough time to know whether it will enhance the role of economics at the FCC. However, all indications are the OEA is off to a good start. As the new leadership takes over at the FCC in January, it should build on these efforts so that going forward the Commission’s regulatory and other actions can be better informed by rigorous economic analysis.

In the past two years, the Commission has tasked the new OEA with preparing a Regulatory Impact Analysis, including estimates of benefits and costs, for major rulemakings – those with an economic impact of $100 million or more. The same requirement has for decades applied to executive branch agencies under executive order, but not to independent agencies, such as the FCC. The Commission has decided to impose such a requirement on itself.

It is impossible to discuss the role of economics at the FCC without reference to net neutrality. In 2018, the Pai Commission adopted the Restoring Internet Freedom Order, which reversed many of the provisions of the 2015 Open Internet Order, including its classification of broadband

providers as common carriers. A new FCC Chair will be under intense pressure to reverse course again and propose a new open internet order.

While technology and economic forces change, the quasi-religious fervor with which some on both sides approach net neutrality unfortunately remains. An objective economic analysis of any new proposal might help clarify the issue. Therefore, if a new Commission proposes a new net neutrality rule, it should be informed by a full RIA as now called for by the Commission’s rules, and as described in a memo recently released by the OEA chief together with the FCC general counsel:

A good cost-benefit analysis should include the following three elements: (1) a statement of the need for the regulation; (2) an examination of alternative approaches; and (3) an evaluation of the benefits and costs of the proposed regulation and its main alternatives.

Two alternatives should always be included as possible options. One is the status quo, regardless of what it is. Another is refraining from regulating, which is also mentioned by the OEA as an element of good cost-benefit analysis: “With respect to regulation aimed at correcting market failures, the Commission should consider whether federal regulation is necessary at all, or whether methods short of federal regulation could address the problem more efficiently.”

The Commission, of course, may take other considerations into account. But the public and the various constituencies will have greater confidence if policymakers engage in the analysis necessary to make the tradeoffs involved explicit.

Most importantly, failing to follow the new economic analysis requirements for a major rule, such as a net neutrality proposal, would constitute a major setback for the role of economics at the Commission. Hopefully, this will not happen.

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