Case Studies in Abandoned Empiricism and the Lack of Peer Review at the Federal Communications Commission

A Presentation at Beyond Broadband Access: Data-Based Information Policy for a New Administration Washington, D.C. September 24, 2009 ‘ Rob Frieden, Professor of Telecommunications and Law Penn State University [email protected]

Web site : http://www.personal.psu.edu/faculty/r/m/rmf5/ Blog site: http://telefrieden.blogspot.com/

The FCC Can and Does Engage in Results-Driven Decision Making

 The FCC bears a legal obligation to compile a comprehensive record and to refrain from arbitrary and capricious decision making (Administrative Procedure Act, general notion of substantive and procedural due process).

 Additionally, the Commission must subject at least some of its empirical conclusions to peer review. (United States, Office of Management and Budget, Final Information Quality Bulletin for Peer Review, 70 FED. REG., No. 10, 2664 (Jan. 14, 2005).  Instead the FCC can and does engage in results-driven decision making, only sometimes reversed by courts perhaps too willing to defer to the Commission's technical expertise.

 The Commission frequently reaches a decision without much, if any, internal fact finding and analysis, relying instead on assertions of stakeholders and conclusions of sponsored researchers.

 The Commission exacerbates the problem by supplying interested parties with “best case” assumptions about competition, particularly in its Reports to Congress, and with market penetration and other statistics designed to overstate the level of success in technology diffusion, etc.

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The FCC Provides One Source Document for All the Positive News on Broadband Penetration—Everything Else Constitutes a “Trade Secret” Necessitating Confidential Treatment

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Wireless Carriers Don’t Claim the Trade Secret Exemption and Willingly Disclose Coverage

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The FCC Undertook One Peer Review Exercise in 2008

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A Politicized Agency Obligated to Collect and Analyze Data

  The FCC should engage in transparent and fair-minded data collection, because many of the issues the Commission addresses have a quantitative component that can provide evidence supporting compliance with legislative mandates.

For example, Section 706 of the Communications Act, as amended, requires the FCC “to encourage the deployment, on a reasonable and timely basis, of advanced telecommunications capability to all Americans.” The Commission has to determine the availability of such services and report back to Congress.  Until 2009, the FCC (and NTIA) concluded “mission accomplished.” 6

 “[T]here is substantial competition in the provision of Internet access services. Broadband penetration has increased rapidly over the last year with more Americans relying on high-speed connections to the Internet for access to news, entertainment, and communication. Increased penetration has been accompanied by more vigorous competition. Greater competition limits the ability of providers to engage in anticompetitive conduct since subscribers would have the option of switching to alternative providers if their access to content were blocked or degraded. In particular, cable providers collectively continue to retain the largest share of the mass market high speed, Internet access market. Additionally, consumers have gained access to more choice in broadband providers.” AT&T Inc. and BellSouth Corp., Application for Transfer of Control, Memorandum Opinion and Order, 22 FCC Rcd. 5662, 5724-25 (2007).

 In 2008, John Kneuer, then Assistant Secretary for Communications and Information and Administrator at the Commerce Department’s National Telecommunications and Information Administration claimed the United States “has the most effective multiplatform broadband in the world.” 7

Who’s Statistics Are Most Credible?

    Most satellite and terrestrial wireless broadband options do not yet provide true broadband service, yet the FCC reports that 16.5% of all lines provided via satellite, terrestrial fixed or mobile wireless. Offered service at greater than 200 kbps.

Wall Street Journal

tests of the cutting edge, Apple iPhone 3G measured actual data speeds in the 200-500 kbps range. The U.S. government and sponsored academics dispute the OECD statistics as failing to include Wi-Fi hot spots, at work access, etc.

Additional excuses include the lack of computer literacy and access, having a large rural hinterland, adverse demographics, yet other nations with similar disadvantages do better.

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The U.S. Has 100% Broadband Penetration With Consumers in 94.6% of All Zip Codes Having 4 or More Broadband Choices Source: FCC (2009)

100% 90% 80% 100% 70% 90% 80% 60% 70% 60% 50% 50% 40% 40% 30% 20% 30% 10% 0% 20% 10% 0% Jun 2000

Percent of Zip Codes with High-Speed Providers

Jun 2001 Jun 2002 Jun 2003 One or More Providers Jun 2004 Jun 2005 Four or More Providers Jun 2006 Jun 2007 9 One or More Providers Four or More Providers

140 000 000 130 000 000 120 000 000 110 000 000 100 000 000 90 000 000 80 000 000 70 000 000 60 000 000 50 000 000 40 000 000 30 000 000 20 000 000 10 000 000 0 Lines by Information Transfer Rates in the Faster Direction as of June 30, 2008 (Includes only lines exceeding 200 kbps in both directions) Source: FCC (2009); http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-292191A1.pdf

Total “High Speed” Lines (theoretical bitrate exceeds 200 kbps in 1 direction) Total High-Speed Lines Jun 2000 Jun 2001 Jun 2002 Jun 2003 Jun 2004 High-Speed Lines by Technology as of June 30, 2008 Jun 2005 ADSL 22,6% All Other 46,2% Jun 2006 SDSL and Traditional Wireline 0,7% Jun 2007

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Fiber 1,8% Cable Modem 28,8%

40 35 30 25 20 15 10 5 0

The U.S. Ranks 15

th

Among OECD Nations in Terms of Household Penetration

source: OECD (2009) http://www.oecd.org/document/54/0,3343,en_2649_34225_38690102_1_1_1_1,00.html

OECD Broadband subscribers per 100 inhabitants, by technology, December 2008

Other Fibre/LAN Cable DSL

OECD average

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The U.S. Lags Most Nations in Broadband Penetration On the Basis of Per Capita GDP

source: OECD (2008) 15 10 5 0 40 Broadband penetration, December 2008

OECD broadband penetration and GDP per capita

Broadband penetration (subscribers per 100 inhabitants, Dec 2008) GDP per capita (USD PPP, 2007) 35 30 Simple correlation = 0.65

25 20 GDP per capita, 2007 90 000 80 000 70 000 60 000 50 000 40 000 30 000 20 000 10 000 0 12

source: Internetinnovation.org; http://internetinnovation.org/images/factbook/by_country.png

.

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Examples of Results-Driven Decision Making

   Subscriber access to cable television programming on a per channel (“ala carte”) basis. The FCC first concludes it will save most subscribers money, but quickly recants.

Former Chairman Kevin Martin wanted the Commission to concluded that cable triggered the 70/70 rule authorizing greater regulation based on a commercial firm’s calculation that the company itself questioned. Every recent Report to Congress on such markets as wireless, multi-channel video program distribution, broadband, satellites, etc. contain unqualified conclusion of competitiveness.

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Consequences of Results-Driven Decision Making

 FCC conclusions about market competitiveness supports an ongoing deregulatory campaign, without sufficient empirical corroboration. The D.C. Circuit Court recently affirmed the FCC’s refusal to investigate middle mile special access rates despite evidence of gouging. Ad Hoc Telecommunications Users Comm. v. FCC, ___F.3d ___, 2009 WL 2081411 (D.C. Cir. 2009)  With rare exceptions, e.g.,

Prometheus

, courts do not second guess the FCC’s conclusions. In Pacific Bell Telephone Co., v. Linkline Communications, Inc., slip op. 555 U.S. ___ (rel. Feb. 25, 1009), the Supreme Court unanimously concluded that if the FCC does not impose a common carrier duty to deal with a competitor, the Court won’t apply an antitrust safeguard preventing either predatory pricing or an obvious price squeeze.

 Generally courts are more likely to reverse the FCC, when despite having concluded a market is competitive, the Commission imposes restrictions, e.g., Comcast Corp. v. FCC, ___ F.3d ___ , slip op. 08-114 (D.C. Cir. Aug. 28, 2009)(FCC ignored DBS competition for purposes of determining whether to impose a 30% market penetration cap on single cable operators).

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Consequences of Results-Driven Decision Making (cont).

 Courts also may reverse the FCC when the Commission uses a new measure of competitiveness, e.g., Verizon Telephone Companies v. F.C.C., 570 F.3d 294, 47 Communications Reg. (P&F) 1487 (D.C. Cir. Jun 19, 2009) (NO. 08-1012))Part 10 regulatory forbearance).

 The FCC has found a way to approve just about every merger application before it for the last 10 years based on a competitive marketplace analysis and company specific “voluntary concessions.”  The Commission abandoned a cap on spectrum held by a single wireless carrier in 2003 thereby facilitating market consolidation and concentration (88% of the market shared by 4 carriers).  The inference of ample wireless competition also foreclosed any consideration whether to limit new spectrum, e.g., 700 MHz, to new carriers. AT&T and Verizon acquire most of the spectrum possibly warehousing it and preempting more competition.

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

Recommendations

The FCC needs to commit to operating transparently, driven by the public interest rather than politics, economic doctrine, and the “lifted eyebrows” of Congress.

 The Commission will need to encourage public participation, rather than rely on the filings of stakeholders. Such receptiveness will require more than the occasional road trip out from Washington, D.C. to hear from a few people for the last hour of a pre-arranged and pre-packaged hearing.

 The Commission will need to reshape its internal culture to encourage staff to engaged in debate rather than to restate the conventional wisdom, or the party line articulated from the top down, i.e., from Commissioners and the Chairman.

 The FCC also needs to rely more on peer-review and other ways to question the predictable party line of stakeholders who regularly file comments in Commission proceedings.

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