Transcript Case Studies in Abandoned Empiricism - Personal.psu.edu

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.
2
The FCC Provides One Source Document for All the Positive News on
Broadband Penetration—Everything Else Constitutes a “Trade Secret”
Necessitating Confidential Treatment
3
Wireless Carriers Don’t Claim the Trade Secret
Exemption and Willingly Disclose Coverage
4
The FCC Undertook One Peer Review Exercise in 2008
5
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.”
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
“[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.”
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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%
Percent of Zip Codes with High-Speed Providers
80%
100%
70%90%
80%
60%70%
60%
50%50%
40%
40%30%
20%
30%10%
0%
20%
10%
Jun
2000
Jun
2001
Jun
2002
Jun
2003
One or More Providers
Jun
2004
Jun
2005
Jun
2006
Jun
2007
Four or More Providers
0%
One or More Providers
Four or More Providers
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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
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
Jun
2000
Jun
2001
Jun
2002
Jun
2003
Jun
2004
Jun
2005
Jun
2006
Jun
2007
High-Speed Lines by Technology as of June 30, 2008
ADSL
22.6%
All Other
46.2%
SDSL and Traditional
Wireline
0.7%
Fiber
1.8%
Cable Modem
28.8%
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The U.S. Ranks 15th 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
40
Other
Fibre/LAN
Cable
DSL
35
30
25
OECD average
20
15
10
5
0
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The U.S. Lags Most Nations in Broadband Penetration
On the Basis of Per Capita GDP
source: OECD (2008)
OECD broadband penetration and GDP per capita
Broadband penetration, December 2008
40
Broadband penetration (subscribers per 100 inhabitants, Dec 2008)
GDP per capita, 2007
90,000
GDP per capita (USD PPP, 2007)
80,000
35
70,000
30
60,000
Simple correlation = 0.65
25
50,000
20
40,000
15
30,000
10
20,000
5
10,000
0
0
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source: Internetinnovation.org; http://internetinnovation.org/images/factbook/by_country.png.
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Examples of Results-Driven Decision Making
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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 companyspecific “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 publicinterest 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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