New FCC economic analysis office raises concerns

Federal Communications Commission Chairman Ajit Pai recently announced he is planning to create a new Office of Economics and Data (OED) to provide economic analysis for commission rulemakings, transactions, auctions and policies by this summer. Pai's announced purpose for the OED is to focus sharply on the cost-benefit analysis of commission regulations.

While data-driven analysis could yield superior policies and regulations, there are many reasons to believe that Pai intends to use a so-called "cost benefit analysis" to dismantle regulations that protects benefits whose value is hard to quantify — such as privacy, nondiscrimination and even cybersecurity.

One would logically assume that creating an office to conduct economic analysis would require collection of data to support such analysis. Yet in a speech unveiling plans for OED, Pai stated that the FCC "almost certainly collects too much information through reporting requirements" which cause communications companies to spend millions of dollars and work hours each year on paperwork "rather than building the next generation networks." Pai went on to say that he will direct OED to reduce reporting "burdens" on the private sector. Such statements portend a substantial decrease in data for FCC analysis, economic or otherwise. If Pai rescinds data reporting requirements, it is unclear how the FCC could possibly determine whether communications companies are providing a service which supports national defense, and promoting safety of life and property through the use of wire and radio communications — the FCC's mandated purpose. 47 U.S.C. Section 151.

Pai has already shown disdain for regulations intended to protect the public interest. In his speech announcing the OED, he characterized the public interest standard as "a free pass to adopt rules without a meaningful attempt to determine the net benefits." The question, of course, is benefits for whom? If a regulation costs a company a substantial amount of money for implementation, and possibly fines or remediation, should such cost always outweigh an important, but infrequently occurring benefit such as backup power during a commercial power outage. Almost everyone would intuitively agree that the ability to call for help during a severe storm, natural disaster or civil disturbance is essential. But how exactly would an economist quantify that benefit. How do you determine the value to society of a person whose life is saved by reliable phone service weighed against the cost of maintaining backup power, or the cost of reporting service outages?

Improving cybersecurity may be even harder to quantify. It would be difficult to place an economic value on preventing a foreign government from spreading disinformation or undermining public confidence in government institutions, the stock market or banks. Given sufficient resources and will, the FCC undoubtedly could identify measures communications providers could take to prevent, or more quickly detect, suspicious traffic on the nation's internet protocol backbone targeting certain servers or companies. Given Pai's new cost-benefit focus, however, it isn't at all clear that the FCC would issue regulations to require those measures because they would cost carriers money to implement.

But Pai and Republican Commissioner Michael O'Rielly aren't waiting for a cost-benefit analysis to eschew cybersecurity regulations. They both asserted in congressional testimony that the FCC's authority over cybersecurity is "extremely limited." It's difficult to imagine how preventing criminals from using our national communications systems to steal consumers' identities, influence the outcome of a presidential election, or possibly to mount attacks on the nation's essential infrastructure such as the power grid fall outside the FCC's mandate to protect national defense, life and property. Even if the FCC does lack authority, it is notable that neither Pai nor O'Rielly asked Congress to clarify or create such authority.

The anti-cybersecurity sentiments alarmed two Democratic members of Congress sufficiently that they sent a letter to Pai expressing concern about "the poor state of America's telecommunications cybersecurity" asking the FCC to prioritize and take an active role in helping prevent cybersecurity.

The congressmen's concerns are likely to go unanswered. Recent reports have identified a long laundry list of steps Pai has taken in the couple of months since being confirmed as chairman of the FCC to weaken or ignore cybersecurity measures. Pai stopped an order addressing known flaws that could allow hackers to attack the nation's Emergency Alert System, pulled cybersecurity issues out of a new internet protocol television proposal despite evidence that some internet-connected televisions can be hacked and turned into monitoring devices, and he halted the cybersecurity provisions in the FCC's Broadband Privacy Order. Pai has also opposed inclusion of cybersecurity in communications outage reporting, and rescinded a notice of inquiry generating early public dialog regarding cybersecurity risk reduction for next-generation wireless networks

Most ironic (some might even say hypocritical) of all, Pai clawed back a study by FCC economists highlighting the growing gap between communications sector corporate cybersecurity investment and what is needed to protect the nation's communications network and citizens. Clearly, Pai appears interested in economic analysis only if it supports a conclusion that the FCC can dismantle existing regulations or avoid issuing new ones.

It is laudable to attempt to make the FCC more efficient and even more accountable for its decisions. But establishing a new office to focus on economic analysis geared to achieve a predetermined political result is not acceptable. If Pai actually wants to reform the way the FCC reaches decisions, he should depoliticize the process. Start by asking Congress to amend the Communications Act to require that commissioner's nominees have specialized, relevant expertise.

For example, requiring at least one commissioner to be an engineer with substantial experience in telecommunications technology would provide much needed independent thinking and analytical ability. Chairman Pai has proudly touted former FCC Commissioner Harold Furchtgott-Roth's training as an economist. Why not require one of the five commissioners to be an economist as well? The real problem at the FCC is that nominees are often political operatives who are expected to carry out the president's agenda.

Anita Taff-Riceis the founder of iCommLaw, a law firm in the San Francisco Bay area specializing in telecommunications and technology. She may be reached at anita@icommlaw.com.