Last month, the Phoenix Center released a paper entitled Eroding the Rule of Law: Regulation as Cooperative Bargaining at the FCC. Our paper reveals how the FCC exploits its power to grant or deny regulatory relief in exchange for political concessions from the entities it regulates. We describe such action as “issue bundling.” As our paper explains, issue bundling occurs when the regulator and the regulated “make a deal” to combine a variety of unrelated issues in exchange for regulatory relief. Needless to say, this rise in issue bundling raises troubling concerns about the nature of the modern regulatory state. Among other things, issue bundling reduces the value of legal precedent and allows an administrative agency to expand its power beyond its statutory mandate and evade the wishes of Congress.
To demonstrate our point, we presented a series of case studies. Among them was the FCC’s handling of the recent AT&T/DirecTV merger. As part of its public interest filing, AT&T stated the merger would provide sufficient synergies to allow it to build-out fiber to the premises (“FTTP”) to an additional 2 million customers. If AT&T wanted its merger approved, however, FCC Chairman Tom Wheeler wanted more. And he got it.
As a mandatory condition of the merger’s approval, the FCC required AT&T to build out FTTP to 12.5 million customer locations within four years after the deal closed. According to the FCC, such a requirement was ostensibly needed to mitigate AT&T’s post-merger incentive to cannibalize its wireline network by its new satellite acquisition. However, if one parses the Commission’s order carefully, what really happened was that the FCC fears that its reclassification of broadband Internet access as a Title II telecommunications services will reduce investment incentives, counter to the mandate of Section 706 to promote availability and adoption via infrastructure investment. By mandating that AT&T engage in aggressive wireline investment as a condition of its acquisition of a DBS satellite provider (a ridiculous proposition on its face), the Commission is clearly seeking to hedge its bet on Title II. As we wrote in our paper, “assuming the Commission’s 2015 Open Internet Order withstands judicial scrutiny, the agency now has a guaranteed political talking point four years hence that Title II does not deter infrastructure investment.”
Well guess what just happened?
This week, FCC Chairman Tom Wheeler testified at an oversight hearing before the House Energy and Commerce Subcommittee on Communications and Technology. In his testimony, Mr. Wheeler just couldn’t restrain his braggadocio and proudly announced the Commission’s “merger reviews  will spur a 40 percent increase in the entire nation’s residential fiber build.” With such a bold statement, Mr. Wheeler apparently had no compunction to admitting under oath that he used the FCC’s merger review authority to cover over a multitude of the Agency’s investment-deterring sins.
Just don’t say we didn’t warn you.