Lawyers, Lawsuits and Net Neutrality Regulation

I wanted to quickly follow up on my earlier post regarding Peter Huber’s excellent essay about how Net neutrality will lead to a bureaucratic nightmare at the FCC and a lawyer’s bonanza once the lawsuits start flying in court. I realized that many of the people engaged in the current NN debate might not have followed the Telecom Act legal wars that took place from 1996-2004 which frame the way both Huber and I think about these issues and why we are so cynical about regulation.

Let’s start with the bureaucracy that can be spawned by seemingly simple words. For example, the Telecom Act of 1996 contained some extremely ambiguous language regarding how the FCC should determine the “cost” of various network elements (wires, switches, etc..) that incumbent telecom operators were required to share with their competitors. Now how much legal wrangling could you expect over what the term “cost” meant?

Well, in the years following passage of the Telecom Act, entire forests fell because of the thousands of pages of regulatory and judicial interpretations that were handed down trying to figure out what that word meant. In fact, let’s take a quick tally of the paperwork burden the FCC managed to churn out in just three major “competition” rules it issued in an attempt to implement the Telecom Act and define the “cost” of unbundled network elements (“UNEs”):

* Local Competition Order (1996): 737 pages, 3,283 footnotes
* UNE Remand Order (1999): 262 pages, 1,040 footnotes
* UNE Triennial Review (2003): 576 pages; 2,447 footnotes

That’s 1,575 pages and 6,770 footnotes worth of regulation in just three orders. This obviously does not count the dozens of other rules and clarifications the FCC issued to implement other parts of the Telecom Act. Nor does it include the hundreds of additional rules issued by state public utility commissions (PUCs), who actually received expanded authority under some of these FCC regulatory orders.

Again, this was all implemented following the passage of a bill (The Telecom Act) that was supposed to be deregulatory in character !!! But wait, it gets worse.

This doesn’t even begin to cover the tens of thousands of pages of legal filings, economic studies, consultant reports and other filings submitted to the FCC and state agencies by groups and individuals looking to have a say in the matter.

Lawyers, in particular, did quite well thanks to the FCC’s endless stream of litigation-prone rulemakings during the 1996-2003 period. Greg Sidak of Georgetown University Law School found that the number of telecom lawyers–as measured by membership in the Federal Communications Bar Association–grew by a stunning 73 percent in the late 1990s. That was largely driven by a 37 percent hike in FCC spending and a tripling of the number of pages of regulations in the FCC Record in the post-Telecom Act period. Sidak argues, “If one assumes (very conservatively) that the average income of an American telecommunications lawyer is $100,000, then the current membership of the FCBA represents an annual expenditure on legal services of at least $340 million.” And we all know that those lawyers were making a hell of lot more than just $100K, so Sidak’s estimates are ultra-conservative and the deadweight loss of all this legal activity was much greater.

Even the lawyers admitted what a boon all this regulation was to their business. In the wake of one controversial FCC rulemaking in 2003, telecom lawyer Dana Frix of the firm Chadbourne & Parke told The New York Times that “Every word will be challenged… My children will go to college on this stuff. This is a lawyer’s dream.” That pretty much says it all, now doesn’t it?

Look, I know that many Net neutrality supporters have good intentions. They really do think that the rules they are advocating will preserve “Internet freedom” or “non-discrimination.” But they need to acknowledge that regulation sometimes has unintended consequenses, especially when bureacrats are asked to interpret amorphous terms like that. Once the laws get on the books, volumes of regulations are promulgated implementing them. This is followed by still more regulations interpreting and enforcing the earlier regs. And then the lawsuits begin. Followed by still more regs and then more laws trying to straighten it all out after the courts say its all hopelessly arbitrary. Pretty soon we forget what we were fighting over. It’s all just about the paperwork and the lawsuits. And becomes a grand sport for the armies of well-heeled laywers, lobbyists, consultants and economists who operate inside the parasitic economy we call “the Beltway.”

And I haven’t even gotten into the other unintended consequenses of regulation that are non-economic in character. In particular, in the case of Net neutrality, I am absolutely horrified about how it will open the door to more government regulation of Internet speech and expression. But I won’t go into that all here. Just read this old rant of mine on that point.

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