The DC Circuit’s Opinion Affirming the FCC’s Boneheaded Ban on Competition

by on March 15, 2009 · 9 comments

Better not be offering incentives!

As I previously reported, the DC Circuit recently upheld a decision by the FCC to forbid customer retention practices used by Verizon to incentivize its customers to stay with the carrier rather than leaving for a VOIP provider. In the earlier post, I analyzed the bad economics of the FCC’s ban. In this post, as promised, I go into greater detail on the court’s decision affirming the FCC.

The latest issue of the Center for Internet and Society’s publication, Packets, has arrived and with it my summary of the case. The Packets piece provides a more neutral (but detailed) summary of the DC Circuit’s decision, without much analysis.

The big question before the court was whether what the FCC did was really pursuant to the Telecommunications Act, which forbids a telco “that receives or obtains proprietary information from another carrier for purposes of providing any telecommunications service” from using the information for a marketing purpose. If not, then essentially the FCC just went AWOL; instead of enforcing the law, as it is supposed to, it simply made its own law.

Indeed, that is exactly what happened here. The natural reading of the language, as the court admits, is contrary to the FCC’s ruling. To use an example employed by the court, when one says “Joe received information from Mary for purposes of drafting a brief,” the court reasoned, “it is overwhelmingly likely that the speaker expects Joe to do the drafting.” But Verizon is getting the information from other telcos not in order to provide their customers with phone service, but to cut off service. It is the competitors who are using the information to provide phone service. Mary is drafting the brief, so the statute doesn’t apply! The court never fully explains why it refuses to limit the statutory language to its natural meaning – saying only that one could grammatically read it the other way.

The explanation for this double-backflip to try to read into the statute some power for the FCC to issue its ruling is Chevron deference. I explained a little more about Chevron v. NRDC in a recent post, listing it as one of the worst Supreme Court decisions ever. In Chevron, the Court said that in reviewing administrative agency actions courts should not figure out what the law is and then ascertain whether the agency applied the law. Rather, courts should give great deference to the agency’s interpretation of the law. This is absurd for many reasons. For one, the job of courts is to interpret the law. And higher courts always review lower courts’ findings of law de novo, giving no weight to what the lower court found! In essence, the Court said, administrative agencies are better at figuring out the law than courts!

But, of course, agencies want to expand their power, not mekely enforce the law! The FCC views its job as controlling TV, radio, phones, the internet, and the entire electromagnetic spectrum. It doesn’t care what the law says; it just cares what it thinks necessary. This was vividly demonstrated this summer, when the FCC ruled that Comcast violated some policy guidelines it set forth. But the policy guidelines weren’t based on any law, just on what the FCC thought ISPs should do with their networks!

In the Verizon case, the DC Circuit next considered Verizon’s point that the FCC was treating the VOIP providers as telcos for the purpose of this case, but leaving open the possibility that they aren’t telcos for the puposes of other cases. The FCC wanted to have its cake and eat it too – to be able to use one definition of “telecommunications carrier” when it helps them regulate Verizon and apply a different defition, excluding the very companies they previously included, when it helps them do something else. Under Chevron, though, the court is to reverse the FCC only if this decision was “arbitrary and capricious,” and the court didn’t think it was.

Finally, the court considered the First Amendment argument. Verizon wants to contact its own customers about potential savings. Why can’t it do so? Well, “commercial” speech is treated differently from “real” speech (even if that speech is designed to make money) and gets essentially no protection. Of course, this is not a distinction the First Amendment makes, when it speaks of “freedom of speech.”

All in all, the decision is a good example of extreme deference gone awry. Courts have stopped doing their jobs of enforcing the law and making sure that the lawmakers follow it. The rule of law says that one law should be applicable to all and that the government does not get to make up the rules as it goes. A criminal court couldn’t punish someone for wearing an ugly tie if there were no law against it. Why does the FCC get to punish Verizon and Comcast when there is no law against what they do?

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