Information Laundering, Economists and Ajit Pai’s Race to Roll-Back the Obama-era FCC’s Net Neutrality Rules

Sponsored surrogacy like the Curious paper needs ummasking now

The now-raging battle over the fate of landmark network neutrality rules adopted by the Obama-era Federal Communications Commission just two years ago is, at the same time, a war of ideas. On the front lines is a subterranean network of think tanks and hired-gun economists, lawyers, and others mobilizing their credentials to justify FCC Chairman Ajit Pai’s sprint to reverse not just the net neutrality rules, but also a raft of measures on concentration in the broadband, mobile wireless, cable TV and broadcasting markets, broadband privacy and pricing, and on and on. If the rollback is successful, Pai’s FCC will deliver a regulatory agenda beyond the biggest telecom-ISP and media companies’ wildest dreams. Each step of the way, industry-friendly think tanks and front groups have commissioned academics to flood the ‘marketplace of ideas’ with corroborating ideas and ‘white papers,’ often without disclosure. What they’re paying for is the veneer of academic legitimacy.

One such effort is a scholarly paper, “The Curious Absence of Economic Analysis at the Federal Communications Commission,” written by Gerald R. Faulhaber, Hal J. Singer, and Augustus H. Urschel -- and recently published in the highly respected International Journal of Communication. Straight away, the title startled both of us. Published in late March, the authors complained that economists had been sidelined in the Obama administration's FCC, and that this gaping wound needed to be redressed, and fast. The authors singled out John Oliver’s 2014 late-night rant on net neutrality for triggering “four million angry letters". The episode exemplified, in their telling, the triumph of unruly populism over economic expertise.

The notion that economists have next to no influence at the FCC struck us as preposterous. This must be, we thought, the first article ever published to claim that economists don't have enough influence on federal policy making. The story of social science and U.S. policy since World War II is the story of economics. More to the point, economists have been extensively—and disproportionately—involved in FCC rule-making for decades, this one included. What could the authors possibly mean?

Adding to our doubts, we quickly discovered that a longer version of the same paper had been submitted to the FCC's official docket last summer, not once but twice, by CALinnovates—an "advocacy" group with deep ties to the telecommunications industry. The recently published academic article, however, disclosed nothing, and made no mention of these earlier publications.

In fact, the paper’s authors have been especially active in many hot-button issues before the FCC in recent years, including its landmark Open Internet Order that re-classified broadband internet access service providers as common carriers in 2015—the main object of their criticism. They have also cast doubts on how the FCC has dealt with blockbuster mergers and acquisitions and sky-high levels of concentration in the mobile wireless market, backed an unsuccessful legal appeal of those 2015 net neutrality rules, and lent their work to a volley of actions now underway (see here and here).

In April—just five days after the peer-reviewed article appeared—Pai gave a major speech at the Hudson Institute lamenting that the views of economists "have become an afterthought." Citing the paper (but with no mention of its provenance), Pai announced a new FCC Office of Economics and Data (OED). The authors’ “curious absence” claim supplied, in effect, the warrant for creating the OED. Pai soon issued his fateful plan to roll back net neutrality regulations—set to take effect in a matter of weeks.

Economists have been extensively—and disproportionately—involved in FCC rule-making for decades

Given the stakes, we decided to write a formal reply to the commissioned article. Our rebuttal, published at the beginning of this month and excerpted here, calls out the paper’s industry funding and refutes its core charge that the FCC has "abandon[ed] the dismal science." The agency, we show, has been working in earnest to bolster, not sideline, economic analysis.

The authors’ appeal to the authority of economics cloaks a full-throated political project designed to remake communications markets along the lines that incumbent telecommunications, broadband internet, and media industries have desired all along. The authors have been fighting on this project's front lines for years. When they bemoan the "curious absence" of economists at the FCC, what they're really objecting to are their own policy losses. They want a do-over, in effect, and their paper is already helping that effort. If the lessons of the last century are a guide, the outcomes of these battles—arriving at a moment of profound technological change—could reverberate for decades.

The authors are really objecting to are their own policy losses

While this is a U.S. story, its lessons are broader, as regulators in Canada, the European Union, India and elsewhere come under a barrage of like-minded criticism—often from the same stable of familiar sources (see here, here, here, here, here and here, for example).

Sponsored Research

The paper’s sponsor, CALinnovates, launched in 2010 as a "new statewide technology coalition" formed to "support tech-friendly policy" in California on behalf of its member companies. From the beginning, the organization's small, otherwise-obscure corporate membership included an anchor tenant, so to speak: Dallas-based telecommunications giant AT&T. The only Silicon Valley giant in the membership ranks was Cisco, the network equipment maker. Despite appearances, this was no trade association for California tech companies.

Over the half-decade since, CALinnovates promoted a telco-friendly agenda. In white papers, press releases, blog posts, and sponsored events, CALinnovates endorsed "flexible" broadband pricing, decried the "spectrum crunch" hobbling the U.S. mobile industry, and backed the FCC's plans to remove the "proverbial 'red tape' from tower siting." Many of the group’s' posts and article placements were brazen publicity for AT&T. In 2012, for example, CALinnovates issued a press release touting AT&T’s plans for a $14 billion network investment to expand and enhance its wired and wireless broadband networks—just five days after AT&T's own PR boast about the $14 billion investment, and an announcement that coincided with the telco's 2012 petition to ditch its common carrier obligations.

In early 2014, a federal court threw out the FCC's net neutrality rules adopted in 2010. There was, suddenly, a policy free-for-all, as an emboldened FCC moved to establish stricter rules on firmer legal footing. That year CALinnovates' budget nearly tripled, to $1.7 million, and the "Silicon Valley" group waged an aggressive campaign against the proposed rules. The group met with FCC commissioners (including Pai), sponsored a white paper, and filed its own 25-page comment to the agency. ProPublica published a story on the surprise in Silicon Valley: the group’s campaign "gave the anti-reclassification camp a backer from within the tech community—a boon for one of CALinnovates’ supporters, AT&T."

The group continues to take AT&T's side in the hot-ticket issues before the FCC. It filed official FCC comments last May opposing ISP privacy rules, repeatedly referencing the "startup community for whom we speak," for instance. In the early months of the Trump presidency, CALinnovates applauded Chairman Pai’s business-friendly decisions and regulatory rollbacks. “Ajit is a hardworking ass kicker who understands the economic and policy concerns of the broad tech sector," the group’s executive director said in a statement praising Pai's appointment. [He declined our request to provide a breakdown of CALinnovates’s funding from AT&T and its other members.]

An "Economics-Free Zone"?

Murky origins aside, what about the paper’s key claim for the “curious absence” of economics at the FCC? The authors tell a story of economists’ hard-won policy sway at the agency, built up over the last 50 years. They say that the tide turned around 2010, as the FCC substituted misinformed populism for the rational input of economics. If the authors are right, we should thank them for ringing the alarm bells. Yet, as we document in our just-published reply, the article’s claim that the FCC is an "economics-free zone" is simply untrue.

The authors should and do know better, since they have been and continue to be active participants in FCC policy matters. Their research and white papers have been appended to, or cited extensively in, submissions to the public record by industry players (e.g., AT&T, Charter, Comcast, and Verizon on the telecom/ISP side, and CBS, Disney, 20th Century Fox, Time Warner, and Viacom in the corporate media arena), trade associations (like USTelecom, NCTA—The Internet and Television Association, and the National Association of Broadcasters), and think tanks (including the American Enterprise Institute and the Competitive Enterprise Institute). The authors, in other words, have been in the very thick of the action, but—as with the origins of their paper—they fail to disclose that.

In contrast to the impression that the authors (and Pai) leave, the FCC employs around 50 PhD-level economists—figures that have held steady over time. The FCC also hires a chief economist from the academic world for one- to two- year stints to provide direction and oversight on key issues. In addition, five of the agency’s seven bureaus have a chief economist. And for big proceedings like the Open Internet docket or proposed megamergers (like the proposed Comcast and Time Warner Cable tie-up), the FCC assembles a team of economists, engineers, lawyers, and others to develop its analysis and decision.

In its Open Internet Order, the FCC reviewed a wide body of data, studies, and other evidence submitted by consultants, industry groups, individual ISPs, academics, financial analysts, banks, and venture capital funds, and public interest groups

In addition to its fairly deep roster of in-house economists, and its range of outside consultants (including from the Department of Justice), the FCC has a habit of convening advisory committees, working groups, workshops, roundtables, and so on that bring even more intellectual heft—and cross-cutting views—to the table. This was especially true in the context of the Open Internet proceedings, as our reply documents in great detail. The Economics of Broadband roundtable, held in 2014, was chaired by the agency’s chief economist and involved at least a half dozen top-flight Internet and media economists—including one of the Curious article’s co-authors, Hal Singer. In fact, many of these same economists—including Singer and another Curious co-author, Gerald Faulhaber—were all over the FCC’s final 2015 Open Internet Order. Their research, including the CALinnovates white paper, are cited extensively in the record and related matters by major industry players, trade groups, and think tanks. They are frequent signatories to open letters issued by economists addressed to the FCC and to courts hearing industry appeals. The authors, in short, are prominent nodes in a sprawling scholar-lobbyist network that arguably flooded the marketplace of ideas with their well-funded fight against Title II reclassification (the Obama-era FCC’s key net neutrality move, which treats broadband access service providers as “common carriers”).

Over the course of many pages and at several points, the FCC’s Open Internet order reviewed a wide body of data, studies, and other evidence submitted by consultants, industry groups, individual ISPs, academics, financial analysts, banks, and venture capital funds, and public interest groups. Studies from the National Economic Council and the U.S. Office of Science and Technology Policy were also reviewed. The upshot was that the doomsday scenarios painted by the foes of common carrier rules were overwrought and—taking a wider lens—the effect of Title II was likely to be positive. Pai disagreed, and sided with the naysayers—drawing on the Curious authors for support. In its review, the DC Circuit Court of Appeals found the evidence mixed but concluded that the FCC had made “a rational connection between the facts found and the choice it made.’” Reasonable disagreement on these points is possible, of course, but the idea that the FCC issued its Open Internet Order without regard to economics is just wrong.

The same basic point can be made across the other main dimensions of economic analysis central to debates over the “future of the Internet”: pricing, interconnection, paid priority, subscriber demand, the scope of the FCC’s mandate, the cost of regulation, transparency and disclosure requirements, and so on. On each issue, the official record is filled with defensible economic analysis. As the Open Internet Order notes, the agency’s conclusions “rest upon a well-established body of economic literature, including Commission staff working papers.” The DC Circuit Court of Appeal agreed.

The sponsored paper nevertheless insists on its story, that the disinterested expertise of economists has given way to a reckless and misinformed mob. They take the Title II reclassification as their main case in point—a decision, the authors say, that sunk the “elegant, light-touch solution” that “smart lawyers at the FCC” had drafted—“quarantined from political forces”. Blame, in the authors’ words, lay with “John Oliver and four million angry letters ostensibly submitted to the FCC.” Those letters invoking the “esoteric language” of Title II authority could not have been legitimate, they added: “a great many likely were form letters generated by public interest groups clamoring for Title II-based solutions." The FCC buckled to a populist upsurge, basing its Title II decision on the “casual empiricism of an advocacy group that operates”—unlike the Curious authors and the discipline of economics—“outside of the constraints of academic reputations."

A galling irony of the authors’ populism charge is that Trump’s brand of bait-and-switch populism has brought AT&T, Verizon, Comcast, and other net neutrality opponents to the edge of deliverance. Ajit Pai’s chairmanship—his fast-moving effort to roll back Title II—is a direct product of unbridled populism.

This expert/populism frame, more to the point, papers over the fact that private interests paid for the article. AT&T and the other ISPs desperately want to reverse the common carrier designation—to see net neutrality’s demise—in order to open up new revenue streams and, more broadly, to establish a network-centric model of control in which they are in charge of who gets to use their “pipes” to say what to whom on what terms. They want telecommunications and broadband Internet access treated like publishers rather than common carriers. If they get their way, they will have the freedom, like publishers, to exercise editorial control over the messages, content, applications, and services flowing across their systems. For nearly 40 years, going back to the post–AT&T breakup era, they have waged an aggressive, multi-front war to win those powers. That is their prerogative. Pincer-like campaigns to enlist astroturf groups and commissioned white papers operate by stealth, however, and thus muddy the already difficult waters of telecommunications policy. Such efforts are also parasitic on third-party credibility, like grassroots activism or—in this case—the legitimacy of academic research.

Legal Threats

We plainly struck a nerve. After a draft of our reply was shared with the Curious article’s authors in late May, University of Southern California Professor Larry Gross, the editor of International Journal of Communication, received a barrage of letters from attorneys representing CALinnovates, the telco-linked group. The legal threats—explicit and implied—ramped up in each letter. These letters can be seen here, here, here and here, while our reply to these letters is here.

In the first missive, the group’s attorney charged that the “academic portion” of our paper—those pages challenging the original article’s sidelined-economists storyline—is merely a “vehicle to serve incorrect and potentially libelous messaging to the public” about the group. He asked the journal to disclose our funding (we have none), and to remove the CALinnovates discussion altogether.

The second letter, sent a week later, detailed “concerns” about our reply and warned that its “potentially libelous rebuttal seeks to tarnish the reputation of CALinnovates,” an organization whose “only role in this imbroglio was the funding of the [original] paper.” Quoting liberally from the journal’s code of ethics, the letter lays out 13 charges. “Winseck and Pooley have weaponized their rebuttal for the purposes of their own mischievous political goals.” The letter accuses us of serving “corporate interests,” which we—so said the letter—failed to disclose.

Another week, another letter, this one from a second firm (“litigation counsel to CALinnovates”) and delivered not just to Professor Gross but to the general counsel of USC, where the journal is hosted. It is, this attorney wrote, “extraordinarily surprising and deeply disappointing” that USC “would even consider publishing what appears to be a bias-motivated hit piece.” The letter concludes by warning USC that it would “expose itself to significant liability” by publishing our reply.

To its credit, the journal stood its ground, asking us to furnish documentation on just those errors of fact flagged by the lawyers. We replied with a point-by-point accounting. “Neither of us,” we wrote, “has ever received a single cent of funding for this reply or for work whatsoever from any parties.” Bluster aside, the innuendo and legal threats had the opposite effect, strengthening our resolve to publish the reply. Sponsored surrogacy like the Curious paper needs ummasking now, before the Pai-led FCC recasts the evermore internet-centric communications universe in an industry-serving mold. If Pai succeeds, it will be hard to go back—hard, that is, to get the regulatory toothpaste back in the tube. At that point, exposing the industry scholar-lobbyist network’s campaign would be (merely) academic.

Jeff Pooley is Associate Professor and Chair of Media & Communication, Muhlenberg College, Allentown.

Dwayne Winseck is Professor at the School of Journalism and Communication, Carleton University, Ottawa, and Director of the Canadian Media Concentration Research (CMCR) Project.