FCC’s Political Structure Begs for Abuse of Power

With a presidential inauguration upon us, it is time to consider how far we have come from the 18th century ideal of the separation of powers. Because as early as this week, the Federal Communications Commission will stand as judge and jury in a dispute over potentially $500 million in fees involving AT&T’s compliance with rules both written and enforced by the FCC. AT&T shareholders are naturally nervous about the outcome – but all Americans should be concerned about how this dispute is being resolved.If AT&T had a difference of opinion with the IRS over $500 million in disputed taxes, the review process would be clear. Tax laws and rates are written in detail by Congress. The IRS administers the taxes, but the IRS does not determine eligibility to pay taxes and tax rates, nor does it formally adjudicate disputes over tax payments. That is handled by special tax courts, part of the judiciary system.Under tax law, the three branches of government – legislative, executive, and judicial – are clearly separated. AT&T or any individual or corporation can challenge tax laws and tax assessments without fear that the judge hearing the dispute has the power to write new tax laws or to monitor and enforce payment of other taxes.The FCC, which is reviewing AT&T’s petition regarding the disputed fees for telecommunications services, combines all of the powers of government, and – as many an 18th century American could tell us – we are all the poorer for it. Other agencies, such as FDA and EPA, face similar structures.Consider the case of calling cards.Many Americans, particularly American personnel in Afghanistan and Iraq, use AT&T prepaid calling cards. AT&T argues that the calling cards are not technically telecommunications services, and thus are not subject to the usual federal telecommunications taxes and fees. Since 1999, AT&T has not paid approximately $160 million in federal universal service fees, and since 2002, $350 million in access fees payable to local exchange companies around the country.At the same time that the FCC is reviewing the AT&T calling-card case, it is also writing new rules for universal service fees. It is desperately seeking new sources of revenue to support programs in excess of $6 billion annually. This poses a conflict. It would be naive to expect the FCC to keep the rulemaking separate from the potential $160 million in universal service fees in the AT&T adjudication.Similarly, the FCC is also actively writing new rules for inter-carrier compensation. These new rules will replace the existing rules, at the heart of AT&T’s access-charge dispute. No one believes that the FCC would ignore the potential $350 million in access charges in the AT&T adjudication.The FCC is supposed to enforce payments of federal fees and keep close tabs to ensure that each company is complying with federal rules. A finding that AT&T is liable for hundreds of millions of dollars means the FCC has been lax in enforcement for years. A finding that AT&T has no liability means that other telephone companies can easily avoid FCC fees and taxes.Unlike a court of law, the FCC is enshrouded in politics that complicate a clear legal interpretation of many matters, including AT&T’s obligations in the past.AT&T has inflamed these politics in recent months by advising customers to complain to the White House about impending price increases for calling cards should A&T lose at the FCC. Consumers have heeded the advice, flooding the White House switchboard.The White House is in an untenable position: It cannot legitimately attempt to influence the outcome of an adjudicatory proceeding at an independent agency involving a private party. But much of the public, apparently including AT&T, believes the White House has significant influence.Either the FCC will judge the calling cards to be telecommunications services, and will collect about half a billion dollars in back payments, or it will agree that no additional charges are owed.Whatever the outcome, the process is troubling. And it is repeated in many different proceedings at the FCC.When Congress reviews communications law this year, one of the first issues considered should be the structure of the FCC and the inherent problems of combining all the branches of government in one agency.A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He is the author of A Tough Act to Follow, (AEI Press, forthcoming) which describes the harms of combining the different branches of government in a single agency. He can be reached at hfr@furchtgott-roth.com.

FCC’s Political Structure Begs for Abuse of Power

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