Friday, February 1, we had approximately 4.5 hours of oral argument before Judge Millett, Judge Wilkins, and Senior Judge Williams. You can listen to a recording of the oral argument here. As everyone who does this for a living will tell you, you can’t judge the outcome by what happens at oral argument. Because that’s the biggest set of tea leaves we have that can tell us anything about the black box of the court making its decision, however, we all speculate shamelessly. Unsurprisingly, Williams seemed most favorable to the FCC. He dissented in USTA v. FCC, and generally prefers deregulatory policy choices. Millett, as expected, pushed both sides hard. But ultimately both she and Wilkins seemed to come down against the FCC on several issues, including a lengthy discussion of the Section 257 argument I highlighted last week.
My colleague John Bergmayer has this summary of the substance of the argument. I want to just highlight one theme, the refusal of the FCC to be honest about the expected policy consequences of its actions. I highlight this for several reasons. First, people need to understand that while the agency can always change its mind, it has to follow the Administrative Procedure Act (APA), which includes addressing the factual record, acknowledging the change in policy from the previous FCC, and explaining why it makes a different decision this time around. As I have noted for the last couple of years, there is a lot of confusion around this point. On the one hand, it doesn’t mean you have to show that the old agency decision was wrong. But on the other hand, it doesn’t mean you get to pretend like the old opinion and its old factual record don’t exist. Nor do you get to ignore the factual record established in this case.
It was on these points that Millett and Wilkins kept hammering the FCC, and where they are likely in the biggest trouble in terms of the Order. Because FCC Chair Ajit Pai has pretty much made it his signature style to ignore contrary arguments and make ridiculous claims about his orders, this problem has already chomped the FCC on the rear end pretty hard (ironically, in an opinion released on Friday), and will likely continue to do so.
More below . . .
One of the more annoying things about dealing with the current FCC is that the modus operandi of Pai and his supporters is to simply waive away contrary facts like they aren’t there while making all sorts of claims about the bliss and prosperity that follows deregulation. (I like to refer to this as the “Pai-in-the-sky” line of argument.) this works totally great when you get to control the language of the Order, and when you can just walk away from any question challenging you on these inconvenient facts and fanciful notions about incentives and markets and other Cloud Cuckoo Land economics.
But when you go in front of judges, it’s another story. Yes, you may luck out and get a Federalist Society panel that believes that deregulation is far better than any consistency in the law. But when you don’t you run into serious trouble. Why? Because while the APA does not require much, it does require that an agency (a) identify that it is changing course, (b) explain why it changed course, and (c) the explanation offered must be reasonable under the factual record. Significantly, the agency does not get to pretend like the entire previous proceeding never happened, or that the inconvenient facts magically dropped out of the record, or that they can pretend that the previous administration were all cray-cray socialists and therefore had no actual policy reason that justified the previous ruling.
Again, the agency doesn’t have to prove that the new policy is better. As Fox Television explained, it is enough that the agency thinks the policy is better, which it indicates by switching from the old policy to the new policy. But the new policy is still subject to the APA requirements for notice and arbitrariness, which includes addressing all the stuff the agency found persuasive going the other way.
The Lifeline Association case illustrates all this quite nicely. In 2005, the FCC allowed non-facilities based providers (i.e., resellers, particularly mobile phone resellers) to participate in Lifeline. Since then, resellers have become an extremely important part of the Lifeline market. Lifeline is, after all, a niche market, since by definition it serves poor people, who only buy low-cost, low-margin services. Also, thanks to concern about fraud and waste and so forth, the paperwork requirements to participate are a pain in the rear. So for most carriers, it’s not worth it. But for little guys reselling service on other carrier’s networks, it’s a living.
In 2015, as part of addressing the accusations of waste, fraud etc., the FCC launched a major Notice of Proposed Rulemaking (NPRM) seeking comment on, among other things, whether to limit access to Tribal Lifeline support programs to facilities-based carriers, and several other issues relating to Tribal Lifeline support. In 2016, the FCC resolved a bunch of these issues, but did not touch the Tribal Lifeline issues. Instead, it stated explicitly that it would address the Tribal Lifeline issues in a separate proceeding.
The FCC never got around to doing the separate proceeding before Ajit Pai took over as Chair in January 2017. Pai subscribes to the view that only facilities based providers are “real” providers and resellers are simply parasites. in fairness to Pai, while this view is idiotic from the consumer perspective of wanting competition to lower prices, it has become standard orthodoxy among the Cloud Cuckoo Land economists and their regulatory groupies, like Chairman Pai. So Pai was all for reviving this and reversing the 12 year old expectation that resellers are eligible for Lifeline, and damn the consequences to all those stupid poor people on tribal lands. After all, Pai-in-the-sky theory promises that lots of facilities based carriers eager to deploy in extremely marginal markets will suddenly decide to do so because . . . um . . . because . . . well, they just will.
Now Pai could have launched the promised new NPRM. He didn’t. Instead, he decided to issue an Order based on the record from the 2015 NPRM, despite the FCC explicitly saying in 2016 that they would do a new NPRM. When Pai released his draft Order, this gave everyone two weeks to rush in and try to make the case against it — which is kind of hard to do when the Chair of the FCC has made up his mind and his fellow Republicans would vote for their own hanging if that was what Pai wanted and they knew Democrats would vote against it.
Given that Pai could count on controlling the result no matter what, why not actually do the NPRM? It wouldn’t have been that hard to do. But now we get to the fun part, and why Pai has gone to such lengths — here and in numerous other orders — to engage in all manner of misdirection and chicanery. “Hey everyone, we are planning to cut off most tribal Lifeline providers, tell us what you think” provides opportunities for opponents to organize an effective counter-push. That is not just about organizing solid evidence, but also organizing politically to make life unpleasant for the FCC if they press ahead. This was particularly true here, because even the major carriers did not want the FCC to reinstate the facilities based requirement. Not only did they make a smidgen of money reselling the capacity where they didn’t want to offer service, but having lots and lots of unserved Native Americans might prompt some states to re-regulate the carriers to ensure that everyone has basic service.
So Pai had lots of incentive to ram this through quickly, even though he could have gotten the same vote several months later if he actually followed the proper procedures. Even with the short time frame, opponents put in lots of evidence that without resellers tons of people would lose phone service because — even if one accepted the notion that new facilities based providers would rush in to fill the void — that wasn’t going to happen overnight. It takes time to build a network. And in the meantime, people would have no telephone service.
As this fact was both incontrovertible and devastating to the Order, Pai simply chose to ignore it. Instead, the Order focused on how the change would stimulate all kinds of facilities based deployment, meeting the FCC’s statutory responsibility to get broadband deployed in rural areas. Mind you, according to all previous FCC decisions, the primary purpose of the Lifeline program is to provide subsidies for poor people, not stimulate deployment (although it helps with that as well, by increasing return on poor rural customers). So under the APA, the FCC was required to acknowledge that (a) previously we said Lifeline was about subsidizing poor people; (b) we now decide that getting more broadband networks deployed (cause that is totes going to happen when we kick those resellers out of the program, trust us); so, (c) sucks for all those people who will lose telephone service until the new networks come into existence. But again, that is a real bad look for an agency. So Pai just ignored it.
And this is why the APA, low barrier that it is, provides some protection after all. Yeah, agencies get deference assuming their decision is rational and based on the record. But when the agency ignores the record evidence and decides to avoid spelling out the actual consequences of its decision, then its actions are not reasonable and it gets reversed. Sure, the agency can go ahead and do it right this time. But it is still a very bad look politically for Pai to say “I don’t care how many NativeAmericans lose access to basic phone service! Vindicating my ridiculous Cloud Cuckoo Economic theories and reversing anything Wheeler ever did are much more important than making sure Native Americans have access to basic telephone service!” Also, since they have to run a real, honest to God proceeding, it will highlight that just about everyone –including the major carriers — opposes this.
What Does This Have To Do With Net Neutrality, Or Anything Else?
Oddly, the Lifeline Order is not the only place where Pai has pulled these sorts of cutesy shenanigans and slight of hand, along with just ignoring stuff that doesn’t conform to his Cloud Cuckoo Land, Pai-in-the-sky version of reality. My employer PK, along with a coalition of other public interest groups, is suing the FCC in the Ninth Circuit to reverse the FCC’s 2017 Order repealing a bunch of protections adopted back in 2015 to govern the Tech Transition/transition of the phone system from legacy tech to all IP. If you read our brief and reply brief you will see that the FCC did pretty much the same thing in that case. They played cutesy games with notice and just ignored anything in the record that contradicted what they wanted to believe was true.
And so with net neutrality. As the court hammered FCC General Counsel on Friday, the FCC chose to simply ignore the concerns of the public safety community. Why? Because “we decide that while the public safety community might get shafted by this, we don’t care” — while legal for the agency under Chevron, does not look too good politically. Likewise, the court kept pressing the FCC on why it concluded that antitrust could adequately protect consumers without any record evidence or analysis. The answer, of course, is that the FCC did no analysis and pointed to no evidence for this assertion because it is simply false to fact. Pai could have said: “we used to care about consumers, but now we decide that our policy is ‘sucks to be them.’ In fact, we will, in the future, refer to them not as ‘consumers’ or ‘the public’ but as ‘prey to feed carriers’ or ‘sacrifices to the Network Gods.'” That would have satisfied the APA.
But again, an explicit finding that antitrust policy does not provide nearly the level of protection as the previous FCC rules is a really, really bad look. It expressly violates one of the primary talking points of carriers and net neutrality opponents since 2005. So since there is no actual comparison that would pass muster under the arbitrary and capricious test, the FCC just asserted it and hoped the court would give them a pass.
To be clear, for all I know the court will decide to overlook all these things. Oral argument is not always a reliable guide to outcome. But for those who ask “why do you think you can win when the agency gets all that Chevron deference?” The answer is: “Because even with Chevron deference, you still have to play by certain rules. You don’t get to just make stuff up and boldly assert it in the face of all evidence to the contrary.”
Why Reversal On APA Grounds Matters.
This also answers another question I get all the time. “But Harold, suppose they do reverse on APA grounds? What good does that do you? Won’t Pai just issue another Order doing the same thing?” Answer: it is still a very bad look for Pai to say: “Sucks for public safety, sucks for consumers, but I don’t care.” Even Republicans might have some issues with just coming flat out and stating “vindicating my ideology and undoing everything Wheeler did is more important to me than making sure public safety doesn’t get degraded. BWAHAHAHAHAHAHA!!!!!!”
There are lots of things you can jigger and get deference. The whole “did investment go up or down” thing is the classic “dueling experts” where the agency can say “we pick this guy over that guy because we think this guy makes more sense. The fact that he totally agrees with us is just a coincidence.” But “federal and state antitrust are even better than rules because . . .um . . because . . .um . . . they just are,” when any side-by-side comparison shows they just aren’t, is always going to be arbitrary and capricious. Which leaves Pai and his supporters in the unpleasant position of either admitting that they live in an ideological fantasyland, or publicly admitting the truth.
Stay tuned . . .