The Rational Choice Chairman

May 21, 2001. FCC Chairman Michael Powell made several statements at Forrester Forum in Washington DC about the conduct of telecom and Internet companies, and regulation of those companies, that are consistent with a "Chicago School", or rational choice, view of economics and regulation.

The Federal Communication Commission (FCC) is a agency of telecom lawyers, which relies on statutes, voluminous rules, and countless orders, to attempt to direct the conduct of regulated companies. Powell stated that, in contrast, "I just come from antitrust background, economic background". He also opined on the effectiveness of legal rule making: "I do not generally, after completing that review, find myself thinking, gosh, there are just not enough rules out there. Usually, what I find is where there are shortcomings, is that there are rules all over the place, and a lot of the time it is just cost effective to ignore them."

	Michael Powell

Powell articulated a rational choice view of the companies that the FCC regulates: "all of them are self interested money chasing actors". While comments like this are sometimes made with critical intent by representatives of the political left, Powell added that "I don't even mean that disparagingly." And this view, said Powell, informs how he regulates. He stated, "if you expect companies to do anything other than pursue their self interest, I don't know what planet you come from. They all do. They all will. And I would rather build that into how we regulate them, than to act as if people can be pushed out of their self interest".

Powell applied a calculus of compliance to the ILECs which face statutes and FCC rules regarding opening their networks to competitors. "Self interested profit maximizing actors, remember. If I tell a phone company, 'You have to have this kind of operation support system that allows a competitor to interconnect at an efficient level.' And guess what, that infrastructure will cost that CEO a billion dollars. If he doesn't do it, and he gets a fine for a million. And that is it. What will you do? I think that is an absolutely rational judgment that often occurs in the marketplace." Powell added, "And it is not just phones, by the way. You will see this in a lot of the areas that we regulate."

Powell has stated recently in testimony and correspondence to the House and Senate that he favors legislation to increase the maximum fines that the FCC can impose upon ILECs -- from one to ten million dollars. However, at the Forrester Forum, Powell also vaguely suggested that there ought to be a treble damages right of action against ILECs for not complying with the competition provisions of the Telecom Act. He said, "the antitrust statutes don't go after every merger in the economy either. They couldn't possibly. But, I don't think there is another statute in the federal code that has treble damages. There is a reason. The theory is simple. It knows that by being permissive in the marketplace, it has to be aggressive in the punitive phase, so that the deterrent value resonates across the economy." He then added that companies that contemplate mergers "hire extensive antitrust counsel to work carefully through what they think the consequences, because your fiduciary duty cannot expose the company to treble damages". He concluded, "I am not so sure in telecom we don't need similar." He stopped in mid sentence, and said nothing further on this subject.