Market Innovation Not Signal Regulators Can Be Less Vigilant, Says FCC Chief Economist
Innovation and the presence of a “disrupter” in a market together don’t mean regulators can be any less vigilant or exercise a lighter hand, FCC Chief Economist Tim Brennan said Thursday at an event sponsored by the Georgetown University Center for Business & Public Policy. The speech was his first major address since being named to the post in January.
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"Disruption may not lead to a reduction in market power on the supply side,” Brennan said. “It’s not the case that innovation necessarily makes markets more competitive.” He cited the example of electricity, which he called possibly the “most disruptive” innovation in human history, saying electric utilities remain highly regulated.
Innovation also doesn’t mean regulation is less critical, Brennan said. He pointed to the extent to which email and electronic communications have significantly reduced the demand for traditional mail. “Does that mean that one could walk away necessarily from postal regulation?” he asked. “The answer is, you've got to be careful.” On transaction-review policy, if a company presents “a clear innovation story,” regulators should take that into account, Brennan said. “Is there a presumption that innovation means we don’t care about antitrust anymore or that we should kick it aside?” he asked. “I'm not so sure that’s the case."
Brennan, who was an economist at the Justice Department, said the FCC’s approach to economic theory is different than some taken by other agencies. “There is not an economics bureau at the FCC -- economists are spread out in about five different sections,” he noted. The FCC and DOJ are very different in how they use economics, Brennan said. The economic analysis is critical whenever DOJ challenges a proposed deal, he observed. “If [DOJ officials] want to win in court, they have to bring an economics case.” That’s not the case at the FCC, Brennan said: “They don’t have to go before a trial court and make an economic case.”
Brennan was asked why the FCC needs to bring in outside economists to review major mergers, such as Comcast’s proposed buy of Time Warner Cable and AT&T’s of DirecTV (CD April 8 p1) (See separate report in this issue). “To do a decent job on mergers takes a lot of people and a lot of expertise and a lot of experience,” he said.
Brennan said he doesn’t get much one-on-one time with FCC Chairman Tom Wheeler. “I do get a chance to talk to people who do have the chairman’s ear, with great regularity,” he said. “That’s the best I could ask for.” Brennan is also a professor of public policy and economics at the University of Maryland-Baltimore County.