Stephen DUBNER: Now, when you first joined the F.C.C. back in 2007 I believe, a profile of you described the F.C.C. as “one of those government institutions that conceals its importance behind an impenetrable veneer of boring-ness.” I’m curious whether you think that’s about accurate?
Ajit PAI: I think the description might have described the agency for some time, but given the range of our jurisdiction today, I think it’s assumed much more prominence.
I’d like you to meet Ajit Pai.
PAI: I serve as the chairman of the Federal Communications Commission in Washington, D.C.
The F.C.C., an independent government agency overseen by Congress, was founded in 1934. Its baseline mission is to regulate communications by radio, TV, wire, satellite, and cable. Because communications technology has evolved just a little bit since 1934, the agency’s portfolio has evolved as well. Not just in size but in complexity. Its decisions carry not only economic ramifications but, increasingly, societal, security, and political ramifications too. Consider the agency’s recent effort, led by Ajit Pai, to reverse the commission’s own position on net neutrality:
PBS NewsHour: A political fight is brewing about access to the internet.
PAI: It involves a basic concept of how the internet is governed. Do you want it to be governed by engineers and entrepreneurs? Or do you want it to be run by bureaucrats and lawyers here in Washington?
Tom WHEELER: To go out and claim that somehow this is some kind of consumer protection is a fraudulent representation.
The net-neutrality fight, with all its scintillating debate about the Title I and Title II sections of the Communications Act of 1934, led to Ajit Pai being called “the most hated man on the internet.” Among a certain cohort at least, that wasn’t much of an exaggeration. Pai is not afraid to take a strong stance, or defend it. And these days, there are plenty of strong stances to take. On issues that the public doesn’t much care about, like spectrum allocation and small-cell deployment. But also on robocalls, the 5G rollout, and what to do about Huawei.
PAI: I do think that both existing and prospective equipment from that company presents an unacceptable risk to the American consumer.
Today on Freakonomics Radio: what the F.C.C. can, can’t, and won’t do — and why you should care.
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I wish it were necessary to preface the following bits of tape with an explanation, but it’s not. Without any explanation, you will know exactly what you’re hearing:
Robocall 1: This is Molly from Apple Support. We have found some suspicious activity on your iCloud account.
Robocall 2: Hi, this is Josh, from the customer service department.
Chinese Robocall: [Speaking Chinese.]
Last year, American phone numbers received a record 26.3 billion robocalls.
Robocall 3: The reason of this call is to inform you that I.R.S. is filing a lawsuit against you.
That’s roughly 80 calls per man, woman, and child.
Robocall 4: We are conducting scientific research. Please take a moment to answer.
For what it’s worth, I’ve gotten way more than my share. So, I asked Ajit Pai, how many robocalls should one person be required to absorb?
PAI: I’m not sure what the number is, but whatever calls you’re not getting, I seem to be getting them myself, so I share that frustration. And that’s why we’ve made it our top consumer-protection priority to attack this problem. And I know that the progress has not been apparent to some, but we are taking serious steps to mitigate this problem.
DUBNER: I know the TRACED Act was recently signed into law. Can you give us a quick overview of that?
PAI: Yes. This is bipartisan legislation that just passed each house of Congress, that the president signed, that, among other things, extends the statute of limitations for the F.C.C. to go after the bad guys, the robocallers themselves. It also gives the F.C.C. clear authority to require phone providers to update their caller I.D. authentication framework.
DUBNER: So those sound like a lot of laws that are written and then not enforced. How is that enforceable?
PAI: I can tell you that we have already gone to work enforcing it. I directed my staff, even before the TRACED Act was signed, to draft regulations forcing phone companies to adopt this caller I.D. authentication framework. In terms of enforcement, I’ve already talked to our enforcement team to say, “Look, we now have an extended statute of limitations. Let’s go after the bad guys, even those who committed these violations two or three years ago, beyond the previous statute of limitations, and make sure that the consumer interest is vindicated here.”
DUBNER: So a lot of people are getting rid of landline phones for a variety of reasons, one of which is to avoid robocalls. It strikes me as a strange and rather poor outcome of an unintended consequence for these phone companies that have not policed it very well, that they’re potentially losing revenue because of a service that they let thrive on their network. Do you think they will recapture that money elsewise?
PAI: That’s a good question. And I’ve consistently said that as well, that in the long run, this undermines public confidence in the entire phone system. And many of them have embraced this caller I.D. authentication framework. They’re starting to develop analytics that can detect what is a robocall and what is not. We’ve now made clear that they can block robocalls by default if they use those analytical tools. So I think they have come to recognize that it’s not just bad for consumers, it’s also bad for business.
If you had to characterize Ajit Pai’s general philosophy as a regulator, you might say it occupies that very fine line between what’s bad for consumers and what’s bad for business. His critics — primarily Democrats and net-neutrality advocates — argue that he too often sides with business, even while signaling that he cares deeply about consumers. Pai was a Democrat before he was a Republican; the switch came during college, at Harvard, where he was taken with the free-market economic stylings of Martin Feldstein. He went on to law school at the University of Chicago. Pai’s parents, both doctors, were initially disappointed that he chose law over medicine, but they’ve since come around. Ajit was born in Buffalo, New York, and grew up in Kansas. His parents had moved to the U.S. from India; they also lived in Canada for a few years. In a 2014 interview, Pai said “One of the reasons why they wanted to come back to the United States is because they saw that the Canadian marketplace for doctors was highly regulated,” with “much less opportunity for them to be doctors, and entrepreneurial.”
Ajit Pai, as a lawyer, has held several government jobs as well as a few in the private sector. On the government side, he clerked for U.S. District Court Justice Martin Feldman; he worked at the Department of Justice, including the antitrust division; and in the general counsel’s office of the F.C.C. He was also a legal counsel for the Supreme Court nominations of John Roberts and Samuel Alito. On the private side, Pai worked for a couple years at Verizon and, after that earlier F.C.C. term, he worked in the communications practice of the law firm Jenner & Block. In 2012, he returned to the F.C.C. as one of its five commissioners when a Republican seat opened up. The way it works is that three of the agency’s commissioners come from the party of the sitting president, the other two from the minority party. The chairman — who’s one of the five commissioners — comes from the president’s party. When Pai joined, Barack Obama was president, and the F.C.C. chair was Tom Wheeler. From the start, Pai embraced a more free-market approach to regulation, and voted against many of Wheeler’s proposals having to do with corporate mergers, for instance, and media-ownership rules. Most significantly, Pai opposed the F.C.C.’s 2015 ruling on net neutrality. In 2017, with the Republican Donald Trump having been elected president, Ajit Pai became the F.C.C.’s chairman.
DUBNER: When you took over as chair, you said you wanted to “fire up the weed-whacker” and get rid of a bunch of regulatory underbrush that was created primarily during the Obama administration. Okay, so tell us, let’s say, three things that you’ve taken out, or at least mitigated against, with the weed-whacker.
PAI: One that I think would resonate with many consumers is in encouraging telephone companies to stop focusing their investments on the copper networks that are fading in the ground and focus those investments on fiber. Under some of the previous rules that were in place, these companies had to maintain those copper networks no matter what, even though these networks were not providing consumers high-capacity, high-quality broadband. And I have yet to meet a consumer who says “yep, we don’t need high-capacity fiber.”
Another example would involve streamlining the process for deploying wireless infrastructure. Many might not appreciate it, but we have not just federal regulatory review, but state regulatory review, local review, as well as review by any one of the 573 federally-recognized Indian tribes. And so if you’re looking to put up a single wireless antenna, you have to jump through a lot of different regulatory hoops. And what we’ve tried to do is streamline that.
On the broadcast side, the third example I would offer — this is very arcane, I realize, but it was a regulation nonetheless — that broadcast stations had to maintain a hard copy of their license of the F.C.C.’s rules, even though all of this is readily available online. And so we’ve been converting to online information.
Pai’s weed-whacking has of course not been universally celebrated. One of the F.C.C.’s Democratic commissioners, Jessica Rosenworcel, argued that consumers would be hurt if phone companies shut down copper-wire networks without providing an alternative. As for streamlining wireless infrastructure, the F.C.C.’s attempt to let providers bypass environmental and historic-preservation reviews was rejected on appeal, with the court calling the proposed changes “arbitrary and capricious.” But Pai’s most contentious piece of weed-whacking by far was his repeal of the F.C.C.’s own 2015 ruling on net neutrality.
The term net neutrality was popularized back in 2002 by the lawyer and internet scholar Tim Wu. Its most basic, common meaning is that everything on the internet should be treated neutrally by Internet service providers, or I.S.P.’s, like Verizon and T-Mobile — that there shouldn’t be “fast lanes” for companies or consumers who want to pay more. Tim Wu summed up the issue with two questions: “How should a network’s owner treat the traffic that it carries?” and “What rights, if any, should a network’s users have versus its owners?” Ajit Pai tends to frame the issue differently, from the technical perspective of how the F.C.C. does its regulatory job.
PAI: I think it is fair to say that net neutrality involves the basic question of how do you want the government to regulate the Internet? Do you want it to regulate it on a more market-based framework, allowing it to develop organically and taking targeted action against any competitive conduct through competition laws administered by the F.T.C. and the Department of Justice? Or do you want to regulate it as a utility, applying what is known as Title II of the Communications Act, which essentially treats any internet provider as Ma Bell was regulated back in 1934. And it’s essentially a choice between those two different models.
DUBNER: So your decision to repeal the F.C.C.’s earlier position on net neutrality — basically opening things up, as you characterized it, or at least exposing it more to the market — your position was met with intense blowback.
PAI: So I hear, yes.
DUBNER: So some of it on the merits, from legal and Internet scholars and others. And then some from people who were sending death threats to you, your family, your young children. I’d like you to describe the period from your perspective. First, the decision to repeal, and then whether the response took you off guard.
PAI: Sure. So I was a commissioner prior to 2017, when the 2015 F.C.C. imposed these utility-style regulations. And at the time I said, look, the Internet economy in the United States isn’t broken. The last thing we need is utility-style regulation that was developed in 1934 to address the 21st-century digital economy. And, over my dissent, the F.C.C. made that decision. So in 2017, when I became chairman, I said, let’s take a fresh look at this. We teed up a proposal to remove those regulations. And then in December of 2017, made the decision to ultimately repeal those regulations, but institute a much stronger transparency rule. And at the time, we thought this is the right thing for the Internet economy and that we hoped that people would approach the table to debate this in good faith.
Of course, as you mentioned, much of the “debate” strayed far more into the level of vitriol and even personal threats and the like. I wasn’t surprised that the decision raised consternation in some quarters. But I was struck at how vicious some of the blowback was. It certainly affected my family, my parents, my in-laws, friends and the like. And that was distressing, because I think the one thing that has distinguished American democracy, generally speaking, is that we can disagree, but at the end of the day, approach each other with civility and respect. And that is certainly not something that I found among many who entered the public square on this debate.
DUBNER: So you’ve discussed the — what you called — heavy-handed regulation that ultimately your opponents proposed. But I’m curious if you could be specific on what kind of regulations you felt were so encroaching. So, for instance, as I understand it, the F.C.C. actually used forbearance to say that a lot of the Title II regulations would not apply to I.S.P.’s, like rate regulation and universal service contributions. In fact, fewer regulations would apply to I.S.P.’s than to mobile-phone providers. So what did you feel we were actually missing out on? Because the argument against is that you were enabling big firms to get bigger, get more profitable, at the expense of certain users and certain smaller providers.
PAI: Sure, so, two things in particular. No. 1, the Title II classification of broadband comes with a whole host of subsidiary regulations. Under Title II, as you implied, there are a bunch of different rules that would apply to a common carrier, as it is called. It is true that the F.C.C. previously decided to forbear from the enforcement of some of those regulations, but others still remained. And moreover, what I heard from many Internet service providers in our record was that when they went to a bank and said, “Look, we want to raise capital in order to build a broadband network,” many of the banks would say, “Well, yes, even though the F.C.C. has forborne for now from some of those Title II regulations, they may not forbear in the future.” And in fact, if you look at the 2015 F.C.C. order, it says repeatedly, we are forbearing for now. And I think that uncertainty created a lot of doubts among those who require capital expenditures to build these networks.
The second thing is, the uncertainty created by the general conduct standard. This was a catch-all that the F.C.C. threw in to that 2015 order. Any network management practice, any business practice whatsoever, could be prohibited by the F.C.C. And in fact, the very first invocation of that authority was to go after wireless companies, smaller ones in particular, that were offering consumers free data through things called zero-rating, to allow the services to be delivered for free. And to me, that just spoke to the fact that the F.C.C. was arrogating to itself a lot more authority to address problems that hadn’t even materialized yet. And that was a problem for consumers and for companies alike.
Zero-rating, by the way, is a sort of loophole that allows internet providers to designate certain websites as counting for zero toward a customer’s data usage. T-Mobile, for instance, had a program called Binge On that let customers stream Netflix, Amazon, and Hulu without that counting toward their data-usage ceiling. You can see why, in net-neutrality terms, this would worry some people, since it favors the sites that have struck deals with a given I.S.P. The F.C.C.’s 2015 net-neutrality order didn’t definitively ban or allow these practices, however; it merely said that it could consider them on a case-by-case basis.
In any case, Pai’s repeal of the net-neutrality order officially went into action in 2018. But the whole thing is still a bit up in the air. A group of tech companies and consumer-advocacy groups, led by Mozilla, sued the F.C.C. for overreach. The U.S. Court of Appeals for the D.C. Circuit ruled that the F.C.C. had not overreached, but it did agree with the plaintiffs that states should be allowed to enact their own net-neutrality laws. It also said the F.C.C. needed to address how certain sectors, like public-safety workers, would be affected by the changes. While the opponents of net neutrality may have a certain amount of self-interest at stake, the general accusation is even more obvious: that the F.C.C. is helping the rich get richer, the powerful gain more power, and causing the digital concentration among giants like Facebook and Google and Amazon to become even more concentrated.
DUBNER: So let’s imagine we are talking in 2030 and not 2020, and looking back on 2020. What did people misunderstand about net neutrality?
PAI: Oh, boy. By 2030, I would argue that we will view this problem in the rearview mirror as a quaint anachronism. I honestly believe that, because I think we are going to see in the next 10 years an explosion in terms of modes of connectivity. Just over the last three years, under my leadership, for example, we’ve been pushing out a lot of spectrum for 5G and we could anticipate in ten years that the wireless connections will serve, at least in urban areas, as a complete substitute for some of the fixed broadband that we see. Moreover, we’re seeing a lot more innovation in space. Even now, companies like SpaceX and OneWeb are launching satellites in low-earth orbit. And I think they’re going to provide a competitive alternative. So once you see all of this innovation in ten years, I think the question of having a regulator in Washington sit there and micromanage all kinds of network and business practices will seem odd.
DUBNER: So a group of prominent states have sued to block the merger of T-Mobile and Sprint, even though your F.C.C. and the Justice Department have okayed the deal. So this case, as we speak, is in court, should be decided very soon. Will your side win? And why or why not?
PAI: I can’t guess about the outcome of this litigation, unfortunately, haven’t read the briefs, haven’t watched the witnesses. I certainly hope we will prevail, and that the partisan minority of state attorneys general who are pursuing this misguided litigation will lose. And the reason I say that is not just because of the institutional interests that the F.C.C. and the D.O.J. represent, the interests of the entire country and of competition across the country. And also because at the end of the day, we have our eyes on the future. And the future is going to be 5G.
And I don’t believe, and I don’t think my colleague at the Department of Justice believes, that two standalone competitors in this particular transaction would be as strong as a combined competitor. 5G networks will require a lot of capital to build the small-cell infrastructure of the future. It will require even more capital to bid at auction, on spectrum. And in addition to that, the different companies have different spectrum assets today that are not worth as much separate as they are together. And so looking forward, if the merger were to fall apart for whatever reason, I don’t think consumers would be better off.
As it happened, the merger didn’t fall apart. We did this interview with Pai in January, and in February, the T-Mobile-Sprint merger was approved.
DUBNER: So, cell phone plans in the U.S. are much more expensive than in Europe. Some economists argue that’s because U.S. corporations have successfully captured government via lobbying. Wouldn’t a merger like this just make it worse?
PAI: I don’t believe so. And in part that’s because then we would lose a lot of the benefits of the transaction. For example, Sprint right now is not investing significantly in maintaining its network. And that would only continue in the future. In addition to that, the Department of Justice and the F.C.C. are looking at creating Dish as a fourth wireless competitor. Essentially Boost Mobile, which is a Sprint brand, would be divested to Dish. And Dish would also have a network agreement with T-Mobile that would allow them to compete. And all of that goes away.
In addition to that, I’d be remiss if I didn’t add that one commitment that the F.C.C. got from these parties was to deploy 5G, which is defined as 50 megabits per second or greater, to 97 percent of American consumers within three years and 99 percent of the American population within six years. The company is not going to make those investments to reach those targets if the deal doesn’t happen. And so I think at the end of the day, that’s a pretty big benefit.
DUBNER: And if that 97 percent penetration doesn’t happen, what’s the penalty and how is it enforceable?
PAI: There are billions of dollars in penalties that would attach at various time stages, and the F.C.C. has made clear in our decision that we would take aggressive steps to make sure that those conditions were enforced.
DUBNER: More than twenty years ago, I guess, you worked in the Justice Department’s antitrust division, which at the time sued to block the merger of Sprint and WorldCom. And the merger was ultimately dropped. So, why were you against that merger and in favor of this one?
PAI: So, I did work on the WorldCom/Sprint merger back then, and the thinking was that in some of those markets — in particular, if I remember correctly, the long-distance market — the fear was that WorldCom and Sprint would have an undue market share. And it’s been some time since I worked on the deal. So I can’t remember all the specifics. But looking forward now, I think it’s pretty clear that the market changes very, very quickly.
I keep on my desk some articles from way back then about how — back in 2001, for example — that demanding the Federal Trade Commission take aggressive action to block the merger of Time Warner and A.O.L., because that company would have an unbreakable monopoly on instant messaging. Another article from 2007 talking about how MySpace had an unbreakable monopoly in terms of social networking. And I think if there’s one lesson in the telecom and tech sectors, it’s that things are very, very dynamic. And I think it’s a mistake for regulators to have a static view of the market in a moment in time, because that snapshot very quickly becomes yellowed with age.
DUBNER: Economists notoriously argue, generally, in favor of free markets and competition, as you’re doing now, except in cases where certain participants may have market power, which results in an imperfect competitive market. Don’t you think that companies — whether we’re talking broadband, mobile, whatever, AT&T, Verizon — don’t you think they have market power? And again, the evidence of price, cost, in the U.S. being so much higher than in Europe. Don’t you think that seems to be conspiring against the consumer, at least on the price level?
PAI: I think if you look at the wireless marketplace in particular, that’s good evidence that that is not the case. For example, there are four national carriers — AT&T, T-Mobile, Verizon, and Sprint. In addition to that, there are a lot of regional carriers that provide wireless service. In addition to that, cable companies are now entering the marketplace with very aggressive offerings. Hundreds of thousands of subs for one cable company alone just last year.
In addition to that, we have new companies entering this space offering services. So in terms of competition, I think the story is that things are getting better in terms of competitive entry and the like. Price is always a factor, which is why we are looking at encouraging some of this competitive entry, and we’re freeing up a ton more spectrum for people to acquire to be able to deploy these networks. But these are high CapEx industries. It’s not easy to build a wireless network. And that’s one of the challenges that any business has in this space.
It is of course not uncommon for lawyers to change their position based on who’s employing them. And if they’re skillful enough, they can make each position sound like the right one. I asked Pai to tell me one thing he believed for a long time to be true before changing his mind.
PAI: I think one of the things that I have changed my mind about in recent years is, even though I’m a free marketer, the need for the government to get involved, sometimes in a significant way, to be able to vindicate the public interest. Upgrading the 9-1-1 system, for example. I mean, it’s something that the F.C.C. has to lead on. And I was the one who led the charge to get rid of the access codes — to have to dial a nine or an eight before reaching the outside line. Very simple problem to solve, but no individual company has a strong incentive to solve it. Same thing in terms of Wi-Fi spectrum. It’s very important for consumers, delivers a lot of value. But unless the F.C.C. steps in and says, “No, we’re going to create a space for innovation, we’re not going to auction the spectrum off in the market, that’s something that won’t happen.”
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We’re speaking today with Ajit Pai, chairman of the Federal Communications Commission. One of his biggest areas of interest at the moment is the rollout of what is called 5G. So what is 5G exactly, and why’s it so important?
PAI: 5G is the next generation in wireless connectivity. The predecessor technology, of course, 4G LTE, is the one that many consumers with a smartphone will recognize. And 5G networks will be 100 times faster, perhaps more, than 4G networks. They’ll also be a lot more responsive. So for example, when you click on a link on your phone, you might notice there’s some lag time to get a response back from the network. That lag time is called latency. And 5G networks will have much less latency than 4G networks. Also, it will use a variety of different spectrum and that will allow not just better coverage, but also huge transmission of data, gigabits of data wirelessly.
A reliable 5G network will require a massively expensive physical buildout, tremendous amounts of electrical power, and a significant amount of what’s called “harmonized mobile spectrum.” Spectrum — the radio frequencies that wireless signals travel through — is a limited resource. In the U.S., it belongs to the government, with some frequencies reserved for use by federal agencies.
PAI: Typically, it is the Department of Defense, N.A.S.A., N.O.A.A., the Federal Aviation Administration, the Department of Transportation, the Department of Energy.
PAI: And so when we’re trying to free up more spectrum for consumers, it’s very difficult to do if other agencies hold it, essentially. And that’s something that other countries have not done, they’ve given their F.C.C.’s the chance to regulate those airwaves directly.
DUBNER: One might argue the spectrum is a natural resource, right, that should essentially be a social resource. But it’s been mostly treated as an avenue for commercial firms to distribute their products. What do you see as, I guess, the highest and best use of the spectrum, how to balance between commercial firms, the public, shareholders, and consumers?
PAI: That is an excellent question, and one that has consumed the F.C.C. for many, many years. And for many years, the conventional wisdom was that the chairman of the F.C.C. or a majority of the F.C.C. should decide what those highest and most valued uses were. And so we picked winners and losers. But thanks in part to a very seminal paper by Ronald Coase, the famed Nobel Prize-winning economist, back in 1959, he pioneered the thought of auctioning off the spectrum, which is something that Congress allowed us to do starting in 1993. And over the last several years, we’ve embraced what is called flexible use. We auction off spectrum without any serious restrictions on how companies can use it, thinking that ultimately the private sector will determine the highest valued use.
Right now, the highest-valued use appears to be the rollout of 5G. It has become a national priority, starting in the White House:
Donald TRUMP: The race to 5G is a race America must win, and it’s a race, frankly, that our great companies are now involved in, we’ve given them the incentive they need. It’s a race that we will win.
I asked Ajit Pai how much this desire to “win” the 5G race is driven by a broader competition with China, which appears to be significantly ahead with 5G.
PAI: For me, at least, speaking on behalf of the agency, what I can say is that we believe it’s a national priority, not just for that reason, but also because we do think that 5G will transform many different sectors of our economy for the benefit of American consumers. And I do think that, given the experience with 4G, where American leadership in 4G, among other things, created the mobile-app economy that we all know and love today, and also made consumers much better off, we want them to benefit from 5G as well. So there’s certainly a geopolitical component to our thinking, but there’s also one of just the ability to deliver value for the American consumer.
DUBNER: Can you talk for a moment about what you see specifically as the value provided? We hear about simultaneous translation. We talk about better virtual medical care. Maybe there’s a way to reverse every robocall and destroy the caller’s equipment. That would be lovely. But could you just kind of imagine for us maybe three to ten years from now, what a day in the life might be like for the average American communicator, and what 5G will make possible along those lines?
PAI: In the early days of 5G, I would expect that enterprises, companies, will see more of the concrete services deployed. For example, if you own a warehouse and you want to manage how different packages or equipment is moving throughout the warehouse, you might use a 5G network to track that. But I certainly think that there are going to be consumer-friendly applications as well. For example, virtual and augmented reality. Gaming, of course, is one of the great services that people enjoy today. And I would imagine that using A.R. and V.R. based on 5G, that gaming is really going to take off. Same thing with things like telemedicine. There are some medical services that can’t be provided in a patient’s hometown. With a 5G connection, a doctor that might be 100 or even 1,000 miles away can get a high-resolution view of a patient’s dermatological problem, for example.
DUBNER: So some critics suggest that this speed and intensity of communication with 5G may be coming at the expense of cybersecurity. Can you briefly, first, just give us an overview of how you’re considering balancing security with that speed or intensity?
PAI: Those who voice those concerns are absolutely right to have a focus on security. The fact that we are going to have all kinds of new devices connected to the network (forget about phones: cars and refrigerators and the like) means not just more connected devices, it also means, as the cybersecurity experts would say, a greater attack surface. There are many more points at which a bad actor can target the network through some of these devices. Both here and across the world, I’ve been meeting with some of my counterparts and other private-sector leaders to emphasize that the future of 5G has to be not just strong networks, but also secure networks. And I think the common thread is that people are very excited about the future of communications networks, but also concerned about the fact that we are, in some cases, as vulnerable as our most vulnerable part of the network. So much more work to be done on that front, both here and abroad.
Last year, Pai put forth an F.C.C. proposal that would prohibit F.C.C. funds from being used to buy equipment from companies that pose “a national security threat.” This proposal singled out Huawei and Z.T.E., two of China’s biggest telecommunications companies. The proposed ban has since been unanimously approved by the F.C.C., although Huawei has been trying to challenge it in court.
DUBNER: Can you talk for a moment about Huawei, especially Huawei equipment, that was being installed widely, as I understand it, in rural communities, in part because it was cheaper than American-made, and what you, and I guess, Congress, have been doing to change that?
PAI: Yeah, so this company and other Chinese companies in particular have presented special concerns. And one part of the F.C.C.’s decision last year involved getting a survey from these rural companies about what Huawei equipment they might have in their networks, and equipment from Z.T.E., and figuring out the costs of removing that equipment from the network. And we are taking that step because we do think that these Chinese companies in particular present a risk. Any Chinese company is subject to China’s national intelligence law. One article of that law requires Huawei and Z.T.E., any company subject to Chinese jurisdiction, to comply with requests from the intelligence services. Another article of that law prohibits any recipient of such a request from disclosing it to their customers.
And I think, given the Chinese government’s recent actions on everything from Taiwanese flag emojis on Apple iPhones manufactured in Hong Kong, to N.B.A. stars voicing opinions about Hong Kong, to the use of facial-recognition technology in Xinjiang and others, I think it’s very clear that the Chinese Communist Party is more than happy to promulgate such requests, and that is not a risk, I don’t think, that the American consumer or the American government should take.
DUBNER: Did you see any evidence that Huawei equipment on U.S. networks had allowed any kind of security breach?
PAI: There obviously are classified restrictions on my ability to discuss some of that information.
DUBNER: It’s just us talking here. It’s okay.
PAI: Right. So unfortunately, I can’t reveal some of what we’ve learned in intelligence briefings. But what I will say is that I do think that both existing and prospective equipment from that company presents an unacceptable risk to the American consumer, especially when you think about some of the government installations that the Chinese would love to know more about.
DUBNER: And I understand that Congress approved something in the neighborhood of $1 billion to buy off or buy out this Huawei equipment or to subsidize the installation of American-made or other equipment in these rural areas. Is that true?
PAI: Congress is currently considering legislation that would do that. We don’t have funding on our own. And so I’ve asked Congress to take a look at giving us — or deriving directly to these companies — a funding stream to allow them to remove this equipment.
DUBNER: Another cybersecurity question, looking forward a little bit more. So, as I understand it — and I may be wrong, please correct me if I am — the rise in quantum computing could really destroy what’s now considered secure communication. And again, as I understand it, the Chinese and perhaps others are warehousing our currently-encrypted data communications in order to break it later when that’s viable. Tell us what you know about this. And if what I’ve said is accurate, what’s being done about it?
PAI: I have read a decent amount about quantum computing and in particular about Chinese direct investments into quantum computing technologies. And I’m not an expert in this area, to say the least, but I have heard the concern that one of the killer apps, so to speak, of quantum would be the ability to break encrypted communications. And so especially to the extent that the Chinese have data sets that they have acquired through pilfering or through other means, that is something that would concern me. And I say that as somebody who, as an applicant for a federal job, has had his SF-86 form, I’m sure, sitting in some People’s Liberation Army warehouse somewhere to be analyzed later.
DUBNER: What’s on that form?
PAI: So this back in 2015, during the Obama administration, you might have seen that the SF-86 for any applicant for a federal job for many years, including the personal information of their family members and friends, etc., who are listed on those forms, was taken en masse from the Office of Personnel Management. And the speculation was that the People’s Liberation Army of China managed this hack and that the hacked information was now sitting on servers somewhere in China to be analyzed. And you think about all of the people across the government, U.S. government, who that involves. That is a major data breach, to say the least. I was worried about it when it happened five years ago, and I remain worried about it today.
DUBNER: So a lot of conversations about foreign governments interfering with the U.S. strike me at least as a little bit naive, as if the U.S. has never interfered with foreign governments in any way, politically, whatnot. Because if you read even a little bit of history, you know that’s the case. So let me ask you this. Let’s assume that the Chinese government, Russian government, maybe others, are warehousing whatever data they can from American or international communication with the hopes that quantum computing will allow them to break those encryptions later. What about us?
PAI: Well, so what I would say to that is obviously each country has an intelligence service and they pursue activities that those countries believe is in their national interest. But I think there is a distinction between those traditional techniques of intelligence gathering and analysis and what we see from the Chinese Communist Party, from the Russian government, and others. I have put out on my Twitter account, for example, a long-running series of practices by the Chinese Communist Party that combine not just the ability to conduct some of the intelligence activities with what I believe is a malign intent, either to use those technologies to harm their own people, but also to compromise and to steal, in many cases, technologies from other countries.
For example, last year, the Department of Justice announced an indictment of certain company officials from Huawei. Huawei officials stole a bunch of sensitive information from T-Mobile, one of our biggest carriers, gave them incentives to steal. Those are the types of things we’re talking about here at the behest of the Chinese Communist Party. And I think, to be honest, we’re dealing with a different kind of threat in this case, from some of the other typical activities we’ve seen.
DUBNER: So I’ve heard you say that the F.C.C. is determinedly not in the business of content regulation. So all of these pipelines and airwaves and so on carry obviously a lot of content that a lot of people consume in a lot of different ways. But that’s not what you do. Now, when I hear you say that, I think, well, there are issues today in the media that — many of which didn’t exist back in 1934. Everything from truly fake news to bot-driven media to foreign interference. So why don’t you see a role for government, especially the F.C.C., in addressing or regulating that?
PAI: Part of the reason is legal. Under the Constitution, the First Amendment, of course. And the current laws in the Communications Act and other laws that Congress has given us to administer. I don’t see that we have the legal authority to get involved in this space. And secondly, as a policy matter, it becomes very difficult quickly, as you realize, to draw the lines here. What constitutes a permissible view and what does not? And that difficulty in drawing lines, I think, would make it, as a practical matter, almost impossible for any agency, especially the F.C.C., to make a determination here.
DUBNER: I appreciate that position. But I’ve also heard you say publicly that firms like Google and Facebook offer no transparency about how their products are put together. Right? And these are publicly held firms. And then they’re largely left to police themselves until or when someone discovers that an algorithm has essentially cheated someone in some fashion. So could you see the F.C.C. getting involved at some point, at least on the transparency end of things?
PAI: Well, so I would distinguish between transparency and content regulation. I think transparency is something that every consumer would expect of any company to disclose how it’s doing business. We don’t have jurisdiction over tech firms as such. I’ve spoken with my counterpart at the Federal Trade Commission who does have jurisdiction over them about the importance of transparency. But certainly with respect to broadband providers, we’ve instituted a very strong transparency rule that requires any Internet service provider to disclose its network management practices, its consumer service plans, and the like, so that consumers can make informed decisions upfront. I think that is a happy medium between the content regulation that some want and a complete free-for-all where these companies are unregulated whatsoever.
DUBNER: Predicting the future is obviously hard, if not impossible. But if you had to guess what problems your successors will be dealing with, let’s say an F.C.C. chair, 10 or even 20 years from now, what do you anticipate being their cutting-edge priorities?
PAI: Boy, if I had to look forward 10 years, assuming some of the problems we’ve talked about thus far have been solved — I tend to be an eternal optimist — I do think that one of the things we’ll have to think about going forward ten years from now, when I would forecast that the Chinese in particular will be much more prominent in the technology spaces, do we continue to believe in the success of our model? Traditionally, the U.S. government has not directly funded technology. We haven’t picked national champions. We don’t subsidize them when they’re bidding on contracts abroad. We don’t violate trade rules. We’ve essentially had a free-market approach. And I think it’s the right one.
But I think 10 years from now, my successors are going to face a pretty basic challenge when it comes to things like spectrum auctions or the allocation of funding through our universal service fund. Is it better, vis-a-vis the Chinese, for example, to have a more unified industrial policy? I don’t think so currently, to be clear, but I do think that’s something that’s going to gain a lot more currency in the time to come.
DUBNER: So the F.C.C. recently auctioned off some spectrum for 5G use. I believe you took in a little bit more than $6 billion. Where does that auction money go?
PAI: So by law, we are required to deposit any auction proceeds into the U.S. Treasury. We don’t keep it for ourselves or remit it to Congress.
DUBNER: And it just goes into a — I don’t mean to— the phrase that comes to mind is “slush fund.” I didn’t mean to use it pejoratively, but it goes into a general fund? It’s not directed toward any kind of communication or technology use?
PAI: That is correct. It is dedicated to the Treasury, which uses it typically for deficit reduction. But I actually proposed many years ago, in 2016, that the Congress give us authority to reserve ten percent or some percentage of the proceeds to devote to rural broadband deployment, which is something that’s important to me and obviously important to many Americans.
DUBNER: Considering that your agency gets to auction off the spectrum, which— let’s call it a natural resource — but then diverts that money back to Treasury, it does make you think about other natural resources like oil, which is— obviously the government gets some revenue from licensing, but most of that money is captured by private firms and their shareholders. Does your position with the spectrum make you rethink, if we were to rewind the clock back to 150 years ago, before oil was a big commodity in the U.S., how you might apportion that revenue differently?
PAI: That’s an excellent question. I do think that our experience with spectrum suggests a successful model, that we allow private-sector innovation to flourish and we get a return for the public fisc. Whether it’s applicable to oil or other natural resources, I can’t say. But I do think that by and large the consensus view is that the competitive bidding that Ronald Coase pioneered that we’ve been administering has been quite successful for all involved.
DUBNER: So you have personally pinballed between government service and private practice for many years, including a stint at Verizon. Where should we expect to see Ajit Pai 10 years from now? Are you running a telecom? Are you running for president of the United States? What are you doing?
PAI: Well, so just between us, since you promised me that no one else was listening — so about a year, two years ago, maybe, when I was in Los Angeles for some meetings, I had a chance to visit Judge Judy. And I told her, as I will tell you, that I think she presides over the highest court in the land, and should she ever choose to hang up her spurs, it would be an honor of a lifetime for me to don the robe. She humored me with a pleasant response. We’ll see if that pans out over the next decade. But other than that, and the Kansas City Chiefs losing their minds and signing a slow 47-year-old to be a wide receiver, I don’t really have any particular aspirations that I can share at this time.
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Freakonomics Radio is produced by Stitcher and Dubner Productions. This episode was produced by Daphne Chen. Our staff also includes Alison Craiglow, Greg Rippin, Harry Huggins, Zack Lapinski, Matt Hickey, Zack Lapinski, and Corinne Wallace. Our intern is Isabel O’Brien. The music you hear throughout the episode was composed by Luis Guerra. You can subscribe to Freakonomics Radio on Apple Podcasts, Stitcher, or wherever you get your podcasts.
- Ajit Pai, chairman of the Federal Communications Commission.