Will Congress Pull Plug on FCC Merger ReviewPower?

Posted: 08/1999

Will Congress Pull Plug on FCC Merger Review
Power?
By Kim Sunderland

Several members of Congress, hell bent on restructuring or even eradicating the Federal
Communications Commission (FCC), now are threatening to remove the federal agency’s
authority to review proposed mergers between telecommunications companies. While many
industry insiders consider this congressional warning ludicrous–mainly because the
Telecommunications Act of 1996 gives the FCC this merger review power–it remains a real
and ripe issue that’s being beaten against the hot blacktop of the nation’s capital.

At present, the FCC and the U.S. Department of Justice’s (DOJ’s) antitrust division
issue the thumbs-up or thumbs-down decisions over these pending mergers. The sister
agencies, both overseen by the Senate Commerce Committee, don’t always march to the same
tune; DOJ may approve a merger that subsequently gets quashed by the FCC.

It can be an arduous process for companies. Currently, many telecom executives for the
incumbents bemoan the process as cumbersome and overly regulatory–a system that’s not
exactly conducive to competition, they say. Their complaints have made it to Capitol Hill,
where Sen. John McCain, R-Ariz., the powerful head of the Commerce Committee and a
presidential contender, has lumped them in with his plans to restructure the FCC.

McCain is interested in legislation that would limit the FCC’s authority to review
mergers, or even eliminate it altogether. He and Judiciary Chairman Sen. Orrin G. Hatch,
R-Utah, have introduced the Telecommunications Merger Review Act to do just that. Another
measure is the proposed Antitrust Emergency Review Act, introduced by Sens. Mike DeWine,
R-Ohio, and Herb Kohl, D-Wis., which would limit the FCC’s review time on proposed mergers
to 180 days. The Antitrust, Business Rights and Competition subcommittee approved the bill
this spring, and the Judiciary Committee has been looking at it this summer. A compromise
plan also has emerged that would remove the FCC’s antitrust review role but allow it to
continue with public interest reviews.

Common Carrier Bureau Chief Lawrence E. Strickling says the FCC isn’t required by
either the Telecom Act or its own regulations to review mergers in a specific amount of
time. The DOJ has 30 days, but can extend that timeframe if it requests more information.
"We’re on record as saying we’re opposed" to such limits because it’s difficult
to handle these reviews in shorter time periods, Strickling says.

But a time limit is essential, says Jeffrey Eisenach, president of the Progress &
Freedom Foundation, a conservative think tank in Washington. He thinks that FCC reviews
result in "unnecessary and costly delays" for mergers that would ultimately
benefit consumers. "The FCC’s practice of reviewing telecommunications mergers is
duplicative of the antitrust review conducted by the Justice Department and should be
stopped," he says, adding that the commission often uses mergers as an opportunity to
extract concessions for which it otherwise has no legal authority.

A case in point is the merger of SBC Communications Inc., San Antonio, and Ameritech
Corp., Chicago. The DOJ approved the SBC-Ameritech deal with minimal conditions. But it
took 12 weeks of discussions between the Bell companies and FCC staff to finally agree on
28 merger conditions (see story).

Meanwhile, the FCC stopped reviewing the Bell Atlantic Corp., New York, and GTE Corp.,
Irving, Texas, merger at the request of the companies, which first want to nail down
approvals to provide in-region, long distance service, Strickling says, before they
proceed with their merger plan.

The FCC did ride high for a while when it approved the megamerger earlier this year
between AT&T Corp. and Denver-based TeleCommunications Inc. Some of the buzz around
Washington this month is that another FCC merger approval would get Congress to lay off.
Other industry experts don’t take the controversy seriously, saying the FCC should stay
its course.

"Any lawyer will tell you that the significance of FCC merger review boils down to
one phrase: ‘In the public interest.’ "The very nebulous nature of ‘public interest’
really gives the commission broad authority to reject mergers based on subjective
standards rather than hard numbers," explains Rosemary McMahill, manager of
regulatory services for Cathey, Hutton & Associates Inc., Austin, Texas.

And what is public interest? "It’s whatever the FCC says it is at any given moment
in time," says Mitchell F. Brecher, Washington partner with Miami-based law firm
Greenberg Traurig.

Congress also is trying to figure out the answer to that question. During a McCain-led
hearing this summer focusing on FCC reform, for example, Commerce Committee members
microscopically examined the FCC’s success of protecting the public interest.
Specifically, the committee focused on whether the FCC has advanced the interests of
consumers by bringing about lower rates, more competition, new services, a revised
universal service subsidy system and substantial deregulation, and whether it is
efficiently performing its statutory spectrum allocation and licensing functions.

Brecher believes such oversight of the FCC is "a backlash reaction" to the
increased scrutiny the commission has recently placed on pending mergers. And if the FCC
was out of the loop on the approval process, Brecher admits that that certainly would
simplify things. "It would be one less hurdle for companies to jump."

Companies do want this broad authority and subjective standard eliminated, McMahill
says. "However, public interest standards are the reason the FCC exists–to protect
the citizens from corporate abuse. While the DOJ may be unable to prove market power abuse
or concerns, the FCC could reject a merger based on public interest concerns," she
says.

The key here is potential abuse, McMahill adds. And while the FCC’s role in this
instance is very subjective, "without it, it would be extremely hard to halt a
monopoly during its formation, or to break one up after its domination," she says.

If the FCC’s merger review role were taken away, says Jeffrey Binder, president of
Jeffrey Binder & Co., Brookline, Mass., "it would be chaotic for the telecom
industry unless it was replaced by something else that could provide a forum for
broad-based industry considerations." Without the FCC’s authority in this instance,
there would be an enormous burden placed on the DOJ, he says.

The FCC has somewhat of a respite this month with Congress on break.