The Federal Communications Commission has just approved the transfer of spectrum licenses as part of the AT&T-Centennial merger. This finality is welcome news, not the least reason being the finality itself. As I blogged previously, it was a year ago this month that the first applications for this merger were first filed at the FCC. To its credit, the FCC also declined to impose unwarranted restraints on the merging parties' business dealings with handset manufacturers.
In sum, the FCC found that "competitive harm is unlikely in most of the overlap markets" that will result from the merger "primarily because multiple other service providers in these markets would be an effective competitive constraint on the behavior of the merged entity." However, consistent with the U.S. Department of Justice's (DOJ) requirement that Centennial divest its wireless operations in seven local areas, the FCC likewise concluded that “absent a remedy, competitive harms would likely result." In addition to its mirroring of the DOJ's divestiture requirement for those areas, the FCC also is imposing a number of "voluntary commitments" as conditions of FCC approval.
Significantly, the FCC rejected calls to intrude on existing business practices involving wireless carriers and handset manufacturers. It found that proposals for prohibiting exclusive handset arrangements "are not narrowly tailored to prevent a transaction-specific harm." Rather, the FCC concluded that the concerns animating such calls for handset exclusivity prohibition "apply broadly across the industry and are more appropriate for a Commission proceeding where all interested industry parties have an opportunity to file comments." Without addressing the merits of handset exclusivity prohibition or even tipping its hand on the matter, the FCC chose to address the issue another day.
Wisely, the FCC avoided hasty imposition of backdoor regulation. Regardless of what one thinks of handset exclusivity agreements or prohibition of such agreements as a general matter, a selective imposition of such regulation hardly makes for fair public policy. For starters, handset exclusivity agreements are an industry-wide phenomena, not something limited to the carriers in this particular merger. Imposing such regulation only on one carrier is not a neutral, even-handed approach.
Moreover, it hardly makes for fair administrative practice to use a merger between two carriers to regulate business relationships between a carrier and manufacturers. Some recent analyses suggest that handset exclusivity agreements owe more to the hard bargaining of handset manufacturers than carriers. As Robert Hahn and Hal Singer have written, "[h]andset makers seek exclusive agreements with carriers…to share the enormous risk associated with launching a new device, to align the incentives of the carrier with the handset maker, and to ensure network quality." Manufacturers want carriers to commit to providing customers with technical support, to market their devices, and to uphold their brand name's good will. That being the case, a merger review proceeding is particularly inapposite for imposing new regulations that would have sweeping effects on a different sector of the marketplace.
The merger review process shouldn't be the FCC's incubator for experimental policies or pet projects for which it doesn’t have rules for or which it otherwise has no authority to impose. For a decade FSF President Randolph May has been urging the agency to reform its merger review process. Here's one of his pieces, "Any Volunteers," from March 2000.
Unfortunately, the FCC's recent track record does include some special pleading regulation through selective merger condition requirements. As I mentioned in a prior post, the FCC imposed network non-discrimination requirements as a condition for approving the AT&T-BellSouth merger. Like in many other contexts, the FCC's "public interest" standards for merger review are much more fuzzy than the market power analysis that the DOJ is limited to under the Clayton Act. Earlier this year, the FCC solicited public comments on how to reform its merger review process. Absent any pending reforms stemming from that proceeding, the FCC's modest self- restraint in this merger review makes good sense.
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