Communications Daily recently highlighted a disconcerting facet of the FCC's conditional grant of approval in the Harbinger-SkyTerra merger. It appears that non-parties to the transaction directly affected by controversial conditions to the merger were kept in the dark about those proposed conditions because of a Commission grant of confidentiality issued a month prior to the merger approval. The episode highlights the continuing need for change that the Commission has promised in other areas. It's time to bring greater openness and transparency to the FCC's merger approval process.
The conditions adopted in the FCC's Order approving the merger include a prohibition on the merged entity’s allowing access to its spectrum by the two largest wireless carriers absent prior Commission consent. In a blog post from last month ("FCC Regulating Outside Its Orbit"), I pointed to the problem inherent in the Commission’s action. In sum, the FCC claimed for itself authority to bind not only the mobile satellite service providers that are parties to the transaction but also a power of sole discretionary approval of future business deals involving non-parties to the merger. Whereas several prior Commission merger approvals gave rise to extra-statutory regulation by condition relating to merging parties, its conditional approval of the Harbinger-SkyTerra merger marks a troublesome enlargement of the "regulation by condition" problem to unwitting non-parties.
Now added to those concerns with a seemingly open-ended condition by regulation process through FCC merger review is another peculiar dimension of agency non-transparency. The Supplement to Petition for Partial Reconsideration recently submitted to the FCC by Verizon Wireless complains about the Commission’s grant of confidentiality to the merging parties’ proposal of conditions "materially the same" as those adopted one month later in the FCC’s Order. "At no point during the month after they were first proposed," asserts Verizon Wireless, "did [it] ever receive notice that its access to spectrum and alternative network capacity was at risk of being restricted via an adjudicatory proceeding to which it was not a party." Rather, an unexplained post-approval withdrawal of confidentiality by Harbinger resulted in the disclosure of those "materially the same" conditions offered up a month before the FCC's Order.
In light of the new FCC's professed commitments to change, to openness and to transparency, one is hard-pressed to understand the Commission's decision to consider those controversial merger conditions while keeping them away from the eyes of the non-parties to be affected and the eyes of public. None of this is to suggest that Harbinger-SkyTerra merger approval was the result of a conspiracy of regulators with sinister motives conducting deals in a dark and smoky room. But the episode positively points to the need for agency reform. The Commission is undertaking reforms of its procedural rules, its ex parte rules, and its forbearance process. FCC merger review should be the next prime candidate for process reform.
The non-transparency of the FCC’s actions in approving the Harbinger-SkyTerra merger certainly bring into sharper focus the short-changing of due process principles resulting from the Commission’s merger review actions. As Verizon Wireless' supplemental petition aptly put it:
Stripped to its essence, the filing of the proposed commitments under these circumstances prevented Verizon Wireless from learning of their existence until after the Order was adopted. This new information underscores that the conduct in this proceeding denied Verizon Wireless – a target of two of the Order’s key conditions – any opportunity to be heard, and underscores the unlawfulness of the conditions themselves. This deprivation of Verizon Wireless's due process and other rights represents that antithesis of open and transparent decisionmaking, and further establishes why the conditions should be eliminated immediately.
It is a basic rule of law that the rights of parties cannot be adjudicated unless those parties are actually or constructively before the decision-maker. FCC regulation by conditions imposed on non-parties to merger transactions epitomizes arbitrary agency action and is fundamentally unfair.
Overall, the FCC's case for adopting merger conditions constraining the non-party wireless carriers appears shaky. Agency non-transparency and non-party due process problems raise serious questions about the FCC's Order. Not to mention that the FCC's Order offered no analytical reasoning tying the controversial conditions it approved with any kind of market failure or power. Taking all these shortcomings into account, the most immediately sensible thing for the Commission to do is to drop the merger conditions constraining the non-parties to the transaction. The next most sensible thing for the Commission to do is to bring its professions of commitment to change, openness and transparency to its merger review rules with meaningful process reform.