Wednesday, September 11, 2013

Getting Out of the Business? Reform of the FCC’s Merger Review Process

While the FCC considers pending mergers such as the application of AT&T and Atlantic Tele-Network, Inc. (“ATN”) filed in March of this year, as well as others, it is timely to reexamine the FCC’s review process for such transactions. On August 27, the FCC stopped the 180-day “shot clock” on Day 175 in order to allow AT&T to submit further information, claiming that the requested information is necessary for the Commission’s determination of whether the transaction meets the public interest test. This delay and its somewhat ambiguous justification are just another indication of the need to reform the Commission’s transaction review process in order to curb inefficiency and promote clearer standards of review. 
In thinking about the FCC’s transaction review process, perhaps a larger, more fundamental question should be considered: Should the FCC have the authority to review mergers at all?
In July of this year, the House Subcommittee on Communications and Technology held a hearing entitled “Improving FCC Process,” in which panelists and Representatives commented on discussion drafts of the FCC Process Reform Act of 2013 and the FCC Consolidated Reporting Act of 2013 presented by Chairman Walden. During testimony on the proposed legislation, particularly on the Process Reform Act, panelists and Representatives alike recognized that the merger review process is an important issue to consider in the context of FCC reform efforts overall.
The FCC Process Reform Act recommends changes to the Commission’s transaction review process. The provisions in the proposed act would allow the Commission to condition the approval of a transaction only if the condition addresses “a likely harm . . . uniquely presented by the specific transfer or other transaction.” This change is intended to combat the Commission’s systematic abuse of the merger review process, in which the Commission frequently withholds approval of transactions unless and until applicants “voluntarily” agree to conditions that often do not relate directly to the transaction at issue.
In the context of the discussion concerning the merger review portions of the draft legislation, Congresswoman Eshoo stated that what underlies much of this reform effort, “driving [it] more than anything else,” are not only the problems in the review process, but also the FCC’s very authority to review acquisitions and mergers. She stated this issue is where there is “concern, disagreement, agitation, and aggravation.” Stuart M. Benjamin, Professor at Duke University Law School, then pointedly raised the question of whether it is appropriate for the FCC to be “in the business” of reviewing mergers at all.
In response, Richard J. Pierce, Professor at George Washington Law School and member of the Free State Foundation’s Board of Academic Advisors, stated that “it would make a lot of sense to take the FCC completely out” of the merger review process.  Professor Pierce, an expert in the administrative law field as well as in antitrust law, elaborated that “the FCC does not know much about antitrust law; the FTC and the Department of Justice know a lot about antitrust law.  They have the power to impose conditions, they regularly impose conditions on mergers, and those conditions are specifically tailored to address the competitive issues that are raised by a proposed merger.” Professor Pierce proposed that “the far more sensible thing” than reforming the FCC’s merger review process would be introducing a statutory change that states “the FCC has no power over mergers. That is exclusively the realm of the DOJ and the FTC.” 
The need for reform of the FCC’s transaction review process has been discussed by Free State Foundation scholars for years. In his piece, “Any Volunteers?” released in 2000, FSF President Randolph May noted how the FCC has used the license transfer review process to essentially regulate by condition, consistently conditioning transaction approval on concessions from communications companies. He advocated that the review process should be reformed to prevent this type of abuse.
Moreover, in “Any Volunteers” as well as in “Reform the Process” released in 2005, Mr. May noted that the FCC largely duplicates the efforts taken by the DOJ and FTC in reviewing mergers by requiring that the transaction “enhance competition” under the public interest standard. He proposed that the Commission exercise regulatory self-restraint by principally deferring to the DOJ’s or the FTC’s expertise regarding competitive concerns, since both agencies are already tasked with determining whether transactions would “substantially lessen competition.” In an age of justified concern regarding government efficiency and the effective use of resources, it is important that agencies neither duplicate efforts, nor undertake processes that other agencies are better equipped to handle. 
Professor Pierce’s suggestion that the FCC merger review process should not be changed, but that the FCC should be out of the business of reviewing mergers and transaction applications, deserves closer consideration. Agencies like the Antitrust Division of the DOJ or the FTC already have statutory standards based on antitrust principles that are more easily applied to merger reviews, in addition to greater expertise and experience in antitrust law. 
In contrast, the FCC’s ambiguous public interest standard creates opportunities for abuse and over-regulation. Indeed, the FCC has justified the imposition of burdensome, so-called “voluntary” conditions on many major transactions under the nebulous public interest standard, even when those conditions were unrelated to the specific issues presented by the pending transaction. 
The reforms proposed by Chairman Walden in the FCC Process Reform Act would require that the FCC only impose conditions that are narrowly tailored to remedy the unique effects of the pending transaction, and those reforms would prevent the FCC from justifying merger conditions under the over-broad public interest standard. These meritorious changes would go a long way to reforming the review process.
But in the context of discussing reform of the merger review process, it is worth considering Professor Pierce's point: Should the FCC be in the business of merger review at all?