T-Mobile/UScellular Transaction Deserves a Timely Decision by the FCC

 On January 28, the public comment period closed in the FCC's review proceeding for the T-Mobile/UScellular transaction. The weight of available evidence indicates that the proposed acquisition by T-Mobile of 30% of UScellular's spectrum and its subscribers most likely would bring public benefits by making high-speed 5G mobile services and residential fixed wireless services available to more Americans. Given UScellular's small market share, the transaction is unlikely to cause any significant harm to competition or consumers. 

The FCC should decide on the proposed T-Mobile/UScellular deal well before the agency's 180-day shot clock for completing transaction reviews expires. The shot clock was intended to be the outside date by which agency reviews of transactions involving substantial concerns are to be finished – not the much shorter timeline in which most reviews, which do not raise substantial concerns, ought to be decided.

 

The backdrop to the proposed T-Mobile/UScellular transaction is today's "mobile telephony/broadband services" product market that is characterized by strong competition among nationwide mobile providers T-Mobile, AT&T, and Verizon, emergent nationwide provider EchoStar, and regional cable mobile virtual network operators (MVNOs) Xfinity Mobile and Spectrum Mobile. Importantly, the "mobile telephony/broadband services" exist in a broader converged broadband marketplace wherein traditional mobile wireless face cross-platform competition from potentially substitutable fixed wireless (FWA), cable, fiber, and satellite services.  

 

To briefly recap the terms of the proposed transaction, T-Mobile would acquire UScellular's wireless operations, subscribers, and about 30% of its spectrum licenses for $4.4 billion. UScellular subscribers would gain access to T-Mobile's faster and more capacious 5G mobile wireless network. 

 

T-Mobile and UScellular apparently do not have an overlapping competitive presence in thirty-seven percent (37%) of the Cellular Marketing Areas (CMAs) implicated by the proposed deal. Also, on average, T-Mobile’s spectrum holdings are reportedly lower in UScellular's geographic territory than in other areas. Post-transaction, consumers in those overlap areas would still have a choice of three nationwide mobile wireless providers, and many would also have a choice among EchoStar’s 5G service and/or a cable MVNO.  

 

Moreover, petitions and replies filed in opposition to T-Mobile/UScellular do not raise any transaction-specific competitive concerns that would justify agency delay in making a decision.  Concerns about spectrum concentration expressed variously by CCIA, EchoStar, and RWA appear overstated because T-Mobile would only acquire 30% of UScellular's spectrum, and providers AT&T, Verizon, and EchoStar all have vast valuable spectrum holdings. Indeed, it appears the agency's spectrum screen for closer analytical scrutiny is not triggered in any CMA subject to the deal. 

 

Furthermore, claims or concerns raised by petitions and replies in the proceeding about data-roaming arrangements and employment-related matters do not appear to be tied to this specific transaction. Post-transaction, any aggrieved mobile provider can file complaints with the Commission for adjudication under the agency’s data roaming rules. Insofar as employment-related concerns are raised, they are more suitable for review by agencies such as the National Labor Relations Board.

 

Based on a review of the available record in light of competition principles, the proposed deal appears to offer public benefits without any harms that would outweigh them. The Commission should promptly act on the T-Mobile/UScellular proposal, without having the review delayed by matters that are unrelated to the transaction. 

 

P.S. On January 8, the Free State Foundation filed its Opposition to Petitions to Deny in the FCC's review proceeding for T-Mobile/UScellular.

Verizon/Frontier Merger Would Make Fiber and Fixed Wireless More Competitive

February 6 is the halfway point of the FCC's 180-day shot clock for the agency's review of the proposed Verizon/Frontier merger. The proposed transaction likely would strengthen broadband competition across Frontier’s service areas located across 25 states, enabling broader deployment of fiber and fixed wireless services, including bundled service plans. Verizon and Frontier serve separate geographic areas, so the merger would not cause any consumer to lose the choice of a competitor. As a result, the proposed Verizon/Frontier presents likely public benefits, and it does not appear to raise any significant potential anticompetitive concerns that would stand in the way of prompt approval.

The Commission should decide on the proposed merger well before the agency's shot clock expires. The agency's shot clock for completing transaction reviews was intended to be the outside date by which transaction reviews raising substantial concerns are completed – not the considerably shorter date by which most reviews, such as the Verizon/Frontier merger which do not raise substantial concerns, are approved.   

 

According to the parties' public interest statement, Frontier provides voice services and broadband services to approximately 3 million subscribers in urban, suburban, and rural areas across 25 states. Since it emerged from bankruptcy in April 2021, Frontier has prioritized fiber deployment and invested $4.1 billion in fiber facilities as part of a plan to reach 10 million locations by 2026. Although Frontier now has reached 7.2 million fiber locations and is on its way to achieving its 10 million goal, Frontier has amassed debts of $12 billion. Looming debt obligations will make it difficult for Frontier to obtain financing to expand its fiber connections beyond 10 million. Additionally, Frontier lacks wireless service offerings that would allow it to offer bundled service plans that could compete head-to-head with rival cable broadband providers that offer broadband, video, and wireless services. 

 

Under the proposed deal, Verizon Communications would acquire 100% of Frontier Communications, adding more than 2 million fiber subscribers to Verizon's 7+ million Fios subscribers. Verizon has a market capitalization of over 167 billion, and Verizon reported total operating revenues of $134.8 billion and free cash flow of $19.8 billion in 2024. Thus, Verizon has the financial resources to more cost-effectively retire Frontier’s debt than Frontier could on its own, with sufficient resources available to pay for fiber facility expansions that will increase connections beyond 10 million in Frontier's territories. Furthermore, Verizon will make its mobility and fixed in-home wireless broadband plans available to Frontier subscribers, including as bundled plans. In all, the merger would boost market competition in Frontier’s territories, creating a stronger challenge in those areas to incumbent cable broadband providers.

 

Notably, the Verizon/Frontier merger presents a potential public benefit for lower-income consumers. The transaction would result in the expansion of the Verizon Forward affordability program to Frontier's territories. Verizon Forward offers qualifying customers Fios service with 300 Mbps speeds at $20. It also offers fixed wireless 5G Home or LTE Home service for $20 for customers who qualify and subscribe to certain 5G mobile plans. 

Since Verizon and Frontier are not direct competitors for wireline services and Frontier does not offer wireless services, the parties are not direct competitors. Their wireline services operate in different geographic territories. As a result, consumers would not lose a choice of providers if the merger is approved. Indeed, there does not appear to be any significant concerns regarding anticompetitive conduct or consumer harm if the FCC approves the transaction. 

 

Moreover, comments filed in the FCC's proceeding by Communications Workers of America (CWA) addressing the purported use of contractors on construction projects by Frontier and comments filed by the Coalition for IP Network Transition regarding Verizon's and Frontier's migration from remnant legacy networks to IP-based networks involve allegations that are not specific to this particular transaction. Concerns raised in those comments are fitting for consideration, if at all, by other federal agencies or by the Commission in separate proceedings that apply to all providers in the communications marketplace. In short, there do not appear to be any issues raised by the proposed Verizon/Frontier merger that require the Commission's decision to be delayed or subject to conditions created by the agency. 

 

Indeed, now that the FCC has new leadership under Chairman Brendan Carr, the Commission should look to reform its merger review process to address prior bad agency transaction review practices: imposing conditions that are extraneous to the specific transaction under review, meant to extract concessions for the benefit of outside special interest groups, or that serve as a pretense for expanding the agency's jurisdiction beyond what Congress set by law. The Commission also should consider reforms that will prevent the agency from designating mergers or other transactions under review by the agency to its administrative law judge for a hearing and thereby put the matter into suspended animation and deny the parties a timely agency decision on the merits. 

 

In any event, the FCC should complete its review of the Verizon/Frontier merger well before the end of the 180-day shot clock. The shot clock should not become – and should never have intended to be – the routine date by which the agency commits to acting on transactions that do not raise substantial concerns. Decision-making delays are unjustifiable and can undermine the potential benefits of the proposed transaction and instead harm competition through lost economic opportunity costs and damage to the soon-to-be-acquired party's subscribership and finances while its future, unnecessarily, is kept on hold.   

Text of FCC Chairman Ajit Pai's Farewell Free State Foundation Address Now Available

On January 8, the Free State Foundation hosted a virtual farewell address by FCC Chairman Ajit Pai. The topic was FCC process reform. The text of his remarks is now available on the FCC's website.

Chairman Pai discussed three pillars of good government: transparency, reliance upon economics and data analysis, and maximizing the effectiveness of the people who do the work of the agency – in his words, "the FCC's greatest asset."

As noted in an earlier post to the FSF Blog, video of Chairman Pai's speech can be accessed on our YouTube page.

The Free State Foundation congratulates Chairman Pai on his many accomplishments at the FCC's helm and wishes him well in all future endeavors.

FCC Streamlines its Administrative Hearings Process

 On September 14, the FCC adopted a report and order to streamline its procedures for administrative hearings. The Commission's report and order does three main things:

(1) codify and expand the use of a process that relies on written testimony and documentary evidence in lieu of live testimony and cross-examination; (2) authorize Commission staff to act as a case manager to supervise development of the written hearing record when the Commission designates itself as the presiding officer at a hearing; and (3) dispense with the preparation of an initial opinion whenever the record of a proceeding can be certified to the Commission for final decision. 

The report and order is intended to "expedite and simplify the Commission’s hearing processes" consistent with the Communications Act and Administrative Procedure Act "while safeguarding the rights of parties to a full and fair hearing. The report and order is based on a proposal that was the subject of a short blog from September 2019. 

FCC Proposal Would Reforms its Administrative Hearings Processes

On September 6, the FCC released a proposed rulemaking that would streamline its administrative hearings processes by providing for hearings on written records. The proposed rulemaking states:

In our experience, disputes in Commission proceedings typically involve criticisms by one party of the evidence proffered by another party or the legal significance of that evidence, not actual conflicts in testimony between two witnesses concerning outcome determinative facts. 

This proposed agency process reform is strong on the merits. If adopted, this reform would reduce costs to parties as well as administrative delays in decisionmaking. 

For discussion of other agency process reform proposals, including reforms proposed in Congress, see blog posts by Free State Foundation President Randolph May, available here and here.

Randolph May Calls for the FCC to Adopt Rebuttable Presumptions

On January 21, 2018, The Regulatory Review published Free State Foundation President Randolph May's opinion piece titled "Adopting Rebuttable Presumptions at the FCC."  

Given the increasingly competitive communications marketplace and ongoing technological dynamism facilitating development of new service offerings, Randolph May calls for the Federal Communications Commission to adopt rebuttable evidentiary presumptions that tilt towards the non-enforcement and repeal or modification of obsolete regulations. This fairly modest process reform would be consistent with Sections 10 and 11 of the Telecommunications Act of 1996.

Please see my essay, "Adopting Rebuttable Presumptions at the FCC," in @TheRegReview : https://t.co/9MZFLzBkep Thanks to @TheRegReview! @YaleJREG @StatePolicy @FedSoc @RegStudies @mikeofcc @AjitPaiFCC @BrendanCarrFCC @acusgov @ProfDanielLyons @GusHurwitz

— Free State Foundation (@FSFthinktank) January 21, 2019

FCC Transparency Act Would Mandate Releasing Draft Items Before Vote

Last week, Representative Adam Kinzinger (R-IL) reintroduced the FCC Transparency Act, H.R. 6422, which would mandate that the Commission publish the draft items to be considered at public meetings 21 days in advance of the vote. The FCC adopted this practice under Chairman Ajit Pai but this legislation would require the practice for all Commissions moving forward.

FCC Commissioner Michael O’Reilly made the following statement about the legislation:

I applaud Representative Kinzinger on reintroducing the Federal Communications Commission Transparency Act. This legislation codifies the current and critical Commission practice of publicly posting items three weeks in advance of their consideration at monthly Commission meetings. As a result of this practice, unnecessary discussions of non-existent issues have been eliminated, conversations are more productive, Commissioners are still speaking their minds and negotiating internally on items, and work product has greatly improved. I have also seen comments from all Commissioner offices — Republican and Democrats — in favor of the practice. Despite the broad support for this program, as well as Chairman Pai’s effort to initiate this reform for added agency transparency, I believe codifying this practice is important to ensuring its longevity.

FSF scholars have advocated for draft items to be released before the Commission votes on them, because the additional transparency promotes rule of law and due process norms, enhances public confidence in the integrity of the agency’s decision-making, and increases the FCC’s efficiency. See this January 2017 blog by FSF President Randolph May.

FCC Proposal for Promoting New Technologies and Services Should Be Approved, Then Improved

by Randolph J. May and Seth L. Cooper

Next-generation communications technologies and services will supply potent new sources of value for consumers in the Digital Age. To this end, in early 2017, we proposed that the FCC should clear away legacy regulatory obstacles to market investment innovation by relying more on its Section 7 authority. In a welcome development, the FCC will consider a proposal to invigorate and streamline its Section 7 authority for promoting new technologies and services at its public meeting on February 22.

Certainly, the FCC should adopt the draft Section 7 rulemaking proposal. After that, the Commission should take further steps to maximize the proposal’s effectiveness in encouraging timely innovation. In particular, the Commission should consider using innovation-friendly procedures such as a deregulatory presumption and a deemed granted provision in connection with agency decisionmaking about whether new technology and service offerings are in the public interest.

Section 7 of the Communications Act provides:

(a)    It shall be the policy of the United States to encourage the provision of new technologies and services to the public. Any person or party (other than the Commission) who opposes a new technology or service proposed to be permitted under this chapter shall have the burden to demonstrate that such proposal is inconsistent with the public interest.

(b)   The Commission shall determine whether any new technology or service proposed in a petition or application is in the public interest within one year after such petition or application is filed. If the Commission initiates its own proceeding for a new technology or service, such proceeding shall be completed within 12 months after it is initiated.

Although adopted in 1983, only a handful of Section 7 petitions have been filed with the FCC. And the Commission previously has not adopted rules for the section’s implementation. In a July 2012 speech, then-Commissioner Ajit Pai called Section 7 “the neglected stepchild of communications law,” and stated that “[t]he Commission should make the deployment of new technologies and services a priority.” We commend Chairman Pai for following up on his call to prioritize innovation by initiating the Section 7 rulemaking.

The draft proposed rulemaking observes that “outdated technical rules and regulations can require proponents of new technologies or services to either seek a waiver of those rules or petition the Commission to conduct a rulemaking.” Legal and administrative proceedings can be lengthy and delay-prone. And the draft states: “Often, competitors petition to deny or oppose the introduction of new technologies or services that may have a negative economic effect on their own service but would otherwise provide significant public interest benefits if the Commission moved quickly to allow the new technologies or services to be offered.”

Concluding that Section 7 “evinces a bias in favor of technological innovation and dispatch,” the FCC’s proposed rulemaking consists of guidelines and procedures intended “to effectively breathe life” into the provision. The proposed rules include some basic filing requirements – such as express requests for consideration under Section 7, as well as showing that the new technology or service is “both technically feasible and commercially viable” and “new.” Public notices are to be issued regarding applications that satisfy the filing requirements. And consistent with Section 7(a), opponents of the application would bear the burden of showing that the proposed technology or service would not be in the public interest.

Also, applications are subject to a 90-day review led by the FCC’s Office of Engineering and Technology (OET) to determine whether the proposed service or technology is, in fact, “new” and within the scope of Section 7. If that determination is positive, the Commission “will evaluate the record once complete, and decide within a year of the filing date the appropriate course of action with respect to the petition or application.” However, if the proposed technology or service is determined to be outside the scope of Section 7, then the application “would be handled under the existing Commission processes that apply generally.” Negative determinations could be challenged and Section 7 treatment ultimately granted in the course of the Commission’s standard processes.

The FCC’s proposed requirements and processes for implementing Section 7 appear reasonable as far as they go. If adopted, the proposed rules could provide fast track, or at least less cumbersome means for approving for new technology and service offerings in the communications market.

However, to best ensure that its reinvigoration of Section 7 succeeds in encouraging market investment and innovation, the Commission likely will need to take additional steps to overcome the institutional bias of regulatory agencies toward preserving and extending regulation. Indeed, in describing difficulties that cause delays in approving new technologies in services, the proposed rulemaking observes: “Sometimes the problem is simply regulatory inertia.” In order to counteract that pro-regulatory bias, the Commission should consider incorporating more pro-free market procedures into the final rules it adopts.

For starters, although Section 7 does not establish a presumption in favor of granting applications, the Commission does have the discretionary authority to adopt such a presumption regarding its own exercise of authority. (For more on that point, see our July 2017 Perspectives from FSF Scholars paper, “D.C. Circuit Ruling Supports the FCC’s Use of Deregulatory Presumptions.”)

We previously published a series of proposals for specific policy and process reforms based on existing FCC authority. Although differing in details, most of those reform proposals called on the Commission to establish a presumption that enforcement of the regulation at issue was not in the public interest, absent clear and convincing evidence to the contrary. Consistent with those reform proposals, the Commission could adopt a deregulatory rebuttable evidentiary presumption that an application for a proposed new technology or service offering that falls within the scope of Section 7 is consistent with the public interest and should be approved, absent the Commission finding clear and convincing evidence to the contrary. Alternatively, the Commission could establish a lower evidentiary standard for overcoming the rebuttable presumption, such as a finding that substantial evidence exists that the proposed technology or service offering would not be in the public interest.

In either instance, the proposed language for such a procedural rule would track with the public interest criteria contained in the Section 7 proposed rulemaking. And thus the rule would not dictate the outcome of any particular Section 7 application. Establishing a rebuttable evidentiary presumption that takes account of the consumer welfare benefits of market investment and innovation is consistent with Section 7’s “bias in favor of technological innovation and dispatch.”

The Commission should also consider adopting a deemed granted provision to better ensure that the agency takes action on applications within the one-year time frame set forth in Section 7(b). The Commission could establish a procedural rule that an application for a proposed new technology or service offering would be granted automatically if the agency fails to act on that application within one year of its filing. As we point out in our Perspectives from FSF Scholars paper, “A Proposal for Spurring New Technologies and Communications Services,” timeliness is a key concern of Section 7. Similarly, the draft rulemaking states: “[W]e propose to commit the agency to swift action, consistent with section 7, to evaluate that technology or service.” A deemed granted provision would help make Section 7’s one-year time frame meaningful and partially act as a counterweight to the problem of “regulatory inertia” identified in the proposed rulemaking.

In all, the proposed rulemaking to breathe new life into Section 7 surely merits approval. At the same time, the proposal’s goal and potential positive effect in spurring new technology and service offerings may be improved by incorporating additional pro-innovation measures.

FCC Chairman Pai to Release Items Publicly Before Commission Votes

Today, FCC Chairman Ajit Pai announced a new pilot program with the effort of making the FCC more open and transparent. Chairman Pai said that when a proposed rulemaking is released publicly after the vote takes place it is “precisely the opposite of transparency.” Chairman Pai states that under the new pilot program he will publish proposed rulemakings on the same day that he presents them to his fellow Commissioners. If successful, Chairman Pai said this reform will become common practice at the FCC.

In a January 2017 blog entitled “A Proposal for Trialing FCC Process Reforms,” FSF President Randolph May proposed a number of process reforms for the FCC. Specifically, Mr. May proposed that the FCC publish its items online before the Commission votes, adding that “it seems to make little sense to deny the public access to the full text of the item.” Mr. May also stated: “Posting the text on the Commission’s website will eliminate disparities in access by the public to Commission information and also reduce misunderstandings that arise from selective filtering and partial release of snippets of the draft item.”

I commend Chairman Pai for his leadership in establishing such an important process reform. FSF scholars have been critical of the Commission for lacking transparency during its rulemaking process. By allowing the public to access proposals before the Commission votes on them, the FCC will establish greater transparency and public confidence.

A Proposal for Trialing FCC Process Reforms

For over a decade, I’ve been advocating various reforms in the way the Federal Communications Commission conducts its business, wholly aside from debating the rightness or wrongness of the substance of particular agency decisions. In other words, I’ve long advocated certain process reforms intended to make the Commission function in a more efficient and effective manner, and, when appropriate, in a more transparent manner.

Without further elaboration here, I’ve been privileged to testify before the House Subcommittee on Communications and Technology in 2011, 2013, and 2015, in hearings on various draft bills proposing a variety of specific FCC process reforms. Congressman Greg Walden, then Chairman of the House Subcommittee and now Chairman of the full Committee on Energy and Commerce, deserves much credit for diligently pursuing the cause of FCC process reform during the last six years. Although several of the bills he sponsored, along with various of his colleagues, passed the House of Representatives, they were not given serious consideration in the Senate.

At the FCC, despite a few very modest gestures, there were no serious efforts by Chairman Tom Wheeler to adopt consequential reforms in the way the Commission conducts business. Indeed, some might argue that there has been a deterioration of process during Chairman Wheeler’s tenure that, if anything, has contributed to a deterioration in the substantive quality of the agency’s decisions.

But that is not the argument I wish to make today.

What I want to suggest is that, as soon as practical after it gets organized, the newly reconstituted Commission should get on with implementing process reforms. And, more specifically, I suggest, for certain changes that may be considered more controversial for one reason or another, that the Commissioners consider implementing them on a trial basis with a review to take place on a date certain. There is no reason why the Commission cannot be open to some experimentation and trialing in the area of process reform, secure in the knowledge that experience may dictate further modifications.

It is well-known that Commissioner Michael O’Rielly has been a vocal, persistent, and eloquent advocate of FCC process reform over the last several years through his blogs, speeches, and opinions. Indeed, in a July 2016 blog, “Snapshot of Process Reform Ideas,” Commissioner O’Rielly posted a list of 24 proposals he has made. In doing so, he explained that:

These efforts have never been an attempt to undermine the authority of the Chairman or the ability of the Commission majority, whoever they may be on a particular issue, to get items completed in a timely manner.  Instead, this entire effort is about improving the efficiency of the Commission and increasing fairness and transparency with regard to a process that is questionable in some instances and downright objectionable in others.

I’ve agreed with many of Commissioner O’Rielly’s suggestions and have questions about others. Some are truly more pure process reforms than others, and some are more consequential than others. But no one can deny the effort that Commissioner O’Rielly has put into this project or the thoughtfulness with which he has approached it. (I would be remiss in not applauding Commissioner Pai’s ongoing process reform efforts as well.)

Consider one of Commissioner O’Rielly’s (and Commissioner Pai’s) most consequential proposals: “Publicly post Open Meeting items at the same time as circulated to Commissioners.” I happen to agree with this proposal. As I explained at some length in my May 2015 House Subcommittee testimony, posting the draft Open Meeting agenda items is consistent with the “best practices” suggested by the Administrative Conference of the United States in a 2014 Recommendation. And in an era when it became common practice for the agency’s Chairman to post a blog describing his own views regarding the contents of a draft item, often along with a “fact sheet” containing the Chairman’s own version of the “facts,” it seems to make little sense to deny the public access to the full text of the item. Posting the text on the Commission’s website will eliminate disparities in access by the public to Commission information and also reduce misunderstandings that arise from selective filtering and partial release of snippets of the draft item.

Nevertheless, because posting draft Open Meeting items represents a substantial departure from the way the Commission has operated for decades, many question how this change will affect the way the Commissioners interact among themselves and the public during the period leading up to the Sunshine cut-off period and whether, in turn, such changes may affect adversely the quality of the Commission’s decisionmaking. These are not frivolous concerns.

The principal point I want to make here is that I see no good reason why the Commissioners could not adopt that particular process reform with the proviso that the new procedure will be evaluated after a year or two. And, then, based on actual operating experience, changes can be made if deemed advisable.

The same can be said for other reform proposals about which there may be legitimate differences of opinion, such as requiring that all “editorial revisions” be completed and orders published within three or four business days after the Open Meeting. Or allowing any Commissioner to elevate a decision about to be made on delegated authority to a full Commission vote.

I start from the premise, which shouldn’t be subject to serious dispute, that there are ways that the Commission can improve its process – the manner in which it conducts its business – so that it operates in a more efficient, more effective, and more transparent fashion. Every institution can. There is no reason there should be any partisan disagreement about this.

Process matters. Better process not only can improve the productivity of the Commission, but, more importantly, it can improve the quality of the agency’s decisions. I certainly am not suggesting that all process reforms need to be subject to trials. But if the notion of trialing changes in procedure is a means to the end of getting certain consequential process reforms adopted sooner rather than later, the newly constituted Commission should be open to this idea.