Reduce Multiple Government Agency Merger Reviews

On June 11, the Connecticut Public Utilities Regulatory Authority reportedly issued an order approving the Verizon/Frontier merger. The approval is welcome news, insofar as it involves the clearing of a regulatory hurdle to the completion of a pro-competition, pro-consumer transaction. As explained in a blog post from last month, the FCC approved the Verizon/Frontier on May 16. In its order, the FCC found that there are no potential transaction-related public interest harms and that there are some likely public interest benefits from the transaction. Verizon's and Frontier's wireline services operate in different geographic territories, meaning consumers do not lose a choice of providers as a result of the merger. Moreover, Verizon is more likely to invest in and improve service in Frontier territories than Frontier would absent the merger. Verizon's acquisition of Frontier means that fiber will reach more Americans – sooner.

 

Even with the approval by Connecticut regulators, the Verizon/Frontier merger is reportedly subject to pending reviews by state regulators in Pennsylvania and California. This raises the process issue of whether overlapping reviews of proposed mergers by state regulators are likely to provide added public benefits or more likely to result in extra costs and delays due to redundant reviews. This is not a new issue; it was the subject of my December 2010 Perspectives from FSF Scholars, "Multiple Government Regulatory Reviews Burden Telecom Mergers with Too Many Conditions." Therein, I discuss the problem of compounding process costs and regulatory conditions that can result from redundant merger reviews. 

 

One approach for a more efficient, streamlined process for mergers involving interstate communications service providers is to enable a sole federal agency review process in which state regulators are encouraged to provide input regarding state-specific concerns. 

 

Also, the FCC could adopt rules or issue a declaratory order setting forth limits on state regulatory conditions for merger approval as well as limits on state-level merger review process shotclocks. Actions by state regulators that transgress those limits and conflict with federal law would be subject to federal preemption. Certainly, this approach is viable in the interstate wireless communications services context, as merger review by state public utility commissions effectively constitutes state-level restrictions on market entry contrary to Section 332(c)(3) of the Communications Act. 

 

Hopefully, Pennsylvania and California will promptly conclude their reviews of Verizon/Frontier and allow fiber broadband to timely deploy to more Americans. 

FCC Should Keep Verizon/Frontier Merger Clean From Extraneous Conditions

Today, April 2, Communications Daily reported on dueling ex parte filings in the Verizon/Frontier merger review proceeding. The Coalition for IP Transition has urged the FCC to condition any prospective agency approval of the merger on IP interconnection-related requirements. However, the Coalition doesn't identify any specific harms arising from the merger. Under prevailing agency precedents (even if sometimes breached to achieve pro-regulatory ends), merger conditions may only be imposed to remedy transaction-specific harms. 

In its ex parte filing, the Coalition for IP Transition raised what they call "the serious problems faced by competitorsbecause of the Applicants and other price cap Local Exchange Carriers ('LECs') refusals to interconnect on an IP-basis, despite offering IP services to other customers" (emphasis added). Notably, the Coalition addresses the practices of price cap LECs' generally, and not just those of Verizon and Frontier. Also, in the alternative to imposing conditions on the agency's prospective approval of the proposed Verizon/Frontier merger, the Coalition "urged the Commission to consider ordering all price cap LECs" to meet certain disclosure, IP interconnection, and access charge-related requirements. Such an order would require agency action through a separate, industry-wide proceeding. 

 

Thus, on its face, the Coalition's ex parte filing is addressed to matters pertaining to the entire voice services market. Accordingly, the Coalition does not raise potential harms that would arise from the Verizon/Frontier merger. Communications Daily reported that Verizon and Frontier responded by making those same points about non-transaction-specific matters. But one need not take the merging parties' word for it. The Coalition's filing makes it plain. 

 

Regardless of one's policy view about tech transitions from TDM to all-IP networks, network interconnection, and access charges in the voice services market, those matters should be addressed, if at all, through separate inquiry or rulemaking proceedings applicable to the entire market – and not through transactions involving only two merging parties. The Commission should not impose the non-transaction-specific conditions requested by the Coalition. 

 

Moreover, the Commission should be mindful that there is a dwindling amount of time left on the agency's informal "shot clock" for completing its review of the proposed Verizon/Frontier. During review periods, merging parties are vulnerable to lost economic opportunity and regulatory uncertainty costs that can undermine their competitiveness. The agency should complete its review and decide before the deadline expires, if not sooner. 

 

For a brief background on the Verizon/Frontier merger, see my blog post from February 5 of this year, "Verizon/Frontier Merger Would Make Fiber and Fixed Wireless More Competitive."

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.   

The FCC Should Reject CWA’s Job Protection Pleas, Again

Since the Federal Communications Commission opened its docket seeking comment on Frontier Communications’ application to acquire AT&T’s wireline business and statewide fiber network assets in Connecticut, only one comment objecting to the transaction has been filed. Communications Workers of America (“CWA”) argues that among other negative impacts, the transaction, if approved, could adversely affect employment levels and worker living standards. The Commission may consider the impact of the transaction on service quality, consumer access to service, and other factors when evaluating a merger proposal. But it is improper for the Commission to consider job loss and other employment related impacts during a transaction review, and job protection should not be imposed as a condition on transaction approval.

Under Section 214(a) and 310(d) of the Communications Act, the Commission must determine whether a transaction will serve the public interest, convenience, and necessity. FSF scholars have often commented on how the public interest standard, by virtue of its ambiguity, has been interpreted in an abusive way to justify the Commission’s unsavory practice of, in effect, “regulating by condition.” Yet even among the range of factors the Commission has included in its determination of whether a transaction is consistent with the “broad aims of the Communications Act,” whether and how a proposed transaction will affect employment practices is not a proper one.

CWA currently represents 2,900 workers who are employed by AT&T’s affiliate in Connecticut, and 3,800 employees at Frontier nationwide. CWA urges that the Commission should insist that AT&T and Frontier provide “detailed and granular employment data” and “assurances” that the transaction will not lead to any reduction in employment levels and workers’ living standards. CWA argues in its comments that the Commission has considered “whether a proposed transaction will lead to public interest harms with respect to employment practices” in the past and should do so again in reviewing Frontier and AT&T’s application.  

Notably, CWA only cites short statements from FCC Chairman Genachowski and a handful of Commissioners to support this argument; CWA does not point to any of the plentiful public interest standard jurisprudence available. Although Commission officials may have noted the impact of transactions on employment, the FCC’s statutory authority to review transaction proposals should not be construed to allow Commissioners to weigh employment as a factor in its determination, nor have courts interpreted the public interest standard to include such a consideration. And the FCC cannot, and should not, impose job protection conditions on the transaction, as CWA has requested for other transactions.

In its comments objecting to the T-Mobile/MetroPCS merger several years ago, CWA also argued that the Commission should consider the impact of the transaction on employment practices. CWA also requested that the Commission impose job protection conditions on the transaction. FSF President Randolph May responded to CWA’s arguments on the FSF blog: "[T]he FCC has no business abusing its merger review authority by conditioning the merger on adoption of the job protection plan put forward by the CWA. Regardless of whether the Commission has abused its authority this way in the past, such a condition is simply too far afield from any legitimate view of the Commission's exercise of its merger review responsibilities."

The Commission’s public interest authority may be broad, but not so broad as to include the management of the size and composition of company workforces. And the Commission’s authority to impose conditions that promote the public interest does not enable it to extract job protection conditions upon approval of a transaction. Doing so would be an abuse of its regulatory authority and would likely open the Commission to a barrage of requests for job protection plans in other contexts.

While it is unclear whether the Frontier-AT&T transaction will affect employment, and certainly no one wants to see jobs lost for any reason, job protection is just not within public interest purview.