<DOC>
[106th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:64020.wais]
THE TELECOMMUNICATIONS ACT OF 2000
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TELECOMMUNICATIONS,
TRADE, AND CONSUMER PROTECTION
of the
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
MARCH 14, 2000
__________
Serial No. 106-95
__________
Printed for the use of the Committee on Commerce
U.S. GOVERNMENT PRINTING OFFICE
64-020CC WASHINGTON : 2000
COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, California PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
RICHARD BURR, North Carolina RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California BART STUPAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa TOM SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, California DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING,
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
James E. Derderian, Chief of Staff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Telecommunications, Trade, and Consumer Protection
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL G. OXLEY, Ohio, EDWARD J. MARKEY, Massachusetts
Vice Chairman RICK BOUCHER, Virginia
CLIFF STEARNS, Florida BART GORDON, Tennessee
PAUL E. GILLMOR, Ohio BOBBY L. RUSH, Illinois
CHRISTOPHER COX, California ANNA G. ESHOO, California
NATHAN DEAL, Georgia ELIOT L. ENGEL, New York
STEVE LARGENT, Oklahoma ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming BILL LUTHER, Minnesota
JAMES E. ROGAN, California RON KLINK, Pennsylvania
JOHN SHIMKUS, Illinois TOM SAWYER, Ohio
HEATHER WILSON, New Mexico GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York (Ex Officio)
ROY BLUNT, Missouri
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Furchtgott-Roth, Hon. Harold W., Commissioner, Federal
Communications Commission.................................. 11
Powell, Hon. Michael K., Commissioner, Federal Communications
Commission................................................. 19
Ryan, Bruce D., Partner, Paul, Hastings, Janofsky & Walker,
LLP........................................................ 28
Material submitted for the record by:
Bliley, Hon. Tom, Chairman, Committee on Commerce, prepared
statement of............................................... 54
Stearns, Hon. Cliff, a Representative in Congress from the
State of Florida, prepared statement of.................... 51
(iii)
THE TELECOMMUNICATIONS ACT OF 2000
----------
TUESDAY, MARCH 14, 2000
House of Representatives,
Committee on Commerce,
Subcommittee on Telecommunications,
Trade, and Consumer Protection,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:10 a.m., in
room 2322, Rayburn House Office Building, Hon. W.J. ``Billy''
Tauzin (chairman) presiding.
Members present: Representatives Tauzin, Stearns, Shimkus,
Pickering, Markey, Gordon, Wynn, and Dingell (ex officio).
Staff present: Justin Lilley, majority counsel; Cliff
Riccio, legislative clerk; and Andy Levin, minority counsel.
Mr. Tauzin. Good morning and welcome to this legislative
hearing on the Telecommunications Merger Review Act of the Year
2000. The Chair will recognize himself for an opening
statement.
When we in Congress passed the Telecom Act 1996, we
eliminated the FCC's statutory authority to review telecom
mergers by repealing Section 221(a) of the Communications Act
of 1934. Our intent was, of course, to return the function of
reviewing mergers in a competitive industry to the Attorney
General's office while terminating the FCC's ability to
condition mergers based upon market concentration or other
antitrust law concerns.
To emphasize this was, in fact, the true intent of
Congress, let me quote directly from the Joint Explanatory
Statement of the Conference for the 1996 Act.
``By returning the review of mergers to the DOJ, the repeal
of Section 221(a) would be consistent with one of the
underlying themes of the bill, to get both agencies back to
their proper roles and to end government by consent decree. The
Commission should be carrying out the policies of the
Communications Act, and the DOJ should be carrying out the
policies of the antitrust laws. The repeal would not affect the
Commission's ability to review the transfer of licenses.
Rather, it would simply end the Commission's ability to confer
antitrust immunity.''
Well, despite our best efforts to make clear that the FCC's
authority is limited to reviewing license transfers in
connection with mergers, the Commission has nonetheless devised
a random, ad hoc, subjective system for review that is
imprudently broad, arbitrary and capricious and, by all
objective reasoning, way out of control.
In case after case, the FCC has cited the public interest,
necessity and convenience standard in Sections 214 and 310(b)of
the Communications Act to impose entirely subjective conditions
upon license transfers, in particular deals that simply boggle
the mind. In almost all of the cases, the affected companies
are forced to comply as license transfers are generally crucial
to the actual completion of a merger or an acquisition.
Needless to say, these conditions have no basis in law, and
meeting these conditions is seldom necessary to bring the
affected parties in compliance with existing FCC rules and
regulations. As a result, the FCC now routinely reviews telecom
mergers in a manner that takes far too long, is far too costly
for taxpayers and the industry, creates far too much
uncertainty in telecom marketplaces, and is too duplicative of
the review conducted by the DOJ and the FTC.
What the FCC apparently fails to respect is that Congress
never intended the public interest standard to bestow upon the
Commission the broad authority to consider market concentration
and other competitive aspects of mergers or acquisitions. To
the contrary, the whole point of allowing the FCC to review
license transfers in connection with mergers is to ensure that
newly merged or acquiring companies are in compliance with
existing FCC rules and regulations--rules and regulations, I
might add, that the FCC must construct as a matter of law to
serve the public interest in the first place. As a result,
Sections 214 and 310 clearly contemplated that the public
interest, necessity and convenience are inevitably served upon
a determination by the FCC that the transfer of licenses in
question does not violate existing Commission rules and
regulations. Once such a determination is made, little else is
required of the FCC to properly carry out its responsibilities
under Sections 214 and 310.
While I can understand the appeal of reviewing the many
intriguing mergers that are taking place out there, the
Commission is clearly abusing its authority so that it can have
a hand in all the excitement. Well, that may make working down
at the Portals much more interesting, I suppose, but it makes
working on the Hill quite frustrating, and I take serious
offense to the draconian tactics the FCC resorts to in these
merger review processes.
Because the FCC has refused to accept its appropriate role
in this process, the members of our committee must now
legislate in order to control the Commission's renegade
practices.
The discussion draft that we have before us today is a good
starting point from which to begin clarifying the
congressionally intended scope of the FCC's merger review
authority.
The bill mandates that the FCC's denial of conditional
approval of an application for the extension of lines under
214, or for the transfer of licenses under 310, be based only
upon the determination of what is required under existing FCC
rules and regulations. This will prevent case-by-case,
subjective determinations of what is in the so-called public
interest and keep the FCC from engaging in DOJ/FTC-type review
activities under the guise of communications law authority.
The bill as well imposes the following time limits on the
Commission review:
In general, the Commission would have 90 days to complete
action on applications in connection with mergers and other
transactions; the Commission would have 60 days to complete
actions on such applications submitted by the ``2-percent''
companies; and the Commission would only have 60 days to review
a pending application that has been pending for more than 30
days.
These time limits will, of course, give the FCC little time
to do anything else but determine whether mergers or other
transactions are in compliance with existing rules.
I want to thank in particular Mr. Pickering and Mr. Burr
who have been the architects of this draft and who are going to
be the guardian angels of the legislation as we process it.
This is incredibly important work. It is our first step at
beginning to impose some common-sense new parameters around the
work of the Commission, leading hopefully I hope, I believe, 1
day to a real restructuring effort that will bring the FCC more
into the modern age of communications.
I want to close by informing you of a letter I received
just this January that reminded me of a letter I received in
January 1998 from the Chairman of the FCC. It is a letter that
I received and also that Senator John McCain received in
connection with requests we made for the FCC to begin under its
biennial review the process of looking at cross ownership rules
of newspaper and broadcast ownership.
The letter is interesting because it contains a commitment
that within 2 weeks--in fact, here is a quote, first as to the
newspaper broadcast ownership rules, the mass media bureau is
currently preparing a notice of inquiry that will review this
rule as well as the FCC's other broadcast multiple ownership
rules not already subject to other pending proceedings. The
bureau anticipates presenting this item for Commission
consideration in the first quarter of 1998.
People in this industry have been waiting for the first
quarter of 1998 for 2 years. Mr. McCain and I have been waiting
for the chairman to keep his word to us since the first quarter
of 1998. It is this type of delay, this type of a problem we
see at the FCC that is causing us to begin this process today,
and we will not end this process until I think we have
adequately examined the entire procedural aspects by which the
FCC does take up matters for review, does do what Congress I
think intends it to do and does, in fact, act expeditiously
upon its work on mergers and acquisition and other matters so
that parties can feel some sense that they will be objectively
treated before the Commission. They will have a chance, if they
don't like the Commission's answer, to take it to a higher
authority.
I yield back the balance of my time and yield to my friend,
Mr. Markey, for an opening statement.
Mr. Markey. Thank you, Mr. Chairman, very much, and I want
to commend you for calling this hearing this morning on media
mergers. I think that today's hearing can assist the
subcommittee in its analysis of the procedures and review the
Commission procedures that they perform during proposed mergers
to effectuate line or license transfers.
At a time when there are sweeping changes being wrought
throughout the society by digital technologies and when such
radical changes are inducing a wave of media mergers as
companies attempt to position themselves advantageously for the
future, a review of the procedures that the FCC utilizes when
such mergers require line or license transfers is quite timely.
The FCC, as with any agency or government anywhere, should
periodically review its functions and operations to ensure that
it is fulfilling its statutory obligations and, to the extent
possible, performing its job efficiently. This is precisely the
effort currently under way at the Commission, and I applaud the
Commission for the steps that it is taking in this regard.
Concern about the Commission's actions during its reviews
of line or license transfers generally break down into two
categories. The first is quite straightforward. Many
participants in the process complain that it takes too long. To
be sure, it often does take a long time. That may be a result,
in some instances, of inefficiency at the Commission. The
length of time, however, may also reflect the fact that many
mergers require the analysis and approval of numerous transfer
applications.
In addition, the duration of the FCC's review is sometimes
more lengthy than reviews conducted by the Justice Department's
Antitrust Division. This is because quite often the FCC waits
until the Antitrust Division has completed its review before
issuing its decision so that changes made to the transaction,
as a result of consent decrees, can be accounted for so that
the public has the opportunity to comment and also to ensure
that FCC decisions are not used to undermine ongoing antitrust
review. Recognizing that timing is important in many mergers, I
look forward to the ongoing efforts at the Commission to
streamline its process as well as the discussions with
colleagues on the committee on other ideas to address issues of
timeliness.
The second concern expressed about this issue deals not
with the duration of the FCC's review but rather with the
substance of the FCC's review. The Communications Act requires
the Commission to determine whether applications that are filed
to transfer lines or licenses are in the public interest. Over
the years, the Commission has performed this function countless
times, and over time what constitutes the public interest has
necessarily evolved to reflect the evolution in the state of
telecommunications competition and changes in American society.
This public interest review is different from the review
conducted by the Antitrust Division of the Justice Department.
The Clayton Act empowers the Justice Department to challenge a
merger that may substantially lessen competition, a standard
that is designed to preserve competition that already exists.
Of course, in many areas of telecommunications policy where we
have had historic monopoly providers or a limited number of
licensees, a standard crafted to preserve existing competition
is particularly ill-suited to the endeavor embraced by the
Telecom Act of 1996 of creating ever more competition.
This makes the FCC's task substantively different than that
of the Justice Department. Although to the extent that the
public interest standard requires analysis of the competitive
effect of a line or license transfer, certain analyses will
necessarily be similar at both agencies.
I do not support eviscerating the public interest standard
at the FCC simply because it is inconvenient for the media
moguls or broadband barons of today. The public interest
standard over the years has been utilized to open
communications markets to competitive marketplace forces, to
analyze foreign ownership implications and to reflect the broad
hopes and desires of the American people or the licensees
entrusted to utilize the public's air waves.
I welcome efforts to see that the Commission does its job
more efficiently, but we must remember that government is not
established to be solely efficient. It is also tasked to
perform certain functions on behalf of the public. In looking
at these functions today, I hope people will reflect on the
fact that, for whatever imperfections the current system holds,
the FCC in its stewardship of the U.S. telecommunications
industry has helped deliver to the American people the highest
quality, most competitive, most innovative telecommunications
marketplace in the world, and that result has clearly been in
the public interest.
Again, Mr. Chairman, I thank you for holding this hearing.
I look forward to hearing from our witnesses.
Mr. Tauzin. I thank my friend.
The Chair is now pleased to recognize the author of the
legislation and, as I said, the prime motivator behind our
bill, Mr. Pickering of Mississippi.
Mr. Pickering. Mr. Chairman, I want to thank you for
holding this hearing today and for your work and that of your
staff in working with Congressman Burr and Congressman Dingell
as we put together this discussion draft. I look forward to
hearing from the commissioners today, their insights of what
can be done to address this issue, both through this
legislation and through their regulatory review and
streamlining process.
Since the passage of the Telecommunications Act of 1996,
the change in the telecommunications industry has been massive
as companies try to position themselves for the new information
age economy. Many of these companies are attempting to combine
their strengths to better position themselves to compete in a
deregulated marketplace.
One of the problems these companies have faced recently is
the regulatory uncertainty of the FCC's merger review process.
As we all know, the telecommunications industry is one of the
key driving forces of our economy. As such, we in the Congress
need to ensure that unnecessary government intervention doesn't
cause needless delay in bringing new and innovative products to
the market. Even more so, we must ensure that the business
community is not competitively disadvantaged by an endless and
uncertain regulatory review process.
When we passed the 1996 act, the Congress imposed a variety
of time constraints on the FCC, again trying to reach the
objective of certainty in the regulatory process. I believe
that many of us who were involved in that process did not think
we would subject the communications community to these lengthy
and uncertain delays that are occurring at the FCC.
One of the biggest problems that some of my constituents
have raised with me is not knowing if a merger will take 3
months, 9 months or even 16 months. There is no simply no logic
nor rationale to the FCC's lengthy process, and this life of
uncertainty or--of certainty of the unpredictable nature of the
regulatory process can have devastating effects on both large
and small companies.
This potential for lengthy reviews can force companies to
miss product rollouts, miss a window of opportunity to raise
venture capital, and at times has been manipulated by a
competitor to forestall a decision by the agency. We simply
cannot allow these scenarios to continue.
This legislation will do what all legislation should do. It
requires the process of government to work for the community
they are meant to serve.
In closing, I thank the witnesses for appearing today. I
look forward to hearing from their testimony.
Mr. Chairman, I look forward to working with you as we go
forward in this process, and I look forward to working with the
ranking member and with Mr. Dingell. Thank you.
Mr. Tauzin. I want to thank the gentleman again, thank him
and his staff for the excellent work and I think an excellent
product that is being developed.
The Chair is now pleased to welcome the ranking minority
member of the full committee, my dear friend Mr. Dingell, for
an opening statement.
Mr. Dingell. Mr. Chairman, thank you; and I want to commend
you for bringing about this hearing and also to commend my
colleagues, Mr. Pickering, yourself, Mr. Burr, Mr. Boucher and
Mr. Klink, for their cosponsorship of the legislation under
consideration today.
I want to observe that this legislation is a reproof of
very serious character to the FCC, and it seeks to do something
which the FCC should be doing by itself. I grieve that not more
of the commissioners are here to participate in this hearing
because it would be I think most beneficial.
There is today, I think, great need to address and to
reform the way the FCC handles its merger reviews. These are a
remarkable exercise in arrogance, and the behavior of the
Commission, ofttimes by reason of delay and other matters,
approaches what might well be defined as not just arrogance but
extortion.
There is indeed today no more timely and important area to
target for FCC reform. Hardly a week goes by without some
breaking news about a new merger, acquisition, joint venture or
other significant transaction in the telecommunications sector.
The FCC should interest itself in these matters, but it should
do so in accordance with law, in accordance with the
Administrative Procedure Act and in accordance with the simple
requirements of due process and simple decency.
These are significant events, and the government does have
an important responsibility, more so now than ever before, to
analyze them carefully and to make sure that they are not
harmful to the public and that the action which follows is
consistent with the broad public interest.
At the same time, the government has a duty to conduct this
analysis fairly and openly and in a way that avoids imposing
undue costs, burdens or other uncertainties on the merging
parties or on the public.
This is a high responsibility, little heeded by the FCC.
Unfortunately, the current process of merger review at the FCC
has achieved few, if any, of these goals. Quite the opposite.
The FCC has done something which I regard as particularly
outrageous. It has a peculiar habit of identifying some
potential competitive harm to the public and then on that basis
proceeding to extract concessions from the parties, usually
concessions which have absolutely nothing to do with the
transaction itself or with the perceived harm that the FCC
announces would flow from this event.
This is an extraordinary and a curious process. It doesn't
serve anybody well. It doesn't protect the public from
anticompetitive actions. It delays the process, it is unfair,
and, in many instances, it either does or appears to far exceed
the authority of the FCC, which chooses this curious way to go
forward in order to accomplish some purpose to which they are
not entitled for entirely different purposes, and the perceived
abuse of the competitive concerns that the FCC sets forth seems
to disappear entirely in the transaction once the FCC has
gotten what it wanted. One must ask how different this is from
protection payments made in Chicago or New York in the days of
Al Capone and prohibition.
As mentioned, it does not serve the public well. It does
not benefit the public at all, and in order for the public to
benefit, I would think that the FCC should justify this by
establishing a clear nexus between the conditions placed on the
merger and the predicted detrimental effects of the
transaction. Unfortunately, such a nexus rarely exists, and it
all seems to vanish in some kind of a bureaucratic file at the
FCC, if ever such a nexus did in fact exist.
Let us look at the CBS-Westinghouse combination of a few
years ago. The FCC found and thundered mightily about how this
transaction could impose a competitive threat to the public if
it were simply approved without conditions. Oddly enough, the
competitive threats disappeared totally when the parties agreed
to air more children's educational programming each week.
The FCC has the power to address the question of children's
programming, and I happen to think that they should. The
question is, why did they choose this extraordinary way to
address the children's programming question without ever having
a proper proceeding to address it or to do it without tying it
to some other set of events?
Now, the public is I think served better by children's
television and more of it, but I cannot see the connection
between this condition and the competitive threat the
Commission was announcing that it was going to alleviate, and I
look forward to hearing the Commission tell us about what
happened to their concerns on competition that are not manifest
in the approval which they brought forward.
So the public then is left to grapple with whatever
detrimental effect the transaction might have imposed in
exchange for some goody that the Commission extorts from the
parties, sometimes by reason of conditions which they impose
and sometimes by just the practice of imposing extortion delay
upon the parties engaged in a business undertaking which is of
great importance to them and which, in frankness, they are
entitled to have decided quickly by the Commission, something
which seems to be very difficult for the Commission to do, even
when they are not trying to extort something from persons who
have business before the Commission.
A better description of the current merger review process
could be essentially a paraphrase of the old story which
appeared in book form, How to Win Without Actually Cheating. We
might say how to write the rules without actually following
them.
These concessions only apply to the merging parties, are
not to be found anywhere in jurisprudence, and they do not
apply to the competitors who oftentimes achieve a significant
advantage from the practice. The practice is at total odds with
the substance and the intent of the Administrative Procedure
Act which ensures similar regulatory treatment for all parties
similarly situated. But here that practice is not practiced nor
is it required, and, indeed, the parties often find it
impossible to go to court because of the penalties which they
would suffer both in delay and, quite honestly, in punitive
actions by the Commission.
Now, I know I am taking more time.
Mr. Tauzin. The gentleman is recognized. I am enjoying this
a great deal. I will let him finish his statement.
Mr. Dingell. I hope, Mr. Chairman, the Commission is,
because they are most needful of hearing these things which the
applicants before them do not have either the power or the
courage to express.
Having said these things, these ad hoc concessions often
obtained during late-night sessions and constructed in curious
back rooms and curious process at the FCC fly in the face of
due process requirements that are firmly implanted in existing
law, and they are something which cannot be challenged by the
helpless people who appear before an arrogant and oppressive
Commission.
Now, let us look, evading due process requirements is not
in the public interest, and I would challenge any member of the
Commission to tell us how that kind of action is benefiting the
country or the industry or the consumer. It mainly serves
competitors, who are, of course, under no obligation to abide
by the same conditions that are extracted and extorted from the
merging parties. Competitors have every incentive to gain their
own fair advantage, and sometimes it is quite obvious that the
Commission is conferring a significant advantage on one
competitor or another by this kind of extraordinary process.
It is equally obvious that the competitors can gain this
advantage with little effort, since the merging parties are
under great pressure to strike a deal with the Commission, one
from which there is no relief in the courts because of the
extraordinary arrogance demonstrated by the Commission in
connection with these matters.
But even if the FCC actually imposed conditions that had a
reasonable nexus to the ills they purport to cure, they would
be unnecessary and wasteful given the intensive antitrust
review and enforcement authority already vested in the
Department of Justice and the Federal Trade Commission. These
agencies have legions of staff superbly trained in the business
of evaluating competitive threats to the public.
For the FCC to travel down the same road without a clear
standard of review to ensure uniform treatment of all parties
before the Commission is remarkable at best. But the fact that
the Commission is able to find these conditions and then trade
them off against other concessions by the parties in a process
that at best can be described as extortionate tends to indicate
that here we have a system and a situation very much in need of
control and reform. And I would note that this is in addition
to the fact that the process constitutes the height of
bureaucratic inefficiency, and I would advise it is also a
dangerous and arrogant affront to the democratic process that
the Commission is supposed to observe.
Mr. Chairman, I am pleased to support the bill before the
subcommittee today because I believe it will inject a dose of
rationality into the merger review process. I reiterate, I
think we need a strong merger review process. I observe we do
not now have it. And, indeed, it appears to be one not just
characterized by arrogance, indifference, extortion, laziness
and dalliance on the part of the Commission, but it is also one
which I think does not meet the high standard of tests set
forth both in the Constitution and in the administrative
procedure law.
As I understand the bill, it would narrow the focus of
review by the FCC to simply determine whether the proposed
transaction, if approved, would be in compliance with laws and
regulations already on the book or new rules duly promulgated
prior to transaction approval. I look forward to hearing the
comments of the FCC on whether they accept this welcome and
needed constraint on their arrogance.
It is important to note, however, that the public interest
standard itself and the Commission's broad rulemaking authority
that is derived from it are in no way impaired by the bill. The
FCC will retain all its existing powers to write rules as it
deems necessary and appropriate to protect the public interest.
The bill would simply ensure that even the merger review
context rules apply to everyone and are developed in a fair and
open process with full participation by the public. What a
terrible thing it is that the Congress must introduce
legislation of this kind to curb excesses in an arrogant
agency.
Thank you again, Mr. Chairman, for holding this hearing. I
look forward to moving ahead with this first, very important
step toward FCC reform. I am hopeful that it will not have to
be followed by legislation to abolish the Commission.
Mr. Tauzin. The gentleman's 5 minutes has expired. I want
to thank the gentleman.
The Chair will ask on a point of personal privilege to make
a few additional comments, without objection.
Let me first say, Mr. Dingell, that your concerns about the
FCC duplicating the work of the Justice Department are
amplified in today's report on this hearing where we are told
that, as part of the FCC's current review of the AOL Time
Warner merger, that the FCC's general counsel is seeking
additional information to better define the new market. It is a
market analysis. Again, something you would think would be done
by the DOJ in connection with this merger, another good example
of what we are talking about.
I wanted to take a personal privilege to clarify something.
We have with us today an excellent panel, and I want to thank
the commissioners who are here today and Mr. Ryan for coming to
share with us your thoughts on this topic. I made a lot of
comments in preparation for this bill and for the hearings that
I think will follow and hopefully the congressional action that
will follow. Some have thought my comments were judicious.
Let me first say I share Mr. Dingell's passion, Mr.
Pickering's passion about our concerns in this area. No citizen
of our country ought to be treated differently before a
Commission than another citizen similarly situated, yet that is
what is happening in this process, and that is so disturbing.
And no citizen of this country ought to subjected to the kind
of things that happen to too many citizens of this country
while they are waiting interminably for the Commission to act
on an application, and the examples that have been brought to
me are horrifying, and they stir the kind of passion that I
think I exhibited in my words.
But I want to straighten something out. In none of my
comments have I tried to reflect negatively upon the
commissioners. I happen to respect Chairman Kennard and every
one of the members of the Commission very greatly, and I know
that all of you serve indeed our country because you believe in
public service and you come to this office at the Commission
with that intent. I think that is true of every one of our
commissioners, and I have deep respect and admiration for every
one of you.
It is the practices, the policies, the mindset, the
circumstances, the results of some of those activities that so
trouble me and so stir me to the words that I have used in many
speeches.
I am not going to back down from those words. As Mr.
Dingell has pointed out, it is time that we address some of
these problems, and I don't want to bring anybody up and put
paper bags on their heads to tell their stories, and I don't
want anybody arrested and sent to prison. I am not after
anybody's head. I am after changing the procedures by which
people can be abused in this process and by which Americans
suffer at the hands of people who take advantage of them
because they have made been vulnerable in this process. That is
what I seek to cure.
I know that the members of the Commission who are here
today to testify share those concerns with me. You have
expressed them to me privately. We want to find an answer. So I
thank you for coming.
Mr. Kennard himself I think is still in Peru today, is not
yet back, although we extended an invitation to him to testify,
but we will be looking forward to his testimony and his
perspective on this at future hearings. In the meantime, I am
pleased to welcome this panel and, indeed, delighted that we
have been honored to have Harold Furchtgott-Roth and
Commissioner Powell and Bruce Ryan with us today to share their
thoughts on this important questions.
We will begin with Commissioner Furchtgott-Roth, and we
have a 5-minute rule, but we have a light panel. This is the
only panel; and, as I said, we have time. I will extend to you
to the same curtesies I extended to Mr. Dingell in fully
elaborating on your comments and appreciate you doing so at
this time. Commissioner Roth.
STATEMENTS OF HON. HAROLD W. FURCHTGOTT-ROTH, COMMISSIONER,
FEDERAL COMMUNICATIONS COMMISSION; HON. MICHAEL K. POWELL,
COMMISSIONER, FEDERAL COMMUNICATIONS COMMISSION; AND BRUCE D.
RYAN, PARTNER, PAUL, HASTINGS, JANOFSKY & WALKER, LLP
Mr. Furchtgott-Roth. Thank you, Mr. Chairman.
Chairman Tauzin, distinguished members of the subcommittee,
thank you for inviting me to testify before you today on the
FCC merger review process. It is a great honor for me to be
here today. I must say I only wish we were downstairs in the
main committee room, which has the towering figures of Chairman
Bliley and Mr. Dingell.
This is a great committee. I think it is the greatest
committee in Congress. It is the committee of Madison. It is
the committee that has had many distinguished chairmen over the
years. It has had many great accomplishments, and to have been
downstairs today would have been a poignant reminder of
Chairman Bliley's recent announcement of his retirement. I will
miss him dearly in this committee, and the past 6 years have
been extraordinary years for this committee. It has
accomplished great things, and it remains the greatest
committee on Capitol Hill.
During my tenure at the Commission, I have developed great
concerns about the process and practices employed in FCC merger
reviews, the general topic of today's hearing.
First, the Commission has no specific set of standards that
it applies when reviewing applications to transfer licenses
under the public interests standard. Our decisional precedents
provide little concrete guidance on the substantive standard
for approval of Title II or Title III license transfers. The
proposition that a merger is in the public interest if it is
not anticompetitive or if it is at all procompetitive, it is
too generalized to be of any real help. This places applicants
in an untenable position and raises real concerns as to whether
they have received fair notice of their legal obligations.
The Commission must attempt to set out the substantive
tests for the review of license transfer applications. In my
opinion, the public interest test for license transfers is
satisfied if at the time of filing the proposed transfer
complies with all applicable provisions of the Communications
Act and all extant Commission rules and regulations. This
interpretation of the public interest promotes clarity and
transparency for applicants and the Commission itself.
The ability to gauge in advance whether a particular
transaction is likely to be permissible or not could save
parties a lot of time, a lot of energy and a lot of costs in
the transactional marketplace. Besides that, it is only fair,
and the ability to know which standards to apply would allow
the Commission to dispatch its duties with greater efficiency.
Clearly, if the Commission's inquiry were not such an open-
ended one, it would go a lot faster.
I have also developed great apprehension about the
Commission's practice of conditioning grants for license
transfer applications. I think it is entirely appropriate under
the Commission's organic statute for the Commission to
condition license transfer on compliance with existing
statutory provisions and on existing FCC regulations. All too
often, however, the Commission places conditions on license
transfers that have no basis in the text of the Communications
Act. That is, the Commission requires companies to do certain
things, things that it could not for lack of statutory
authority require outright in a rulemaking as a quo for the
quid of receiving a license. Thus, the Commission imposes rules
on merging companies that at best have never been considered
and at worst have been considered and rejected by Congress.
Even where the condition in question could conceivably be
grounded in the Communications Act, company-specific regulation
by condition as opposed to industrywide regulation by
rulemaking is a problematic practice. It is the exceedingly
rare case I believe in which a substantive duty ought to be
required of only one telecommunications company but not
similarly situated other companies who happen not to have filed
license transfer applications. Such patchwork regulation begins
to look like irrational regulation.
The selective application of regulatory burdens to some
entities but not others is not only difficult to justify as a
legal matter but creates competitive disadvantages in the
marketplace. When one company, due to the fortuity of a license
transfer application, is subject to strictures not applicable
to its competitors, the Commission in effect handicaps that
company and advantages its competitors.
Let me also note that much of the quid pro quo at the FCC
is conducted behind closed doors, beyond public view and
scrutiny. There are secret deals that are not revealed to the
public--some written down, some not written down. All too
often, the public interest standard at the FCC ignores a
critical component, the public.
There are many examples in the Commission's recent
proceedings that illustrate the problems that I have described.
I think the most forceful one, however, is that involving
Southwestern Bell and Ameritech.
A recent article in the Legal Times by Randolph J. May,
entitled ``Any Volunteers? The FCC unfairly regulates by
condition when it extracts concessions from merging telecom
companies,'' explains it well, ``to merge their local telephone
companies, SBC Communications and Ameritech had to obtain the
FCC's permission to transfer the necessary licenses. After
months of waiting for agency approval, the companies,
``volunteered,'' last October to abide by 30 regulatory
conditions, filling more than 60 pages.''
Let me note, Mr. Chairman, that among those conditions that
SBC and Ameritech volunteered were conditions that, in essence,
required SBC to break the law at the time of the license
transfer and to break the law every day since then, to fall
outside of the Communications Act, nondiscriminatory
provisions. I have described this in detail in my separate
statement in which I dissented from those conditions.
Now, returning to Mr. May's article, he says, ``Regulation
by condition is unsound, because it imposes new burdens only on
the merging parties. In the case of SBC and Ameritech, the
merged companies are in no different position than other
incumbent carriers, like BellSouth, which are not subject to
the same requirements. The bottom line is that this process
unfairly singles out merger applicants for regulation that, if
justified at all, should be applied on an industrywide basis.''
We can only be thankful, Mr. Chairman, that some of the
conditions imposed on SBC, certainly the ones that require it
to break the law, have not been imposed on an industrywide
basis, so occasionally the ad hoc process is not as bad as if
it were industrywide.
Mr. Chairman, I am aware that the Chairman of the
Commission has established a task force to review the FCC's
merger review process. As I have told him as well as the
capable staff heading that project, I applaud him for the step
in the right direction. It is gratifying to know that my
comments on this topic during my tenure at the Commission have
been heard by the Chairman, and I deeply appreciate his
responsiveness to my concerns. It is not clear, however, that
the scope of the task force's review will be adequate to solve
the problems associated with merger reviews.
The task force is focusing solely on the procedural issues
involved in merger applications, primarily timing. I feel
obligated to observe that the Commission's merger review team
has no plans to address any substantive issues related to
merger review, such as legal standards of review or the
practice of conditioning mergers. Quick perusal of the Web page
dedicated to the review effort will confirm this. Thus, Mr.
Chairman, the Commission merger review does nothing to address
the problems at which your legislation is aimed.
While any procedural reforms are to be commended, the
substantive issues must, in my opinion be addressed. Reform of
merger review that goes only to process and leaves in place the
problems of ill-defined standards and conditional grants and
secret meetings will have no effect on what commentators have
called the FCC's version of, ``let's make a deal.''
Thank you, Mr. Chairman.
[The prepared statement of Hon. Harold W. Furchtgott-Roth
follows:]
Prepared Statement of Hon. Harold W. Furchtgott-Roth, Commissioner,
Federal Communications Commission
Chairman Tauzin, distinguished Members of the Subcommittee, thank
you for inviting me to testify before you today on the FCC's merger
review process. It is an honor to be here.
The FCC Lacks ``Merger'' Review Authority
As a threshold matter, I would like to define the scope of the
Commission's actual authority when reviewing, under sections 214 and
310 of the Communications, license transactions involving merging
parties. Contrary to its frequent assertions, the Commission does not
possess statutory authority under those provisions to review, writ
large, the mergers or acquisitions of communications companies.
Rather, that Act charges the Commission with a much narrower task:
review of the proposed transfer of radio station licenses from one
party to another and review of the proposed transfer of interstate
operational authorizations for common carriers. Nothing in the
Communications Act speaks of jurisdiction to approve or disapprove the
mergers that may occasion a transferor's desire to pass licenses on to
a transferee. Under that Act, the Commission is required to determine
whether the transfer of licenses serves the public interest,
convenience and necessity.
To be sure, the transfer of radio licenses and common carrier
authorizations is an important part of any merger. But it is simply not
the same thing. A merger is a much larger and more complicated set of
events than the transfer of FCC permits. While we can consider the use
of the licenses by the proposed transferee, the Commission almost
always involves itself in an extended discourse on, and analysis of,
lines of the company's business that have nothing to with the use of
the licenses at issue.
By using the license transfer provisions of the Communications Act
to bootstrap itself into possession of jurisdiction over the entire
merger of two companies that happen to be the transferee and transferor
of licenses, the Commission greatly expands its organic authority.
The Commission does possess authority under the Clayton Act, which
prohibits combinations in restraint of trade, to review mergers per se.
See 15 U.S.C. section 21 (granting FCC authority to enforce Clayton Act
where applicable to common carriers engaged in wire or radio
communication or radio transmission of energy). That power is rarely
invoked by the Commission, however. If the Commission intends to
exercise authority over mergers and acquisitions as such, it ought to
do so pursuant to the Clayton Act, not the licensing provisions of the
Communications Act. And under those provisions, I repeat, we review
radio license transfers, not mergers.
Duplication of Department of Justice & Federal Trade Commission Efforts
The Commission's focus on mergers rather than on license and
authorization transfers creates another problem: our work often
duplicates that of the Department of Justice's Antitrust Division and
the Federal Trade Commission.
Merging companies should not have to jump through excessive federal
antitrust hoops, and those hoops should be held out by the institutions
with the express statutory authority and expertise to do so. Those
agencies are the Department of Justice and the FTC. When the FCC gets
into the game as well, it increases the costs of the merging parties
and expends taxpayer funds, while adding little value from an antitrust
perspective. A report issued last month by the International
Competition Policy Advisory Committee reached this very conclusion.
If the Commission limited its review to the actual subject matter
of 310--the transfer of radio licenses, as opposed to the proposed
merger that triggered the transfer--this problem of duplicated efforts
and wasted resources would be avoided.
Potentially Arbitrary Review: Choice of Transfers for Full-Scale Review
and Substantive Standards To Be Applied
I also have grave concerns about the process and practices employed
in FCC merger reviews. The current system--or rather, the lack of a
clearly delineated one--puts merging entities in an inequitable and
difficult situation.
The Commission annually approves tens of thousands of license
transfers without any scrutiny or comment; others receive minimal
review, and a select few are subjected to intense regulatory scrutiny.
For example, mergers of companies like Mobil and Exxon involve the
transfer of a substantial number of radio licenses, many of the same
kind of licenses as those at issue in other high-profile proceedings,
such as AT&T/TCI, and yet we take no Commission level action on those
transfer applications. I do not advocate extensive review of all
license transfer applications, but mean only to illustrate that we
apply highly disparate levels of review to applications that arise
under identical statutory provisions.
Unfortunately, there is no established Commission standard for
distinguishing between the license transfers that trigger extensive
analysis by the full Commission and those that do not. Nor do any of
the Commission's orders in ``merger'' reviews elucidate the standard.
Regulated entities and even their often sophisticated counsel are left
to wonder whether or not their applications will receive relatively
quick, pro forma review by the relevant Bureau, or whether their
applications will take many months to process and engender open
meetings, so-called public ``fora,'' and full Commission action.
If the Commission did establish a threshold test for determining
which license transfer applications should receive strict scrutiny, the
Commission would still need to set out the substantive tests for the
differing scrutiny levels. As a general matter, our decisional
precedents provide little concrete guidance on the substantive standard
for approval of Title II or Title III license transfers: the
proposition that a merger is in the ``public interest'' if it is not
anti-competitive (or if it is also pro-competitive) is too generalized
to be of any real help.
Moreover, there is clearly a different ``public interest'' test
being applied, sub silentio, in different cases under the very same
statutory provisions, usually sections 310 and 214. The cases that
undergo extensive inquiry exhaustively discuss all kinds of service
areas and issues ancillary to the use of the actual radio licenses, and
the decisions that are granted at the Bureau level are relatively
perfunctory in their public interest analysis. We should, after
identifying the threshold test for license transfers that warrant
thorough inquiry, articulate clearer substantive criteria to guide the
Commission's inquiry
The long and short of it is this: regulated entities currently have
little basis for knowing how their applications will be treated, either
procedurally or substantively. The license transfer process at the
Commission is lacking in any transparent, fixed and meaningful
standards. A person--even a well-trained lawyer--who wished to prepare
for this process could find scant guidance in public sources of law.
Rather, one would have to be trained in the unwritten ways of this
Commission to know what to expect, and those expectations would often
have little to do with the text of the Communications Act.
In my opinion, the ``public interest'' test for license transfers
is satisfied if, at the time of filing, the proposed transfer complies
with all applicable provisions of the Communications Act and all extant
Commission rules and regulations. This interpretation of the public
interest has the benefits of simplicity and administrability. It
promotes clarity and transparency for regulated entities and the
Commission itself.
Under this understanding of the public interest, regulated entities
could refer to Title 47 of the U.S. Code and of the Code of Federal
Regulations in order to ascertain, ex ante, the substantive standards
to which their contemplated transfers would be subject. The ability to
gauge in advance whether a particular transaction is likely to be
permissible or not could save parties a lot of time, energy, and costs
in the transactional marketplace. And the ability to know which
standards to apply would allow the Commission to dispatch its duties
with greater efficiency; clearly, if the Commission's inquiry were not
such an open-ended one, it would go a lot faster.
``Conditional'' Approval of License Transfer Applications
Finally, I would like to express today, as I have done many times
before, great apprehension about the Commission's practice of
``conditioning'' grants for license transfer applications. I think it
is entirely appropriate, under the Commission's organic statute, for
the Commission to condition license transfer on compliance with
existing statutory provisions and the FCC regulations that implement
them. In fact, the Communications Act specifically contemplates such
conditions. Section 303(r) provides that the ``Commission shall . . .
prescribe such . . . conditions, not inconsistent with law, as may be
necessary to carry out the provisions of this Act.''
All too often, however, this Commission places conditions on
license transfers that have no basis in the text of the Communications
Act. That is, the Commission requires companies to do certain things--
things that it could not for lack of statutory authority require
outright in a rulemaking--as a quo for the quid of receiving a license.
Thus, the Commission imposes rules on merging companies that at best
have never been considered, and at worst have been considered and
rejected, by Congress.
Even where the condition in question could conceivably be grounded
in the Communications Act, company-specific, regulation-by-condition--
as opposed to industry-wide, regulation-by-rulemaking--is a problematic
practice. If, in the context of a license transfer, opponents of the
transfer allege that additional regulations are necessary to achieve a
certain end, that contention is most properly addressed in the context
of rulemaking, not a company-specific order. It is the exceedingly rare
case, I believe, in which a substantive duty ought to be required of
one only telecommunications company but not similarly situated others,
who happen not to have filed license transfer applications. Such
regulation begins to look like irrational regulation.
The selective application of regulatory burdens to some entities
but not others is not only difficult to justify as a legal matter, but
creates competitive disadvantages in the marketplace. When one company,
due to the fortuity of a license transfer application, is subject to
strictures not applicable to its competitors, the Commission in effect
handicaps that company.
I am also concerned about situations in which this agency becomes
an enforcer of the rules and regulations of other governmental
agencies. We have no jurisdiction to enforce rules not promulgated
under the Communications Act. We cannot and should not do the
enforcement work of others, thus putting ourselves in the position of
potential enforcer of non-FCC rules should the transferee fail to
conform to that regulation. For instance, if the Department of Justice
enters into an antitrust agreement with a party, we have no business
attempting to enforce the obligations created thereunder in our
licensing orders, as the Commission has in the past suggested.
I am doubly concerned about conditional FCC approval when the rule
at issue is not just that of another agency, but when that agency has
made no formal, final, and material findings of a violation. That is, I
do not think we should take official notice of alleged violations,
including matters under investigation or in litigation, or of informal
concerns that an agency is not yet ready or willing to pursue through
their own established procedures. When we give formal weight to
anything short of formal, final findings by other agencies, we create a
situation that is rife with incentives for inter-agency gaming of the
system, e.g., registering an objection with an agency about a matter
that the complaining agency is not prepared to pursue itself, and
requires the Commission to do extensive reviews in areas where it
simply has no experience or authority.
In sum, at the intersection of two areas--non-FCC rules and no
final determination of a violation by a responsible entity--our
authority to impose conditions on a license transfer is at its weakest.
Where non-FCC rules are at issue but there is a final, record finding
of a material infraction thereof, there is a middle ground: we should
take notice of that fact in deciding upon the application but not
condition approval upon compliance. Finally, where extant FCC rules are
involved, our power to condition a proposed transfer upon compliance
with those rules and to enforce compliance, if necessary, is at its
apex. We should never, however, impose conditions that have no basis in
the text of the Communications Act, thus using our license transfer
authority to impose new substantive obligations that Congress never
contemplated.
Conclusion
There are many examples in the Commission's recent proceedings that
illustrate the problems that I have described. I think the most
forceful one, however, is that involving Southwestern Bell and
Ameritech.
A recent article in the Legal Times by Randolph J. May, entitled
``Any Volunteers? The FCC unfairly regulates 'by condition' when it
extracts concessions from merging telecom companies,'' explains it
well. I quote:
To merge their local telephone companies, SBC Communications
and Ameritech had to obtain the FCC's permission to transfer
the necessary licenses. After months of waiting for agency
approval, the companies ``volunteered'' last October to abide
by 30 regulatory conditions, filling more than 60 pages. Most
of these conditions-such as requiring the merged company to
substantially restructure, provide huge discounts for
competitors' use of its network, and roll out advanced services
to low-income households-go far beyond the requirements of the
Communications Act or the FCC's rules.
Legal Times, March 6, 2000, page 62. And, as the article further
explains:
[R]egulation by condition is unsound, because it imposes new
burdens only on the merging parties. In the case of SBC and
Ameritech, the merged companies are in no different position
than other incumbent carriers, like BellSouth, which are not
subject to the same requirements. The bottom line is that this
process unfairly singles out merger applicants for regulation
that, if justified at all, should be applied on an industrywide
basis.
Id.
Mr. Chairman, I am aware that the Chairman of the Commission has
established a task force to review the FCC's merger review process. As
I have told him, as well as the capable staff heading that project, I
applaud them for this step in the right direction. It is gratifying to
know that my comments on this topic during my tenure at the Commission
have been heard by the Chairman, and I deeply appreciate his
responsiveness to my concerns.
It is not clear, however, that the scope of the task force's review
will be adequate to solve the problems associated with merger reviews.
The task force is focusing solely on the procedural issues involved in
merger applications, primarily timing. (As an aside, I note that on the
topic of time limits, the Commission's blanket 180-day (or 6-month)
proposal is arguably inconsistent with section 5 of the Communications
Act, which provides that with respect to applications not requiring a
hearing the Commission should have ``the objective of rendering a final
decision . . . within three months from the date of filing.''
More importantly, however, I feel obligated to observe that the
Commission's merger review team has no plans to address any substantive
issues related to merger review, such as legal standards of review or
the practice of conditioning mergers. Quick perusal of the web page
dedicated to the review effort will confirm this.
Thus, Mr. Chairman, the Commission merger review does nothing to
address the problems at which your legislation is aimed. While any
procedural reforms are to be commended, the substantive issues must, in
my opinion, be addressed. Reform of merger review that goes only to
process, and leaves in place the problems of ill-defined standards and
conditional grants, will have no effect on what commentators have
called ``the FCC's version of `Let's make a deal.' '' Id.
Thank you.
Mr. Tauzin. Thank you very much, Commissioner.
I am pleased to--by the way, before I introduce
Commissioner Powell, let me ask unanimous consent that the
written statement submitted by Chairman Kennard be made part of
the record. Without objection, it is so ordered.
[The prepared statement of Hon. William E. Kennard
follows:]
Prepared Statement of Hon. William E. Kennard, Chairman, Federal
Communications Commission
Thank you for the opportunity to submit this testimony for the
record concerning the role of the Federal Communications Commission
(FCC) in reviewing applications for transfers and assignments of
licenses associated with mergers. I regret that this hearing was
scheduled after I committed to appear at several overseas meetings.
Nonetheless, I am pleased to discuss a critical service that the FCC
performs for the American people, and to give you an update of our
ongoing efforts to make the agency's merger review process more
efficient, transparent, and predictable.
Mergers in the Context of the Evolving Communications Marketplace
Mergers and acquisitions involving firms holding licenses are not a
new phenomenon. The FCC always has considered whether or not the
transfers of control that are part and parcel of such transactions
serve the public interest. We are not using novel procedures or
applying new standards of review when considering these applications.
We are, however, cognizant of the effect on our process of three
accelerating and related trends since 1996: technological innovation,
deregulation, and consolidation.
Technological innovation, visible in the explosive development of
the Internet, the shift to ``converging'' digital and ``broadband''
technologies, and the creation and expansion of a multitude of new
enterprises, offers both enormous promise for growth and competition
and a significant threat to more established firms based on status quo
technology.
Much of this innovation has resulted from deregulation under the
Telecommunications Act of 1996 (1996 Act). After its passage, we
shifted from the old model of regulated monopolies to a new model of
achieving and maintaining vigorous competition in telecommunications
markets. The opportunities opened up by the 1996 Act have stimulated
incentives to innovate, and the resulting technological change has
heated up competition.
Following passage of the 1996 Act, the industries that hold
licenses and authorizations from the FCC have experienced unprecedented
consolidation, involving both large numbers of mergers and individual
mergers that have set record after record for the value of assets being
bought. When MCI WorldCom and Sprint proposed what was then the largest
merger in history, six of the ten largest merger deals in history were
within the telecommunications sector. The MCI WorldCom-Sprint merger
has since been overtaken, first by AOL-TimeWarner, and most recently by
Vodaphone-Mannesman.
In some ways, mergers may assist competition and technological
innovation. For example, mergers create more aggressive and efficient
firms with larger pools of assets for research and development and
reduce the transaction costs of cooperation among separate firms with
complimentary technologies. On the other hand, existing firms may
combine or purchase newer firms for defensive motives. They may seek to
gain control over a new technology that competes with them in order to
reduce the speed of its impact, or they may seek to preserve their
position by size and leveraging control over related markets, rather
than competition on the merits. Typically large mergers reflect a
mixture of offensive and defensive strategies.
The rising tide of mergers brought to the FCC a flood of
applications for transfers and authorizations. Some of the largest
mergers have involved parts of the old telephone monopoly seeking to
get back together. Other mergers have involved increasing concentration
in markets where the 1996 Act has been relying on vigorous competition
to achieve the goals of making advanced telecommunications services
available as quickly and inexpensively as possible to all Americans.
Because of their number, size, and ambiguous impact on competition in
their industries, these mergers have generated intense public scrutiny.
The FCC Has a Legal Duty to Review Mergers
The FCC has the responsibility under Sections 214 and 310 of the
Telecommunications Act to review whether the transfers or assignments
of licenses or the authorizations sought in connection with a merger
are in the public interest. Under the Communications Act, the FCC
reviews applications relating to mergers in public proceedings, subject
to the Administrative Procedure Act (APA) and judicial review. As a
result, the FCC has addressed the often controversial issues
surrounding these combinations. We do so in a forum that provides an
opportunity to use our substantial expertise to examine the potential
consequences of the proposed transactions with full participation by
interested members of the public. Applying its expertise and taking the
public comments into account, the FCC prepares a written decision
addressing the issues. All of the FCC's decisions are subject to
judicial review.
Competition remains an important consideration in these
proceedings. The FCC must consider the impact of transactions on
competition as part of the public interest standard. Also, creating
competition where none existed before is a basic goal of the 1996 Act,
but it is not the focus of the more general antitrust law provisions
administered by the Department of Justice (DOJ) and the Federal Trade
Commission (FTC). In addition, preserving competition is of particular
concern in an environment where vigorous competition is being relied on
to achieve goals formerly served by regulations and where mergers of
unprecedented number and size are taking place.
The FCC is Working to Make the Process Better
The dramatic increase in merger activity, the complexity of the
issues involved, and the extensive public comment on major mergers have
required a substantial commitment of the FCC's resources. The FCC and
its staff have worked hard to meet this challenge. I have taken
additional steps in the last several months to make the FCC's process
for reviewing merger-related applications more efficient, transparent,
and predictable.
We now have in place a Transactions Team within the Office of
General Counsel to develop and implement measures to improve the merger
review process. Since its creation, the Transactions Team has consulted
with the Federal Communications Bar Association and the Antitrust Bar
to develop proposals for improving our review process. On March 1,
2000, the Transactions Team presented specific proposals in a Public
Forum at the Commission. Those proposals include:
<bullet> A timeline that identifies the stages of FCC review and
assigns times for performing tasks with the goal of reaching a
Commission decision on applications associated with even the
most complex mergers within 180 days following public notice,
as long as the applicants do their part by providing necessary
information promptly and not making major revisions late in the
process
<bullet> A home page on the FCC Internet site, launched on March 1,
2000, that will serve as a central location for providing
information on the process of review and for tracking the
progress of pending applications
<bullet> Clarifying instructions for filing applications and explaining
the processes for considering them
<bullet> Streamlining procedures to encourage early and full disclosure
of relevant information and efficient and meaningful public
comment, and
<bullet> Continued cooperation with other agencies to avoid duplication
and maximize efficient use of the relative strengths of the
agencies involved.
These proposals can be implemented rapidly, without the need for
changes in the FCC's existing procedural rules. Comments on these
proposals are due by March 21, 2000 and we are already implementing
several of them, subject to any changes that seem advisable in light of
public comment. We believe that these proposals will achieve the goals
of efficiency, transparency, and predictability, while preserving the
FCC's valuable role as a forum for public consideration of these
transactions by an agency with expertise in the industry.
In addition, we are working toward resolving the status of pending
applications relating to proposed mergers of radio stations that would
result in very high concentration of ownership in local markets. This
week, I have circulated to the Commission a proposed policy to guide in
the expeditious processing of these cases. As soon as this policy is
approved, we will expedite and resolve cases like Cumulus Broadcasting.
The Draft Bill Would Deny the FCC Sufficient Flexibility to Resolve
Merger Cases
Finally, I would like to specifically address some of the proposals
in a draft bill circulating on the Hill this past week known as ``The
Telecommunications Merger Review Act of 2000.'' I believe that the
steps we have taken and are taking address the issues of speed,
certainty, and inter-agency cooperation in a manner consistent with the
FCC's duties and responsibilities under the law.
In contrast, the proposed bill would limit regulation to rulemaking
and impose drastically shortened time limits on FCC action. These
solutions would create speed and certainty only by sacrificing the
meaningful participation of the American people, by eliminating
regulatory flexibility in a context where it is most essential, and by
casting significantly increased responsibilities (but no additional
resources) on the DOJ and FTC while eliminating inter-agency
cooperation. The bill is, in short, a recipe for making scrutiny of
mergers less public, less flexible, and less likely.
With respect to public participation, the FCC process offers the
only forum where the merger is considered in a public proceeding
conducted under the APA. The DOJ and FTC investigations are exercises
in prosecutorial discretion, conducted under the cover of
confidentiality, with no requirement to explain action or inaction
unless a lawsuit is initiated.
The bill requires final agency action within 60 or 90 days from the
filing of an application, with no provision that the application be
accurate or complete or that the applicant submit information to allow
informed consideration by the agency or the public.\1\ By statute, the
public has at least 30 days from public notice (which can occur only
after the application is checked for accuracy and completeness) to file
petitions to deny an application, and additional time is needed to
allow responses to the petitions. This leaves the FCC very little time
to obtain any additional information it needs in order to analyze the
transaction and prepare a decision addressing the issues, including
those raised by the public, sufficiently to survive judicial review.
Speed in the administrative process will do the parties little good if
decisions are reversed by the courts.
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\1\ The special 60-day treatment is questionable, both because it
is based on competition issues, which the bill seeks to keep at other
agencies, and because it is based on national market share, when local
market share seems much more relevant.
---------------------------------------------------------------------------
Requiring regulation by rulemaking, as opposed to case-by-case
adjudication, is particularly inappropriate in the context of
evaluating mergers in markets where technology is rapidly evolving.
Rules work best when the future is fairly predictable and we can
anticipate with confidence what factors will be relevant and what
standards will reflect sound policy. Rules take a relatively long time
to enact and to change and would not adapt to the quickly evolving
communications industry. Of course, this oversimplifies the issue,
since the question is not whether there will be any rules--there always
are--but how much flexibility the standards will allow.
The FCC Role Is Not Duplicative of Other Agencies
Finally, with respect to duplication with DOJ and the FTC, let me
emphasize that the FCC has a special responsibility and somewhat
different standard in cases involving the creation of competition to
replace former regulated monopolies. We look at whether the proposed
merger is consistent with the pro-competitive and market-opening goals
of the 1996 Act, as opposed to the DOJ and FTC, which focus on possible
injury to existing competition. As I noted previously, we also provide
for public involvement in our review process and engage in procedures
that are judicially reviewable. For these and other reasons, the
Assistant Attorney General in charge of the DOJ Antitrust Division
recently expressly disagreed with a tentative majority recommendation
in the recent report of the International Competition Policy Advisory
Commission (ICPAC) that the DOJ and FTC be given exclusive jurisdiction
over competition issues in telecommunications. The report noted that
ICPAC had not discussed its recommendations with the sector regulatory
agencies and all members agreed that more study and consideration of
the consequences of such action are needed before any final action.
In sum, I want to emphasize that the FCC plays a crucial role in
the review of merger transactions in the communications industry, and
we are taking the steps to improve our review process while preserving
its integrity and unique contributions. The FCC seeks to preserve a
public forum in which proposed mergers can be evaluated and responded
to in a flexible way that is most appropriate in a rapidly evolving
marketplace, and that makes most efficient use of the combined
resources of federal agencies.
Thank you again for the opportunity to submit this testimony and
for your attention to these important issues.
Mr. Tauzin. Now, I am pleased to welcome the Honorable
Michael Powell, FCC Commission. Mr. Powell.
STATEMENT OF HON. MICHAEL K. POWELL
Mr. Powell. Good morning, Chairman Tauzin and Mr.
Pickering. It is always a pleasure to have the opportunity to
appear before you, particularly on this subject which I think
is rightly the subject of various reform efforts. It is the
topic of several pending bills in the House and Senate. It also
now has been mentioned as the focus of an FCC transaction team.
Reforming the FCC's role in mergers is timely as the
blinding pace of strategic consolidations in telecommunications
and media markets continues unabated. I will offer some general
background on FCC review and compare briefly the distinctions
between that process and the antitrust authorities. I will then
offer some broad areas of consideration which I think would
deserve the most focused attention by this committee and the
Congress.
First of all, the Commission over time has come to
interpret its obligation, which it has in the statute, of
making an affirmative finding that a license transfer is in the
public interest as a fairly broad mandate to shift the public
interest burden to the applicants and to review the benefits
and harm of the entire transaction. In selected transactions,
this includes comprehensive merger analysis.
Let me briefly contrast the distinctions between the FCC's
review and that of the antitrust authorities. The FCC review is
not formally rooted in the antitrust statutes. It is not bound
by judicial precedents in that area. In fact, the courts have
held the Commission's decision that a license transfer is, ``in
the public interest'' is entitled to ``substantial judicial
deference.'' And while the antitrust authorities must sue
companies to block a merger, the FCC may block a merger or
condition one on its own, with limited, if any, judicial
review. The antitrust authorities must prove their case by a
preponderance of the evidence to block a merger, whereas the
FCC places the burden on the applicants to affirmatively prove
the transaction is ``procompetitive.''
In most cases, the FCC's review follows the same line of
analysis as that found in the antitrust merger guidelines.
There are no actual, meaningful differences in most cases in
the analysis than one finds with the antitrust authorities. For
example, we define product markets, we define geographic
markets, we make HHI assessments of concentrations in those
markets. We make judgments about whether that market power
results in anticompetitive effects. These are fundamentally the
classic benchmarks of antitrust analysis applied by the
antitrust authorities as well.
While many of the distinctions I outline below are often
cited by opponents of duplicative FCC review, point in fact is
that, in large measure, the reviews follow the same course of
evaluation as is undertaken by the antitrust authorities.
It is hard to say there is no role necessarily for the
expert agency on communications functions. There are certainly
communications policies that may be implicated by a license
transfer that are not encompassed in the antitrust statutes and
given little consideration by the antitrust authorities.
The classic example in this area of concern is that of, for
example, ``diversity of voices'' in media mergers. Congress has
often chosen to protect such values in the statute, even where
concentration would not rise to anticompetitive levels, for
example in the cable horizontal ownership rules.
Thus, the Commission's review, in my opinion, could be
effectively limited to matters that violate the statute and to
policies that are not fairly encompassed within the Clayton and
Sherman Acts. I would ask that my full testimony be submitted
to the record where I proffer a number of reform options in
each of these areas for your consideration, and I will only
list them briefly here.
Mr. Tauzin. Without objection, all the written statements
of the witnesses are made a part of the record.
Mr. Powell. Thank you, Mr. Chairman.
For example, with respect to duplicity, one thing that the
committee would have to consider is the repeal of FCC authority
under the Clayton Act. While the FCC has rarely, and to my
knowledge never, invoked the Clayton Act for basis of review,
under that statute it expressly has conferred authority to
conduct merger reviews under that provision. Any attempt to
reform the process that leaves that element in place would
leave the Commission vested with full merger analysis
authority.
Second, I believe requiring deference to the antitrust
authorities' competitive analysis is warranted. There are other
ways in which the Commission can express its views. For
example, permitting the FCC to file comments with antitrust
authorities in communications transactions would be one
example.
Finally, I would limit FCC review to questions about
whether the combined company would be in compliance with the
Communication Act or, again, matters that are not fairly
encompassed within the Clayton and Sherman Acts.
The second broad area of concern I would point to would be
in the area of review standards and conditions. I believe that
despite the emphasis in this debate on timeliness and process,
that the real failings of FCC review stem from the standards
and burdens applied in the mergers that do have some plausible
statutory bases. In fact, with one or two unfortunate
exceptions, most mergers are actually completed in a fairly
expeditious amount of time, at least as antitrust analysis
goes. How long a merger may take is certainly a source of
uncertainty, but that uncertainty exists with the antitrust
authorities as well and thus short FCC deadlines alone may only
have a marginal effect on that uncertainty.
The uncertainty really stems from the result of not knowing
exactly what the FCC will focus on, or what the FCC will
require in order for it to deem a merger ``procompetitive''
under the public interest standard. The public interest
standard clearly lacks guiding principles that can more
predictably govern Commission decisions.
Whatever the merits of the standard in some context, and I
do believe there are some, its applications to merger analysis
is flawed. For one, I believe the most significant flaw of our
standard is that it demands that the applicants prove a merger
is procompetitive, rather than placing the burden on the
government to prove that it is harmful. Indeed, under this
standard the courts have even required that the Commission
articulate a strong basis for actually allowing a merger to go
through. Thus, the Commission's process necessarily invites a
vague and open-ended scramble for the applicants to prove
procompetitive benefits and also invites an equal torrent of
parties demanding all kinds of concessions to get over the
procompetitive hurdle.
Under the Administrative Procedures Act, the Commission
ends up by law having to consider and respond to any and all of
these showings, which results in a lot of the uncertainty and
delay that concerns us.
I would note this is in stark contrast to antitrust
authority, which places the obligation on the government to
prove that the merger is harmful, not that it is beneficial. If
we have faith in markets and deregulation, I believe that the
government should always bear the burden of stopping a
combination, rather than market participants proving it would
be good to the satisfaction of regulators. Moreover, I believe
focusing on harms and measures to remedy those harms is a more
focused and disciplined endeavor, than a subjective and
undisciplined search for procompetitiveness.
I have other problems with this standard as it is applied
as a simple balancing test. I am uncomfortable with a standard
that simply places harms on one side of the scale and then
collects and places any hodgepodge of conditions, no matter how
ill-suited to remedying those identified harms, on the other
side of the scale.
The balancing approach leads to a number of problems.
First, it creates a great temptation to load up the benefits
side of the scale with a big wish list of conditions that are
nongermane to the merger's harmful effects; that is, a pebble
of harm could result in a mountain of conditions to demonstrate
procompetitiveness.
Second, it makes it easier for identified harms, even
significant ones, to be visited upon the public in exchange for
other benefits.
Let me elaborate on this point with a humorous example. You
might come up to me and ask if it is all right to beat my dog,
if you give my dog a squeaky toy in exchange. The dog may
appreciate the addition to his collection of squeaky toys but
not necessarily enjoy the beating nonetheless.
When conditions are procompetitive but don't necessarily do
anything to remediate the harms identified, they nonetheless
will be visited on the public irrespective of the benefits that
are identified on the condition side.
My third concern with the conditions is that they are
sought more often as surrogates for policies and rules of
general, rather than merger-specific, applicability, but
without the extensive deliberative process and the check of
judicial review normally afforded in a rulemaking. There is
absolutely nothing voluntary about the regulator-regulatee
relationship, and the suggestion that anybody proffers out of
the goodness of their heart a condition in the context of a
merger is pure fantasy. It is more disturbing when one
considers that, by virtue of the conditions being deemed
voluntary, they are probably insulated from judicial review.
I assure you the Commission would be heard to say in court
that the issue is moot because the parties had agreed to those
conditions and that no Commission action caused them to come
into being.
Possible suggestions in the reform area. Establish
standards or thresholds for determining which, if any, license
transfers should be subject to more comprehensive review as
Commissioner Furchtgott-Roth has identified.
Second, which I think is the critical crux of the matter,
place the burden back on the Commission to demonstrate the
transfer would not be in the public interest, rather than the
other way around. And also require any conditions to actually
be related to or cure a violation of the statute or clearly
identified public harms.
Finally, I would say a word about process, which has been a
chief concern among parties contemplating merger transactions.
This is especially concerning to a competitive, technology-
focused industry that is running on Internet time. I do, too,
applaud the Commission's self-initiated efforts in this area,
though much work remains to be done. I, too, would emphasize
that, while it does something to increase the procedural
process, it does nothing to address the fundamental standards.
Some of the pending legislative initiatives that have been
offered would require the Commission to grant or deny the
merger applications within a set period. I believe that time
constraints are wise, but I do caution they should not
necessarily be completely rigid or unbending. Mergers are fact-
intensive reviews that are not always easily boxed into
particular time windows. They may be fine if you accept the
presumption that the merger is procompetitive.
But in those cases when they may actually visit substantial
harm on the public, we would want the Commission, or whatever
authority, to engage in as fulsome and thorough review of that
as possible.
I believe that the best approach may be to create temporal
benchmarks in which the Commission is obligated to take action
and only upon full authorization of the Commission be permitted
to proceed with the further aspects of the investigation and
only for very confined and limited periods of time.
In my written statement, I offer just a strawman of a
possible procedural outline, including some benchmarks that I
think are also consistent and faithful, to what Congress is
trying to achieve and would provide some suggested frameworks
for doing so.
With that, I thank you for the opportunity to be here, as
always; and, moreover, I offer my personal commitment and
assistance on a going-forward basis as you work through this
important and difficult issue.
[The prepared statement of Hon. Michael K. Powell follows:]
Prepared Statement of Hon. Michael K. Powell, Commissioner, Federal
Communications Commission
Good morning, Mr. Chairman and other distinguished members of the
House Subcommittee on Telecommunications, Trade and Consumer
Protection. Thank you for inviting me here to testify on the
``Telecommunications Merger Review Act of 2000.''
The FCC's ``merger'' review process is rightly the subject of
various reform efforts. It is the topic of several pending bills in the
House and Senate, and is now the focus of an FCC Team. Reforming the
FCC's role in mergers is timely, as the blinding pace of strategic
consolidations in telecommunications and media markets continues
unabated. I appreciate this opportunity to offer my views about the
fundamentals of a sound and more efficient merger review process. After
providing some background, I will discuss three broad areas where
reform should be considered: (1) the duplication of merger review
between the FCC and U.S. antitrust authorities; (2) the standards
applied by the FCC to mergers and the selection of conditions; and (3)
the FCC's review process, including its timeliness. Although I know
that there is a specific proposal that is the subject of this
legislative hearing today, my remarks will focus on these broad areas
of concern and offer several reform options for each area.
i. background
The FCC's authority to review license transfers derives principally
from various sections of Title III of the Communications Act of 1934
(entitled ``Provisions Relating to Radio'') that direct the Commission
to review applications to transfer licenses and determine ``whether the
public interest, convenience, and necessity will be served by the
granting of such application . . .'' <SUP>1</SUP> If the Commission so
finds, it must grant the application. Section 214 of the Act is the
source of authority for approving applications for the acquisition and
transfer of lines by common carriers.<SUP>2</SUP> Thus, strictly
speaking, the precipitating event for our review is a request to
transfer licenses and lines from one company to another. We are not, it
should be emphasized, specifically directed by Congress to review the
potential anticompetitive effects of the underlying transaction itself.
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\1\ 47 U.S.C. Sec. 309(a); id. Sec. Sec. 308, 310(d). Though we do
have some express antitrust authority under the Clayton Act, to my
knowledge the FCC has rarely (if ever) invoked such authority as the
basis for reviewing a merger merger. See 15 U.S.C. Sec. 21(a).
\2\ See 47 U.S.C. Sec. 214(a)-(d).
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Nonetheless, the Commission, over time, has come to interpret its
obligation to make an affirmative finding that a license transfer is in
the public interest as a fairly broad mandate to shift the public
interest burden to the applicants and to review the benefits and harms
of the transaction itself.<SUP>3</SUP> In selected transactions, this
has come to include comprehensive merger analysis. That is, an
evaluation of the competitive benefits and harms of the entire
transaction rather than a more limited determination that the lines and
licenses would be put to valued public use.
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\3\ See, e.g. Applications of Ameritech Corp., Transferor, and SBC
Communications, Inc., Transferee, For Consent to Transfer Control of
Corporations Holding Commission Licenses and Lines Pursuant to Sections
214 and 310(d) of the Communications Act and Parts 5, 22, 24, 25, 63,
90, 95, and 101 of the Commission's Rules, CC Docket 98-141, Memorandum
Opinion and Order, 14 FCC Rcd 14712 (1999); Applications For Consent to
the Transfer of Control of Licenses and Section 214 Authorizations from
TeleCommunications, Inc., Transferor to AT&T Corp., Transferee, CS
Docket No. 98178, Memorandum Opinion and Order, 14 FCC Rcd 3160 (1999);
Application of WorldCom, Inc. and MCI Communications Corporation for
Transfer of Control of MCI Communications Corporation to WorldCom,
Inc., CC Docket No. 97-211, Memorandum Opinion and Order, 13 FCC Rcd
18025 (1998); Applications of NYNEX Corporation Transferor, and Bell
Atlantic Corporation Transferee, For Consent to Transfer Control of
NYNEX Corporation and Its Subsidiaries, File No. NSD-L-96-10,
Memorandum Opinion and Order, 12 FCC Rcd 19985 (1997).
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It is useful to contrast FCC review with that of the federal
antitrust authorities (Department of Justice and the Federal Trade
Commission). The FCC's review is not formally rooted in the antitrust
statutes and thus is not bound by judicial precedents in that area. In
fact, the courts have held that the Commission's decision that a
license transfer is ``in the public interest'' is entitled to
``substantial judicial deference.'' <SUP>4</SUP> Additionally, while
the antitrust authorities must sue companies in court to block a merger
they believe is harmful, the FCC may block a merger (technically a
license transfer) on its own, with limited, if any, judicial review.
Moreover, this difference affects the burden of proof. The antitrust
authorities must prove their case by a preponderance of the evidence to
block a merger, whereas the FCC places the burden on the applicants to
affirmatively prove the transaction is ``pro-competitive,'' a fairly
recent pronouncement.<SUP>5</SUP>
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\4\ SBC Communications, Inc. v. FCC, 56 F.3d 1484, 1490 (D.C. Cir.
1995), quoting FCC v. WNCN Listeners Guild, 450 U.S. 582, 596 (1981).
\5\ See Applications of NYNEX Corporation, Transferor, and Bell
Atlantic Corporation, Transferee, for Consent to Transfer Control of
NYNEX Corporation and its Subsidiaries, File No. NSD-L-96-10,
Memorandum Opinion and Order, 12 FCC Rcd 19985, 19994, 20061, para. 16,
153 (1997). But see also Applications of Pacific Telesis Group,
Transferor, and SBC Communications, Inc., Transferee, for Consent to
Transfer Control of Pacific Telesis Group and its Subsidiaries, Report
No. LB-96-32, Memorandum Opinion and Order, 12 FCC Rcd 2624 (1997).
Eight months before the Bell Atlantic/Nynex decision, the Commission
concluded in the SBC/PacTel proceeding that ``the proposed transfer
will result in procompetitive effects, efficiencies, and other public
interest benefits that could be real but, if they occur, will not
likely be dramatic. We emphasize that it is not these benefits of the
proposed transfer, but rather its lack of any significant and
foreseeable anticompetitive effects, that has led us to approve it.''
Id. at 2661 para. 84 (emphasis added).
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ii. duplication of merger review functions
Proponents of FCC review in defending the duplicative merger review
process often cite the distinctions I have just outlined. However, the
actual differences in analysis and outcome when one examines actual
cases are substantially less. In most cases, the FCC's review follows
the same line of analysis as that found in the merger guidelines
employed by the antitrust authorities. We define product and geographic
markets, we evaluate market power in those markets, we propound on the
anticompetitive effects of the combination, and we consider
efficiencies and barriers to entry to mitigate those effects. In the
main, there are no meaningful differences in the analysis among the
agencies. Thus, despite the different foundations, procedures and
standards among the respective authorities, the evaluations by the FCC
and the antitrust authorities are largely duplicative.<SUP>6</SUP> This
imposes significant costs on a transaction. The costs to the parties
include greater uncertainty of result, increased legal costs to defend
a proposed transaction before multiple agencies, and greater
uncertainty of time before closure. The government bears a cost as well
with the duplicative expenditure of resources inherent in concurrent
jurisdiction. In the FCC's case, scarce resources are diverted from
other critical activities, for example section 271
applications.<SUP>7</SUP>
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\6\ I would call the Committee's attention to a recent report
issued by the Department of Justice's International Competition Policy
Advisory Committee, which specifically addresses the overlapping
merger-related functions of the U.S. antitrust authorities, sectoral
regulators like the FCC, and the states. See Final Report, Justice's
International Competition Policy Advisory Committee to the Attorney
General and Assistant Attorney General for Antitrust at 142-154 and
Annex 3-B.
\7\ It is important to note that the FCC has substantially fewer
people trained in competitive analysis to review mergers than does DOJ
or the FTC.
---------------------------------------------------------------------------
This is not to say, however, that there is no role for the expert
agency in some transactions. There are communications policies that may
be implicated by a license transfer that are not encompassed in
antitrust statutes and, thus, given little consideration by the
antitrust authorities. The classic example is the impact on ``diversity
of voices,'' when media licensees merge. Congress has often chosen to
protect such values, even where a consolidation might not raise classic
concentration concerns.<SUP>8</SUP> In these cases, the FCC's review
does not duplicate that of the antitrust authorities.
---------------------------------------------------------------------------
\8\ See, e.g., 47 U.S.C. Sec. 533 (Cable Television Ownership
Restrictions) and Pub. L. No. 104-104, Sec. 202 (Broadcast Ownership).
---------------------------------------------------------------------------
In sum, while today's duplicative merger process within the federal
government needs to be reformed, I believe that there is room to
preserve a role for the FCC that is more complimentary or
supplementary. The Commission should be constrained to consider only
issues such as whether the merger would violate an express provision of
the Communications Act or the Commission's rules. In addition, it is
appropriate for it to consider the merger's impact on other
communications policies such as media diversity and universal service
that are not appropriately considered by antitrust authorities.
However, I believe that the Commission should be required to defer to
the antitrust authorities' competitive analysis and leave it up to them
(and the courts) to address specific competitive harms that they
identify.
Finally, a full-blown merger review is not the only way for the
FCC's expertise to come to bear. The Commission could file comments
with the appropriate antitrust authority reviewing a merger or issue an
advisory opinion on a given merger.
Reform Options
<bullet> Require deference to antitrust authorities' competitive
analysis. Permit FCC to file comments with antitrust
authorities in communications transaction.
<bullet> Limit FCC review to questions about whether the combined
company would be in compliance with the Communications Act, and
matters that are not fairly encompassed in the Clayton and
Sherman Acts.
iii. review standards and conditions
There are two areas in which standards come into play. First, there
is a serious question about what standards the Commission employs for
determining which license transfers receive extensive merger
evaluation. Commissioner Furchtgott-Roth has spoken extensively about
this problem and I will not repeat his criticism, but I do agree that
the Commission's process on this point is vulnerable to challenge as
arbitrary. The second standard issue involves the standard under which
we review mergers: the public interest standard.
The ``public interest'' standard has been a part of the law since
the inception of the Federal Radio Commission and, its successor, the
FCC. This standard was introduced to communications regulation in a
time when scholars and Congress believed in the supremacy of regulators
in ordering economic relationships. But we are now in an era just after
the pro-competitive, deregulatory 1996 Act in which Congress sought to
remove decisions from the ``enlightened regulator'' to the market. It
is hard to imagine a member of Congress today expressing the view
articulated by Senator Clarence Dill, in the 1927 Radio Act debates,
that the public interest standard would gain meaning by the staffing of
the Commission with ``men of big abilities and big vision.''
I am substantially less comfortable than Senator Dill with a
standard that depends heavily on the quality and ``vision'' of those
who happen to occupy a Commission seat at any given time. The standard
clearly lacks guiding principles that can more predictably govern
Commission decisions. Whatever the merits of the standard in some
contexts (and there are some), I believe its application to merger
analysis is flawed. Particularly, since its has been employed as a
simple ``balancing process'' that weighs the potential public interest
harms of the proposed transaction against its potential public interest
benefits.
Consistent with my long-standing concerns regarding our license
transfer process, I have fundamental difficulties with the public
interest standard as developed and applied in the Commission's merger
reviews. Simply put, I am very uncomfortable with a standard that
places harms on one side of a scale and then collects and places any
hodgepodge of conditions--no matter how ill-suited to remedying the
identified infirmities--on the other side of the scale. This balancing
approach leads to a number of problems: First, the approach creates a
great temptation to load up the benefits side of the scale with a big
wish list of conditions that are non-germane to the merger's harmful
effects. Second, the approach makes it easier for identified harms,
even significant ones, to be visited upon the public in exchange for
other benefits. Third, the conditions that are sought are more often
surrogates for policies and rules of general, rather than merger-
specific, applicability, but without the extensive deliberative process
and the check of judicial review normally afforded a
rulemaking.<SUP>9</SUP>
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\9\ A fuller recitation of my critique of standards and conditions
can be found in my separate statement, dissenting in part, in the SBC/
Ameritech merger Order.
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A. The Problem of the Mountain and the Pebble--To conceptualize the
problems with the public interest standard when reviewing a license
transfer (i.e., a merger), consider a simple balancing scale of the
``see-saw'' variety. On the left side of the scale are public interest
harms and, on the right, public interest benefits. The balancing
approach requires that the benefits outweigh the harms. If the harms
weigh but an ounce more than the proposed benefits, the standard (if
faithfully applied as articulated) would require us to block the
merger. This approach is troubling on one level, for if the government
were neutral with respect to the asserted benefits, it still could be
compelled to stop a merger based on essentially negligible harms. This
has led me to believe that perhaps the FCC should bear the burden of
demonstrating a basis for blocking or conditioning a merger (much as
the antitrust authorities do) rather than placing an affirmative duty
on applicants to show their combination is pro-competitive.
The more serious problem arises with the public interest ``scale,''
however, when the Commission, rather than weighing the harms against
the proffered benefits, attempts to tip the balance by adding weight to
the benefits ``platter'' with conditions. The public interest standard,
as the Commission applies it, does not require that the conditions cure
or remedy the identified harms. The conditions need only outweigh the
harms. Thus, the Commission is free to compensate for a pebble of harm
on one side of the public interest scale by throwing a mountain of
purportedly beneficial conditions on the other side of the scale. In
other words, when conditions are not calibrated to remedy harms, there
is no constraint on how voluminous or unrelated they might be. The
consequence of this approach is that the slightest harm opens up a
quarry of ``would-be-nice-to-haves'' that can be piled on the scale.
Moreover, the coercive effect of having the applicants over a barrel
hoping to gain merger approval dramatically improves the chances that
the companies will ``agree'' to abide by the conditions. Thus, the
temptation and the enticement to stack the scale with precious gems is
irresistible to competing companies, interest groups and the Commission
itself.
B. ``Poor Joshua!'' <SUP>10</SUP>--The second difficulty I have
with the Commission's merger standard is that in theory, it will allow
a merger to go forward that it finds will harm the public, as long as
the public gets something good in return. In the humorous extreme, one
could analogize this to allowing a stranger to beat your dog as long as
he commits to giving the dog a bone and some fun squeaky toys. No
doubt, the ``ol' boy'' has been quite anxious to get a bone and add to
his saliva-laden collection of playmates, but not at the expense of a
beating. Of course, this analogy is perhaps less humorous if one
assumes that the public interest is entitled to better treatment than
your dog.
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\10\ This famous refrain is drawn from DeShaney v. Winnebago
County Dept. of Social Services, 489 U.S. 189 (1989) (J. Blackmun,
dissenting) (holding that state had no constitutional duty to protect
Joshua, a child, from his father after receiving reports of possible
abuse). In DeShaney, Justice Blackmun wrote: ``Poor Joshua! Victim of
repeated attacks by an irresponsible, bullying, cowardly, and
intemperate father, and abandoned by respondents who placed him in a
dangerous predicament and who knew or learned what was going on, and
yet did essentially nothing except . . . dutifully record[ ] these
incidents in [their] files.'' Id. at 213.
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Jests aside, the point is that when merger conditions are not
designed to remedy harms, all the unrelated benefits in the world will
not cure the loss to the public. If one is convinced of the
significance of a proposed merger's harms, it is unsettling that the
merger would proceed without significantly mitigating those harmful
effects with remedial conditions.
C. Wither Thoughtful Deliberation?--I think it a profound mistake
to use license transfer proceedings as a way to advance policies of
general applicability that are otherwise, and more appropriately, the
subject of rulemakings. My reasons are three:
First, no matter how much we try to include other parties, a merger
review is primarily an intimate, bilateral dance between the government
and the applicants. The nature of this dance is one of negotiation.
Where there are some harms and the question is finding a set of
conditions that will allow the merger to proceed, the tango proceeds
until there is a meeting of the minds between the government and its
suitor. The parties inevitably go back and forth in an effort to find a
compromise where the government gets a satisfactory list of conditions,
but not so many that the applicants walk away from the deal. Thus, the
process is not sufficiently fulsome to broach broader policy questions.
The point also shows the importance of requiring conditions to be
merger specific.
Second, by importing parts of rulemakings and transforming them
into merger conditions, we risk substantially confusing both the
industry and state commissions with respect to rules previously
adopted. The conditions often overlap significantly with many of our
ongoing proceedings to implement the Telecommunications Act of 1996. In
tackling these other proceedings, the Commission must consider more
than the interests of the merging parties. Relying on conditions that
overlap with more general proceedings will require us to distinguish
carefully this conditioning exercise from our broader duties under the
Act.
Third, I personally am uncomfortable essentially promulgating rules
without the deliberative process of notice and comment normally
afforded in a comprehensive rulemaking. Moreover, I think it
unacceptable to pursue matters as conditions where they are insulated
from judicial review. In a classic rulemaking, parties have the right
to petition for review in court. But when a merger is approved with
conditions, the applicants are unlikely to pursue a challenge to terms
that regulators will claim they acceded to ``voluntarily'' as the price
for gaining favorable approval.
Finally, I do not subscribe to an essential assumption of this
process, that is, the idea that a regulated entity can ``voluntarily''
offer and commit to broad-ranging legal obligations and penalties.
There is never anything voluntary about the regulatory relationship.
And, even if there were, I do not believe that the guiding structures
of the regulatory process (either rulemaking or adjudication) should be
supplanted by a unilateral offer from a license transfer applicant.
Reform Options
<bullet> Establish standards or thresholds for determining which, if
any, license transfers should be subject to more comprehensive
review.
<bullet> Establish guiding principles to curtail the breadth of the
public interest standard.
<bullet> Require conditions to either cure a violation of the statute,
or remedy clearly identified public harms.
<bullet> Place the burden on the Commission to demonstrate that a
license transfer would not be in the public interest.
iii. process
This brings me to my last area of consideration, the process of
reviewing mergers at the FCC. Chief among the concerns of parties
contemplating merger transactions is how long will it take to get
through all of the regulatory hurdles. This is especially concerning to
a competitive, technology-focused industry that is now running on
Internet time. I believe that reform in the substantive areas I have
already discussed could alleviate much of the delay of major
transactions caused by monkeying with competitive issues that are not
within our core expertise, inviting and addressing all sorts of non-
germane challenges and negotiating ``voluntary'' conditions. But the
process itself also needs examination.
The FCC Office of General Counsel's ``Transactions Team'' has
recently proposed a 180-day timeline for completing our review of major
transactions. Under the staff's proposal, the clock would start at the
release of the FCC staff's ``Public Notice'' announcing the
applications underlying the transaction have been accepted for filing
and inviting the filing of petitions and comments. I applaud the
Commission's self-initiated efforts in this area, though much work
remains to be done.
Some of the pending legislative initiatives that have been offered,
including the measure that is the subject of this hearing today, would
require the Commission grant or deny the merger applications within a
set period (e.g., 90 days) from the date the application is filed. I
believe the current statute itself offers some guidance as to how to
structure the chronology of review. I would note that section 5(d) of
the Communications Act, added by Congress in the early 50s, provides
for a non-binding ``objective'' of rendering a final decision (1)
within three months from the date of filing in all original
application, renewal, and transfer cases in which it will not be
necessary to hold a hearing, and (2) within six months from the final
date of the hearing in all hearing cases. In addition, Section 309 of
the Act, especially subsections (d) and (e), provide a well-understood
process of handling all Title III applications and oppositions thereto.
I believe that time constraints are wise, but must not be
completely rigid or unbending. Mergers are fact intensive reviews that
are not always easily boxed into particular time windows. Moreover,
short time frames may be fine for pro-competitive mergers, but in the
face of real public harm, it is important for the government to act
thoroughly and decisively. Short time frames may also allow the parties
to game the process to deny the Commission the information it needs to
make an informed judgment in order to run out the clock. I think the
more prudent approach is to set clear temporal benchmarks and require
the full Commission to authorize any further review, and then only for
limited blocks of time. Let me offer an example:
(1) Filing and Quick-look: Once an application is filed, the
appropriate Bureau will give the application a ``quick-look''
to ensure the application is complete. If so, the application
is accepted and placed on public notice (within 5 to 10
business days).
(2) Comment Period: For 30 days, parties in interest have an
opportunity to petition to deny the application under section
309, and the applicant will be afforded the opportunity to file
a reply.
(3) Stage 1 Review: After the comment period ends the bureau will
review the application to determine if the transfer would
result in public harms (45 to 60 days).
(4) Commission Review: At the end of stage 1 review, the Commission by
formal action must either:
(a) Grant the application (and denying the petitions to deny) with
or without conditions;
(b) Authorize further investigation by the staff for a defined
interval (e.g., 60 days), triggering stage 2 review, with
perhaps additional comment; or
(c) Designate the application for administrative hearing in
accordance with section 309 of the Communications Act and
applicable provisions of the Administrative Procedures Act.
(Congress could authorize a less onerous paper hearing,
than a hearing on the record.)
(5) Decision: The vast majority of cases should take no longer than 60
to 90 days. In the most complex cases, where significant and
germane public harms have been identified in the Stage 1
review, our final decision should be rendered within six to
nine months from the filing of the application.
iv. conclusion
I look forward to continuing to work with Members of Congress and
with my colleagues on the scores of transactions that are likely to
come before us and the initiatives to reform this process.
Thank you for your attention. I will be happy to answer any
questions you may have.
Mr. Tauzin. Thank you.
Let me thank you both for some very instructive testimony,
and it is exactly what we were hoping we would receive today,
some ideas and thoughts about how we might put our arms around
this thing and solve it. I thank you very much.
We are pleased to welcome Mr. Bruce Ryan, a partner of
Paul, Hastings, Janofsky & Walker here in Washington,
substituting for Mr. Richard Weening of Cumulus Media. Mr.
Ryan.
STATEMENT OF BRUCE D. RYAN
Mr. Ryan. Thank you, Mr. Chairman and members of the
subcommittee. I am outside counsel to Cumulus Media and have
represented them in connection with matters before both the
Department of Justice Antitrust Division and the Federal
Communications Commission.
I thank you for the opportunity to appear before you today
in connection with the consideration of the Telecommunications
Merger Review Act of 2000.
Richard Weening, the Executive Chairman of Cumulus,
apologizes very much for not being able to attend this morning
due to an unavoidable and last-minute complication, but we do
thank you for allowing me to substitute for him.
Cumulus Media is a radio broadcasting company based in
Milwaukee, Wisconsin, which is focused on the acquisition,
operation, and development of radio stations in mid-sized
cities throughout the United States. Including acquisitions
somewhere in the FCC approval process, Cumulus now owns,
operates or has agreed to acquire over 300 radio stations in
over 60 cities in the U.S.
By number of stations, Cumulus is now the second largest
radio station owner in the United States, assuming that the
proposed merger between Clear Channel Communications and AM/FM
is completed as planned.
In the Telecommunications Act of 1996, Congress changed the
rule as to the number of radio stations that one person or
company could own or control in a city of a given size. The
former two-station duopoly rule was replaced in Section 202(b)
of the Telecom Act with a new set of ownership limits that
specified the exact number of commercial radio stations that
any one party may own, operate or control.
The statute set from five to eight stations, depending on
the total number of stations providing service in that
location. These revised ownership limits in the statute were
designed to help radio operators create clusters of multiple
radio stations that could operate for less through cost savings
and other efficiencies, while delivering more to listeners and
advertisers within their service areas.
The result of this congressional plan, we believe, has been
to revitalize radio, enabling it to better compete with
newspapers, television, and other advertising media and to
become generally a much more viable business.
Although the FCC has incorporated Section 202(b)'s
ownership limits into its own regulations, the FCC also
currently engages in detailed competitive reviews of radio
mergers and acquisitions as part of the license transfer
approval process. The FCC does this pursuant to authority it
claims under the public interest standard of Section 310(d) of
the Communications Act.
Cumulus, Mr. Chairman, has three primary concerns with this
approach. First, we believe strongly that the FCC cannot
lawfully shrink the ownership limits of the Telecom Act. Since
Section 202(b) already delineates with precision the number of
radio stations that a single party may own in a local market of
a given size, we believe that the FCC does not have a proper
role to play in formulating a different policy based on its
general views of the public interest.
Second, we believe it imposes an unnecessary burden and
simply is not a sensible use of government resources for the
FCC to review acquisitions based on the same type of market
concentration concerns that the Department of Justice already
considers, and this appears to be what the FCC is doing in the
case of radio, as Commissioner Powell described this morning.
To date, the FCC has not articulated any justification for
imposing this additional layer of competitive evaluation on
radio mergers and acquisitions, and the FCC has not articulated
any clear standards to govern its evaluation. The proper course
is to leave such review where it belongs, with the expert
agencies charged with enforcing the antitrust laws.
Third, the unusual combination of the small size of many
radio transactions, especially in the smaller and mid-sized
media markets, and the need to obtain FCC approval of the
acquisitions often means that the Hart-Scott-Rodino Act
effectively has been stood on its head. Not only does the
government, through two agencies, have the power to investigate
small radio acquisitions, but it faces no time deadline in
doing so. The result is that the parties to these relatively
small deals have sometimes had to endure costly and duplicative
competitive reviews, even for periods of time beyond those
applicable to much larger transactions, and we mention a few of
them in the prepared testimony.
In our testimony, we describe some of Cumulus' experience
under the current regulatory system and the reasons why we
believe that the proposed bill may bring about helpful change.
While most of Cumulus' radio license transfers have been
processed very efficiently and promptly by the FCC staff and we
believe the staff deserves credit for its diligent efforts to
keep up with a sharply increased workload since the Telecom
Act, some applications unfortunately have been sidetracked by
subjective case-by-case assessment of competitive issues that
are wholly outside the FCC's written rules.
Delays and unnecessary regulatory burdens of this sort
often threaten to disrupt small radio transactions and other
transactions and can cause serious financial hardship to
parties. We believe this legislation would help by shortening
the FCC's merger review process by requiring action to be
completed on most license transfer applications within 90 days.
It also would help clarify the role of the FCC by eliminating
duplicative competitive reviews and by requiring that denials
or conditional approvals of applications be based solely on the
requirements of existing FCC rules and regulations.
Mr. Chairman, that concludes my testimony. I thank you,
again, for the opportunity to appear today; and I would be
happy to answer any questions the subcommittee may have.
[The prepared statement of Richard Weening follows, as
presented by Mr. Ryan:]
Prepared Statement of Richard Weening, Executive Chairman, Cumulus
Media Inc.
Good Morning, Mr. Chairman and Members of the Subcommittee. I am
Richard Weening, Executive Chairman of Cumulus Media Inc. Thank you for
inviting my testimony. While the bill that is the subject of this
hearing may primarily be focused on the regulatory approval process for
large telephone company mergers and major multi-media transactions like
AOL-Time Warner, based on Cumulus's experience with radio station
license transfers since the passage of the Telecommunications Act of
1996, we also are keenly interested in the subject matter of the
``Telecommunications Merger Review Act of 2000''.
Cumulus Media Inc. is a radio broadcasting company based in
Milwaukee, Wisconsin. We are focused on the acquisition, operation and
development of radio stations in mid-sized U.S. cities. Arbitron ranks
markets by size from 1 to 275. We generally focus on markets ranked 50
or smaller. Including acquisitions somewhere in the FCC approval
process, we now own, operate or have agreed to acquire over 300 radio
stations serving over 60 cities across the United States. By number of
stations, Cumulus is now the second largest radio station owner in the
U.S, assuming the Clear Channel-AM/FM merger is completed as planned.
This morning I would like to describe for the Subcommittee some of
the experiences of my own Company and how those experiences may
illustrate the need for the type of legislative action you are
considering.
background
The Telecommunications Act of 1996 and Its Positive Impact on Radio
In Section 202(b) of the Telecommunications Act of 1996, Congress
changed the rules as to the number of radio stations that one person or
company could own or control in a city of a given size. The two-station
``duopoly'' limit was replaced with a new rule that allows ownership of
five to eight stations depending on the total number of stations
providing service to the city. In making the new rules, Congress
attempted to balance the urgent economic and competitive realities that
dictated multiple-station ownership with the avoidance of undue
concentration of control. To achieve this balance, the revised
ownership limits were designed to help owners create ``clusters'' of
multiple radio stations that could operate for less--while delivering
more to listeners and advertisers within their service areas--and, at
the same time, become or remain viable businesses.
Subsequent experience under the Act has confirmed the wisdom of
Congress's judgment on this issue. Our experience shows that five or
more stations operated as a cluster not only is critical to achieving
operating economies of scale, but is essential to making radio
competitive with other media. These multiple radio station clusters can
afford to operate live and local programming on each station, while
sharing facilities and support personnel to reduce operating costs.
More importantly, multiple radio clusters can offer advertisers a range
of choice and flexibility in demographic targeting that was previously
only available from newspapers and television.
Competing with newspapers and television is a major sea change for
radio. Here's why: Radio has always had a disproportionately small, 10%
share of the total advertising pie. I say ``disproportionately''
because radio actually commands over 40% of the total time consumers
spend with media. The conventional wisdom is that this anomaly is due
in part to the fact that any single radio station format is targeted to
reach only a single demographic target, while the sections of a
newspaper and different television programs offer advertisers the
choice of many targets. In short, for many advertisers, television and
newspaper offered more flexibility and was simply easier to buy.
Under the Telecommunications Act, multiple-station clusters can now
offer different stations like the sections of a newspaper--putting
radio on a level playing field with entrenched newspaper monopolies and
broadcast television. And to the extent that these new multiple-station
clusters can access a share of the relatively much larger budgets
historically allocated to newspaper and television, the radio business
model becomes viable and everyone wins. The advertiser gets a real
alternative to newspaper and TV. The listener gets a better programming
product with live and local on-air personalities. The community gets a
viable business.
In the mid-size markets we serve, the economic problems of radio
were typically more severe, and the positive impact of the
Telecommunications Act is even more plainly evident. In the mid-size
markets, multiple-station ownership is driving a renaissance for local
radio, giving small communities greater choice and diversity in music
and sources of information. Local advertisers also stand to benefit
from the diverse formats and broad reach of the stations, and the
ability to negotiate competitively priced advertising buys.
I did a little research into whether the members of Congress who
framed the Telecommunications Act understood the unique economics of
radio in the mid-size and smaller markets. In fact, they did. They
appreciated the special challenges facing radio in the smaller markets
and addressed these needs with structured tiers in the statutory
ownership limits to permit consolidation of station ownership in both
smaller and larger markets. As Senator Burns observed when considering
that legislation, radio ownership restrictions in mid-size and smaller
markets ``handcuff broadcasters and prevent them from providing the
best possible service to listeners in all of our States.'' 144 Cong.
Rec. 92, S7904 (June 7, 1995). Similarly, Senator Pressler noted that,
following earlier FCC liberalization of radio ownership restrictions,
``economies of scale kicked in, stations gained financial strength in
consolidation, and competition for advertising improved.'' 141 Cong.
Rec. 94, S8076 (June 9, 1995). The legislation's proponents thus
accurately foresaw an ``immense resurgence and burst of energy from new
companies'' following the further ownership deregulation in the
Telecommunications Act. 141 Cong. Rec. 95, S8198 (June 12, 1995)
(statement of Senator Pressler).
The Telecommunications Act has had exactly the effect intended by
Congress. In virtually all markets, but particularly where help is
needed the most--the smaller markets-- radio is undergoing a
renaissance characterized by more live and local programming, more
advertisers, more revenue and more service to the community. This has
resulted in significant new competition for newspapers and television.
The Cumulus Model
The Cumulus business strategy is exactly what the Act envisions. We
acquire independently owned radio stations and combine them into a
cluster to share infrastructure resources like engineering, accounting,
physical facilities and the like. This allows us to reduce operating
costs, and then use the cost savings and efficiencies gained through
consolidation to help fund increased investments in research,
programming and sales. Our primary approach is to enhance the quality
of radio for listeners, which in turn strengthens the power and utility
of the radio medium for advertisers. The result is a revitalized group
of radio stations capable of increasing market share against newspaper,
television and other media by delivering more choice to advertisers and
a better product to listeners.
Typically, we replace satellite-delivered programming (which often
was all that the individual small station owner could afford) with
locally-originated content and live on-air personalities, thus
dramatically improving the quality of each station's programming. We
also employ sophisticated research techniques to ensure that each
station is delivering the product the listeners want, ``brand'' each
station as a separate entity, and substantially upgrade and expand the
sales organization. Each station also has its own programming director
to manage the product and its own sales manager to coordinate the sales
team, as we increase employment opportunities on the programming and
sales side by hiring many people without prior radio experience. In
addition, an information technology infrastructure is being employed
that allows Cumulus stations in one market to benefit from innovations
developed by Cumulus stations in other markets.
We also know that, contrary to the understandable fears and
expectations expressed by some FCC Commissioners, consolidation in
radio means more not less, localism and more, not less, diversity in
programming. I am pleased to say that we are making this happen every
day in over 60 cities across the nation.
FCC and DOJ Reviews of Radio Transactions
In the initial period following passage of the Telecommunications
Act, most radio consolidation occurred in the larger markets, and the
FCC did not play a particularly active role in reviewing market
concentration. The Department of Justice (``DOJ'') reviewed many of
these transactions under the Hart-Scott-Rodino (``HSR'') Act because
they were generally large mergers involving multiple markets that met
the HSR size thresholds. The HSR statute required advance notice to the
DOJ, but also required the DOJ to conduct its review promptly, within
the specified statutory time periods. In a number of these large merger
cases where DOJ had competitive concerns, the parties agreed to spin-
off several stations in one or more cities to satisfy those concerns.
At the same time, the FCC would generally grant the license transfer
applications in a timely manner.
As the Telecom Act moved into its second and third years (1997 and
1998), radio consolidation moved to mid-size markets, with Cumulus and
several other companies leading the way. Cumulus began making its
acquisitions in mid-1997, and we accelerated our activity rapidly over
the next two years. Initially, the DOJ was not active in investigating
mid-size market transactions, as most were not reportable under the HSR
Act. The FCC also acted fairly promptly on license transfer
applications.
Beginning in about late 1998, however, FCC applications for a
number of transactions, including some filed by Cumulus, began to slow
down considerably. We understand that was due, at least in part, to
internal agency debate regarding the appropriate role of the FCC in
reviewing these transactions for market concentration concerns and the
standards it should use in such reviews. Cumulus and other firms
maintained that the Act had already specified the number of radio
stations that could be owned in any one market, and thus that the FCC
did not have a proper role to play in formulating a different policy.
The FCC has not agreed with this position.
What eventually developed is the current FCC practice of issuing
``special'' public notices regarding certain license transfer
applications, based primarily on publicly reported levels of radio
advertising revenue shares, even where the license transfer
applications fully comply with the numerical station limits set forth
in the Telecom Act These notices generally invite public comment on
market concentration issues whenever a license transfer application
would result in the buyer's acquiring 50% or more, or the buyer and
another radio owner acquiring 70% or more, of the radio advertising
revenues in a local Arbitron Metro (as measured by the standard
industry revenue estimates compiled by BIA Research, Inc.). To date,
however, the FCC has not issued any rule or formal policy statement on
this practice, and the FCC has not articulated precisely what policy
objective it is trying to achieve or what standards it employs in this
process.
As the Subcommittee is aware, the DOJ has been active in
investigating radio acquisitions in markets of all sizes. Cumulus alone
has responded to DOJ inquiries concerning radio station acquisitions in
at least seven different markets. All but one of these transactions
fell below the reporting thresholds of the HSR Act; some of these
transactions were as small as $1.5 million and occurred in radio
advertising markets as small as $5 million in total revenues. In each
transaction, Cumulus has fully cooperated with the DOJ in providing
information to address any questions or competitive concerns that the
DOJ has had.
The FCC has stated that its policy is not to act on license
transfer applications while a DOJ investigation is pending, regardless
of whether or not the DOJ files comments in response to one of the
FCC's ``special'' public notices. The current administrative process
thus effectively postpones FCC action on a license transfer application
until the DOJ completes any separate antitrust review, which in the
case of smaller transactions below the applicable HSR thresholds are
not subject to any mandatory timetables. At the same time, the FCC
reserves the right to revisit a competitive analysis of the transaction
in acting on the license transfer application after the DOJ is finished
with its work. The FCC may then come to the same, or a different,
conclusion based on its own analysis of the market and ``other relevant
economic criteria.'' Great Empire Broadcasting, Inc., FCC 99-142 (June
11, 1999), at 4-5, para. 10).
problems with the current regulatory process
Cumulus has three primary concerns with the way in which these
types of applications for transfers of radio licenses are currently
being handled by the FCC.
Conflict with Congressional Directives and Lack of Clear Standards
First, we and many other radio firms believe that the
Telecommunications Act already specifies the number of radio stations
that may be owned in any one market, and thus that the FCC does not
have a proper role to play in formulating a different policy that would
shrink the ownership limits of the Act. When the FCC begins to decide,
on a case-by-case basis, that particular applications will not be
approved on the ground that the number of stations results in too much
market concentration, the FCC is second guessing the policy judgment
that Congress has already made. No matter how well-intentioned the
FCC's policy initiatives in this area may be, we do not think the FCC's
authority to implement the "public interest" standard allows the FCC to
substitute its judgment for that of Congress on a subject specifically
dealt with in the statute.
Nor has the FCC offered any concrete criteria for deciding how,
when or under what circumstances the public interest should dictate
that approval of a particular acquisition should not be granted because
of undue market concentration, even if it is within the numerical
limits specified by Congress. This type of case-by-case review, without
clear standards, invites administrative delays and procedural
confusion. In addition, competitors seeking to block lawful and pro-
competitive radio consolidation transactions often are encouraged by
this process to file groundless petitions, which only adds to the
delays because the FCC must then address these complaints in compliance
with its rules and procedures governing restricted, adjudicatory
proceedings. Cumulus continues to have a number of its license transfer
applications mired in this unnecessary administrative process.
Duplication of DOJ's Antitrust Function
Second, it simply is not a sensible use of government resources for
the FCC to review acquisitions based on the same market concentration
and antitrust concerns that the DOJ or the Federal Trade Commission
(``FTC'') already considers. As Commissioner Powell has stated in
previous testimony before this Subcommittee, the FCC's review of
mergers and acquisitions ``should be generally limited to those areas
in which [the FCC] can claim primary expertise.'' (Opening Statement of
Michael K. Powell, Commissioner, FCC, Oct. 26, 1999, at 8). However,
when one looks at recent FCC decisions evaluating the competitive
implications of radio station transactions, it is striking how much the
FCC's ``competitive analysis'' seems to duplicate the role of the
Department of Justice. The FCC appears to examine many of the same
factors that are set forth in the Horizontal Merger Guidelines adopted
by the DOJ and FTC, as well as the levels of revenue shares permitted
by the DOJ in previous consent decrees. See, e.g., Great Empire
Broadcasting, Inc., at pp. 4-8. This largely duplicative approach is
also reflected in FCC staff requests for detailed competitive
information in connection with a number of license transfer
applications.
We believe that it would make more sense for the FCC to defer to
the primary expertise of the antitrust enforcement agencies, as it has
in other situations where allegations of competitive harm are raised
against broadcast licensees. With all due respect to the FCC's hard
working staff, I agree with Commissioner Powell that the FCC simply
does not possess the same personnel, experience and process as the DOJ
in terms of antitrust and competitive economics, and thus is not as
well positioned as the DOJ to conduct meaningful competitive reviews of
mergers and acquisitions in the communications industry on a consistent
basis. Moreover, even in those situations where the FCC is permitted to
consider competitive factors, the courts have emphasized that
competition measures adopted under the FCC's general ``public
interest'' authority must relate to the agency's specific statutory
charge. What this means to me is that--assuming any competitive inquiry
at all is permissible in light of the express Telecommunications Act
provisions on radio station ownership ``the FCC's inquiry must be
carefully focused on how competition affects the interest of the public
in receiving quality service from the particular FCC-licensed
communications facility at issue.
Thus, I very much agree with Commissioner Powell's admonition that,
if the FCC is to have any complementary role in the review of mergers
as part of its license transfer authority, it needs to have some
``disciplined procedures and limiting principles to ensure the rapid
processing of such transactions, to preserve the rights of the parties
and to avoid duplication with other authorities.'' (Statement of
Commissioner Powell, Oct. 26, 1999, at 9). In our segment of the
industry, Cumulus strongly believes that service to radio listeners--
which should be the primary concern of the FCC--in fact is adversely
affected by the blocking or delaying of efficient consolidation
transactions. Indeed, one clear sign that such transactions actually
serve to increase, not decrease, competition is the fact that every
single petition that has been filed against a Cumulus license transfer
to date has been filed by a competing radio owner, rather than by a
consumer (i.e., a listener or advertiser).
The Anamolous Situation of Small Transactions
Third, the unusual combination of the small size of the typical
Cumulus radio acquisition and the need to obtain FCC approval for the
acquisition means that the Hart-Scott-Rodino Act can effectively be
turned on its head: Not only does the Government (through two separate
agencies) now investigate small radio acquisitions, but it faces no
time deadline in doing so. Let me explain what I mean.
The Hart-Scott-Rodino Act suggested that acquisitions below the
``radar screen'' of the statute, by virtue of their size, were not of
sufficient antitrust concern to warrant pre-merger notification. The
HSR Act imposes time limits for large acquisitions by which the DOJ or
the FTC must take certain steps or request additional information if
either agency intends to challenge a merger before it is consummated.
But no acquisition of a radio station, no matter how small, can be
consummated without the approval of the FCC. And no time limits
constrain the DOJ in radio acquisitions that are not subject to the HSR
limits.
The peculiar arrangement between the FCC and the DOJ that I
outlined above--whereby the FCC will first await the outcome of a DOJ
investigation and then proceed with its own second-level review--
combined with the inapplicability of the HSR time deadlines, means that
either agency can take as long as it chooses to investigate whatever it
wants regarding a pending transaction. The result is that the parties
to these relatively small transactions sometimes must endure very
lengthy and costly regulatory reviews that are not applicable to much
larger transactions, without clear standards or certainty of outcome.
While we see these significant problems, Mr. Chairman, Cumulus has
not experienced the problem that the sponsors of the Telecommunications
Merger Review Act of 2000 have raised, involving the attachment of
conditions on the FCC's approval of license transfers. In addition, I
want to thank Chairman Kennard for reaching out to try to work with us
on these issues and to try to expedite the FCC staff's review of
license transfer applications through measures such as his newly
created ``Transactions Team''. I also have no doubt that the FCC
Commissioners and staff involved in these efforts have acted diligently
and in good faith, consistent with their available resources and their
view of what the FCC's proper role should be. In fact, Cumulus alone
has completed over 90 radio acquisition transactions, and by and large
the FCC's Mass Media Bureau staff has processed these very efficiently
and promptly. I believe the FCC staff should be commended for its
diligent efforts to keep up with a sharply increased workload in this
area.
At the same time, we respectfully disagree with the FCC that it
should be engaged in detailed competitive reviews of radio mergers and
acquisitions as part of its license transfer approvals. We believe that
this adds a duplicative layer of antitrust review that is inconsistent
with the specific terms of the Telecommunications Act. And we believe
that this problem is made worse by the fact that no time deadline
applies and that no clear rules or standards appear to exist.
cumulus's experiences
A few examples of Cumulus transactions that have been caught up in
this uncertain regulatory process for extended periods of time may help
illustrate the problem to this Subcommittee.
1. One case involved the consolidation of several small radio
stations in Florence, South Carolina and surrounding areas that had not
been viable on their own. Cumulus filed license transfer applications
with the FCC beginning in February 1998 to acquire the stations. None
of these applications was contested before the FCC by any listener or
advertiser, or any other party for that matter; the applications
complied fully with Section 202(b) of the Telecommunications Act; and
grant of these applications did not require a waiver of any existing
FCC rule. Nevertheless, the FCC staff informed Cumulus that action upon
the license transfer applications was being deferred due to potential
concerns relating to the percentage of radio advertising revenues
involved, and because the DOJ had opened an investigation into the
proposed acquisitions. Persistent efforts for more than a year to
obtain FCC action on the applications were unsuccessful.
Ultimately, the DOJ closed its investigation and informed the FCC
that it had done so in February 1999. About a month and a half later,
the FCC finally granted the license transfer applications, with no
explanatory statement. This was over 13 months after the first
application had been filed (in February1998), and nearly 10 months
after the last of the three applications had been filed (in June 1998).
2. In another case, Cumulus proposed to acquire one FM station and
two small AM stations to combine with an existing group of three
stations in Grand Junction, Colorado. This FCC license transfer
application was also filed in February 1998. Two competing radio
operators in the market filed petitions against the application,
requesting the FCC to conduct a competitive evaluation and to deny the
application based on market concentration grounds, even though the
application complied with the Telecommunications Act. The FCC took no
action on the application for almost two years. The DOJ conducted its
own competitive review for over a year. Finally, several months after
the DOJ's inquiry had been resolved and Cumulus had dismissed its
application for one of the two AM stations, the FCC issued its decision
denying the petitions and granting the license transfers on January 13,
2000.
3. In several more recent license transfer applications, the FCC
requested detailed competitive information concerning uncontested
Cumulus radio station acquisitions in three small markets. In each
case, there was no petition or objection by any listener or advertiser,
and no pending DOJ investigation. Nevertheless, the applications were
``red flagged'' by the FCC for ``additional analysis of the ownership
concentration in the relevant market,'' and the FCC staff thereafter
requested economic and financial data concerning efficiencies,
competitive rivalry for advertisers and related factors that one would
ordinarily expect to see evaluated (if at all) by the antitrust
enforcement agencies.
<bullet> In one of these cases, Cumulus proposed to acquire a
single AM radio station in Midland-Odessa, Texas that derived less than
$50,000 in advertising revenues in 1998. This station was very poorly
operated out of dilapidated facilities and was fraught with technical
problems, including a collapsed tower. Not surprisingly, the DOJ never
raised any competitive concern regarding this transaction. The FCC's
desire to explore in depth non-existent competitive issues not only
imposed an undue burden on the applicants, but was hard for Cumulus to
understand given that Cumulus intended to invest its resources to
upgrade the station and thereby enhance service to listeners, which
should be the FCC's primary concern. Ultimately, the FCC granted this
application following Cumulus's submission of the required information.
<bullet> In the other two cases ``involving stations in Toledo,
Ohio and Augusta-Waterville, Maine'' the FCC requested similar detailed
competitive information concerning acquisitions that were specifically
reviewed and not challenged by the DOJ months earlier. The Toledo
application was ultimately granted, while the Augusta-Waterville
application remains pending almost one year after the DOJ completed its
competitive review and closed its investigation without challenging the
transaction.
All told, the FCC has now ``red flagged'' literally hundreds of
proposed license transfers. By my calculation, Cumulus alone has had
over 75 license transfers flagged or otherwise subjected to competitive
reviews. Typically, the FCC issues public notices that merely state, in
general terms, that the FCC intends to conduct additional analyses of
competition issues, citing its authority to review such applications
under the largely undefined ``public interest'' standard. If Cumulus's
past experience holds true, we may continue to see such notices and/or
requests for detailed competitive information in future cases,
regardless of whether the DOJ raises any competitive concerns under the
antitrust laws, and regardless of whether any advertisers or listeners
complain.
Delays and unnecessary regulatory burdens of this sort often
threaten to disrupt small radio transactions and cause serious
financial hardship to the parties, especially to the independent
operators who are trying to sell their stations and realize a return on
their many years of hard work and investment. In addition, in some
case, such delays can end up causing further deterioration of the radio
stations, due to the extended period of uncertainty regarding who will
own the stations and employ the professionals working in these
stations, and due to FCC rules prohibiting buyers from prematurely
acquiring control of the stations.
the telecommunications merger review act of 2000
The Telecommunications Merger Review Act of 2000 proposes to create
a new Section 417 of the Communications Act, which would require that
the FCC's denial or conditional approval of a license transfer
application be based only on a determination of what is required under
existing FCC rules and regulations. In the case of radio station
acquisitions, this would require that license transfer applications
comply with the station ownership limitations specified in Section
202(b) of the Telecommunications Act of 1996 and the FCC's multiple-
ownership rules implementing those limits. But it would prevent such
license transfer proceedings from becoming sidetracked by subjective,
case-by-case determinations of whether the consolidation permitted by
Congress is in the ``public interest'' in the view of a majority of the
FCC's Commissioners.
I support the objectives of this legislation since it appears to be
designed to solve many of the problems that I have described--by
shortening the FCC merger review process, eliminating some of the
present regulatory uncertainty, and ensuring that the FCC's actions on
license transfer applications do not duplicate the competitive reviews
conducted by the DOJ or the Federal Trade Commission. I believe this
would clarify the respective roles of the FCC and the antitrust
enforcement agencies and provide greater predictability for business
persons entering into transactions in the radio industry. It also would
prevent limited FCC resources from being diverted to unnecessary
competitive analyses prompted by a myriad of complaints by competitors
whose real agenda is to block or delay radio consolidation transactions
that will improve service to listeners and benefit consumers.
I thank you again for the opportunity to testify at today's
hearing.
Mr. Tauzin. Thank you very much, Mr. Ryan.
The Chair will recognize himself for the appropriate time
and members in order.
Let me first thank you, Mr. Ryan and your company, for
coming to testify to tell us of your experiences. Indeed, I
would guess you would congratulate the FCC when it has
processed your applications expeditiously.
But you cite some fairly egregious exceptions to that
process. You cite one in particular dealing with Toledo, an
application--Augusta-Waterville, where an application remains
pending almost a year after DOJ completed its competitive
review, closed its investigation, without challenging the
transaction. In other words, you have been sitting now for a
year waiting for the FCC to act on a station transfer, a year
after DOJ has not found any problems with the acquisition; is
that correct?
Mr. Ryan. That is correct, Mr. Chairman.
Mr. Tauzin. Let me turn to the Commission. Why does that
happen? Why does that occur? Why does an application like that
get red-flagged by the Commission, unopposed by the DOJ or any
other party, sit there for a year while its employees and the
financial--the people who are putting up the money behind the
purchase and the sale wait for something to happen? I am sure
you are right, it damages a lot of things both for the
communities served by the radio station, employees and
professionals who want to work for it. Why does a year go by
without any action on petitions like that? Either one of you.
Give us an idea of what goes on there.
Mr. Furchtgott-Roth. Mr. Chairman, the Commission receives
tens of thousands of license transfer applications every year--
tens of thousands. The vast majority are processed in a very
routine basis. We do not have written rules that have been
formally adopted by the Commission that provide the public with
any guidance to know whether their license application or
license transfer application will be processed in a timely
manner along with tens of thousands of others or whether they
are going to be unfortunate and put in a different line.
Mr. Tauzin. Mr. Commissioner, who red-flags these things?
Is it done at the bureau? Somebody down at the bureau decided
to red-flag his application? And who un-red-flags them? Who is
responsible for acting on that Augusta-Waterville application?
Mr. Furchtgott-Roth. It is down in the bureau.
Mr. Tauzin. It is down in the bureau? Mr. Powell?
Mr. Powell. Mr. Chairman, I would point out a number of
other unique things in the context of media mergers, in
particular radio, in light of the changes that Congress made in
the statute. There has been in the early phases some fairly
serious debate as to whether, when Congress modified the
ownership restrictions and allowed companies to own a certain
number of stations, whether they intended that to be absolute.
For example, the community of industry argued that if it
was allowed to own eight under the statute, for example, that
should preclude any competitive analysis. For example, DOJ
ultimately took the view that, no, that was not their view
because Congress didn't expressly repeal the Clayton and
Sherman antitrust----
Mr. Tauzin. But once DOJ does that review, why the year?
Mr. Powell. Because the other area, as we talked at the
outset, is that there are the objectives of ``diversity of
voices'' that are not competitive concerns that are largely, I
would submit, what gets these things snared at the FCC.
Mr. Tauzin. Let me tell you what happens, Mike. What
happens is that--this is not your company, so you are not on
the spot here. But I get visited by people like you, Mr. Ryan,
who tell me I have been sitting there for 2 years, and on a
weekly basis somebody visits me with a message that they can
get it unstuck for me over there if I just hire them and make a
donation to their cause. That is what happens to people in the
real world who sit around waiting for subjective action on
their petition who don't know why they are being held up, who
never--were never told why they are being held up.
And in one case, Mr. Powell, it is a black-owned
broadcaster. I mean, that is pretty sad. It is not a diversity
of voice issue. He is just sitting there waiting for action and
gets visited.
What I am saying is that the problems Mr. Ryan poses are
not only problems of process at the Commission. They create
effects out there that are damaging to the businesses that are
trying to conduct broadcasting in America and simply trying to
transfer licenses that fall within the ownership numbers that
are presented and do not necessarily involve any diversity of
voice questions.
I mean, the problem is there are no standards we don't
know. They don't know. And I don't know what to tell people who
come to me with those kind of stories, and I don't know what to
say to them other than the fact that we have got to somehow
change the rules so that it does not happen to them anymore. So
that Mr. Ryan has a real answer to give to the parties involved
in this transaction as to why it cannot go forward, why it is
just hung up. That is what disturbs me.
I want to talk about the SBC thing. And you mentioned it,
the 26 voluntary conditions. Both of you have spoken to that as
the way voluntary conditions do not necessarily address the
perceived harm, the way they do not even necessarily have
anything to do with the burden of proof problem, even though I
agree with you, Mr. Powell, I think that is an excellent place
for us to look at reform.
In the SBC case, Commissioner Roth, you indicated that one
of those conditions required SBC to violate the law. What were
you referring to?
Mr. Furchtgott-Roth. A couple of aspects, if I can recall
from memory. It is at my web site of my separate statement. And
let me be quick to note, these are just the written voluntary
requirements. SBC commits, and I don't know whether they in
fact wanted this or not, to provide fairly steep discounts for
any platform that would be limited in number to a certain
number of customers in any State, which I think would violate
the nondiscrimination provisions of section 251 and 202.
Mr. Tauzin. So your suggestion is that they have
voluntarily agreed to do something which is violative of that
section?
Mr. Furchtgott-Roth. It also violates the pick-and-choose
provisions of Section 252. And, look, who knows what went on
behind closed doors when there were these negotiations?
Mr. Tauzin. You make this point. Chairman Kennard in his
written statement said if we set some limits on the duration of
these reviews that the public is somehow going to be out of the
process. But right now these deals are being done behind closed
doors, and voluntary conditions are being worked out behind
closed doors in secret meetings with only some people present
at those meetings. Who is present in those meetings?
Mr. Furchtgott-Roth. Not me, not you, no one in the public.
No transcripts.
Mr. Tauzin. Who is there?
Mr. Furchtgott-Roth. If we knew, they would not be secret.
Mr. Tauzin. That may be the best testimony I have heard in
a long time. You are the master of the obvious.
Let me point out, Commissioner Powell, that while it is
true the 1996 Act didn't amend the antitrust laws of the
Justice Department, it did amend the communication laws of
America which covered diversity, which did say we have got some
new limits on ownership. I want to emphasize that. I think Mr.
Ryan's point is awfully good. That the Commission cannot and
should not think that it can set new numbers through the use of
other considerations. When the Congress very specifically
amended the communication law and said these are the new
ownership cap numbers.
Mr. Powell. Just to expound and clarify that point, first
of all, in my own view as a legal interpretive matter, I
believe that when Congress set a number, that it, itself, had
made some judgment about the appropriate number of voices for
the diversity concern. That is not shared necessarily among all
of my colleagues, but that's my view. I do think that with
respect to those who are properly empowered to tender the
antitrust statutes that Joel Klein could seek to block a merger
short of the number that is authorized in the Communications
Act citing the antitrust statute, but we do not have that
authority.
Where it gets confusing, which has been a fascinatingly
difficult area, is that we dress things up often in competitive
speak that are real about public interest concerns, about voice
and media diversity, which are not illegitimate concerns, but
they also are not the subject of HHI indexes. The problem is
people are hungry for some sort of analytical tool that says
well, you might be able to own 8, but at 6, diversity is too
impugned or impaired. And I don't think that can fully be
crafted, but people have tried. But it is a red herring, in my
opinion, to be concerned about one subject, which even may be a
legitimate course of concern and inquiry, and pretend that it
is about concentration, because that confuses the analysis in a
way that I think is really disturbing and troubling and causes
us to make some very significant mistakes in those markets.
Mr. Tauzin. An excellent observation. Let me also commend
you. I think clearly time is important and I am concerned about
your benchmark plan, because if the FCC fails to meet one of
those benchmarks, I can see it dragging the process out. We
have to be careful there. But while time is important and while
the bill needs to address time, I think you put your finger on
it when you talked about the fact that these conditions, not
even related necessarily nor germane to the so-called harm that
may be connected to a merger, these conditions are agreed,
therefore, not even subject to judicial review. That they
substitute for policy the Commission ought to be making, or we
ought to be making for the community at large instead of being
imposed upon voluntarily a single merged entity in a
competitive marketplace. They create unfairness, that they
create policy for a single entity, and they create unreviewable
policy for single entities. And they open the door for the kind
of arrogance that Mr. Dingell spoke to where an agency can
write its own law for an individual citizen of this country.
That to me is the most disturbing, and if we could address that
and address the burden of proof issues, I think we would go a
long way toward ending some of that business, and I thank you
for those contributions.
Mr. Powell. If I could make one more point, Mr. Chairman.
Off the top of my head, I am not so sure whether I believe the
SBC-Ameritech conditions were illegal, but putting that aside,
they are still problematic without being nefarious because what
the conditions ultimately stem from is subjects and concerns
that are usually the subject of ongoing rulemakings or other
express statutory provisions. And what tends to happen is there
is a danger that you are going to create an alternate document
that is covering the same basic subject matter and same basic
pronouncements that are being simultaneously pursued in some
general rulemaking.
The danger for conflict and misinterpretation is enormous.
And just to be fair here, it is not just the Commission or its
arrogance that gets away with something. Make no mistakes. So
do the companies. Ed Whitacre didn't agree to the terms of
these conditions out of the goodness of his heart, because they
would hurt real bad. They make calculated judgments, and in the
intimacy of developing the conditions, the Commission also is
over a barrel in the sense that it wants a solution and it
needs the company to accede to those conditions.
Mr. Tauzin. Do you know who was in that room when those
conditions were made?
Mr. Powell. I rarely know who is in that room.
Mr. Tauzin. My understanding is that SBC ended up making
contributions of nearly $50 million to various groups and
associations in connection with that merger. Was that part of
the conditions?
Mr. Powell. Not that I am aware of.
Mr. Tauzin. That was just outside the room somewhere? The
Commission had no knowledge of that? No interaction with that?
Mr. Powell. Mr. Chairman, I can only speak for myself and
my office. Those kinds of activities, if they exist and the
things that you have pointed as being severely disturbing, I
personally have no specific knowledge.
Mr. Tauzin. You wouldn't have any way of knowing what is
going on there, while merger review was under process; right?
Those things are done, not even in the secret meetings of the
FCC. Those things are done totally outside the FCC?
Mr. Furchtgott-Roth. Mr. Chairman, if I might add, private
parties make lots of decisions all the time outside of the
involvement of the FCC, and that is the way it ought to be. But
there should be some public record, some public accountability
when private parties do things at the behest of the FCC, or
with some suspicion that this is going to influence the FCC in
some way.
The other point is the FCC is not over a barrel. We have
very simple statutory guidelines of what we ought to do, and
they are in section 5(d), and both Commissioner Powell and I
note this in our written testimony. There is no mystery about
how long these things should go on. It is 3 months for a
standard application and standard license transfer. If there is
a problem, send it to hearing.
Then it goes on for a bit longer. But this idea that a
license application or an application--under 214 or 310 lingers
for more than 90 days is not consistent with the statute. Not
consistent with statutory directives, and no amount of
unwritten rules at the Commission and no amount of even formal
rules being adopted by the Commission to extend that deadline
can bring that into compliance with the statute as it is
already written.
Mr. Tauzin. Thank you. My time has expired. The gentleman
from Maryland, Mr. Wynn is recognized.
Mr. Wynn. Thank you very much, Mr. Chairman. I too want to
comment to the witnesses the testimony that which I heard was
very informative, and I want to mention to Commissioner Powell
that I thought he made an excellent speech at the Georgetown
luncheon, it was quite informative.
I have a question relating to this secret meeting line of
inquiry. If people were not there, didn't know about it, I am
not sure they even know that the meetings occurred. So to start
throwing around this notion that there were all these secret
meetings that no one can document is, I think, somewhat unfair
and cast an aspersion when people cannot even say that, in
fact, anything occurred.
The other question relates to--I don't want to say an
aspersion, but somewhat of an aspersion about SBC that they
have actually broken the law, and if that is true, I want to
know who has brought charges. What agency, body, entity has
charged SBC with violating the law? Or is this an
interpretation that actions by SBC may be in violation of the
law? Because I think that is very serious, and we ought not be
saying, at least in my opinion, that people have violated the
law unless someone is prepared to bring charges, or has in fact
brought charges.
Commissioner Roth, I guess I have to refer that to.
Mr. Furchtgott-Roth. Mr. Wynn, thank you. When I came to
the Commission, I had a fairly consistent standard that would
provoke a dissent from me, which is, I would vote for something
as long as it was consistent with the statute. And I have had
to dissent quite a lot. And I think that it is documented in my
dissent on the SBC Ameritech license transfer exactly how I
think the conditions violated the statute.
Now, those are conditions that were imposed by the
Commission upon SBC.
Mr. Wynn. I thought you said they were voluntary conditions
that the SBC accepted?
Mr. Furchtgott-Roth. Mr. Wynn, that is precisely the whole
problem here is the distinction between what SBC ``volunteers''
after months of secret meetings.
Mr. Wynn. That we do not know actually occurred?
Mr. Furchtgott-Roth. Well, they were strange secret
meetings in the following sense that Chairman Kennard publicly
announced that there would be secret meetings.
Mr. Wynn. Those we do know occurred.
Mr. Furchtgott-Roth. Right, there were FCC staff assigned
to conduct these meetings. The public was not invited, members
of the public asked me specifically if they could participate
in these secret meetings.
Mr. Wynn. Were you privy to the staff who participated in
these secret meetings?
Mr. Furchtgott-Roth. There were staff who came to report to
my office with summaries of them, yes. But I was not privy to
go to the meetings, no.
Mr. Wynn. But you were able to find out what occurred?
Mr. Furchtgott-Roth. I--well, no. I mean, I was able to get
summaries of what happened.
Mr. Wynn. I am not going to go quibble over that one, go
ahead.
Mr. Furchtgott-Roth. But Mr. Wynn, there is a situation,
and I don't know where the conditions reflect volunteering by
SBC to balance off alleged harms with some set of goods that
Commissioner Powell refers to. But there are a lot of
conditions there and some of them, I think are fairly clearly
outside of the law.
Mr. Wynn. Well, perhaps someone will prosecute on that
basis. To date, they have not.
I am concerned though, that conditions, agreements,
settlements have traditionally been part of our culture, our
way of doing business. And now they are somehow being indicted
because they are ``voluntary,'' but not really. And I am
uncomfortable with this notion. If companies who come before
government entities regularly agree to conditions for whatever
their reasons may be, if they say they are voluntary, we have
to accept them as such. I do not interrupt that as being
policymaking, nor do I interrupt that as being nefarious in any
way. We accept them in the legal community as conditions
agreements and settlements. Now, all of a sudden, they are
being indicted. I am concerned about that.
Let me move on because I don't want to belabor this
particular point. Commissioner Powell indicated that many
times, these conditions do not cure the harm. And I can
appreciate what you are saying. It seems to me that they are
designed to ameliorate the harm or to offset or balance the
scales in some way. If you do not use the vehicle of conditions
and you find, in fact, harm, do you have any other options? And
I guess the second point I would make is yeah, the dog got
beat, but he is better off with the toy after the beating than
without.
Mr. Powell. I am not sure about that.
Mr. Wynn. The toys remain. What would you do if you did not
use conditions and you, in fact, saw competitive harm, but you
did not believe it rose to the level that should bar the
merger, but yet you knew the public was being harmed to some
significant degree?
Mr. Powell. I think for me the short answer is, if they are
really serious, you block it. I mean, one of the problems with
this is I am equally as forceful about our obligation to stop
things as I am to let things go.
The problem here is with the conditions. I agree with you,
conditions are absolutely legitimate vehicles potentially for
the settlement of government investigatory activity, but when
they are rooted to what is the prerequisite, identifiable harm.
No. 1, they lack a lot of discipline, there is a lot of
amorphousness about what you are putting on the scale because
it is not rooted in something that is identifiable. Another
thing that worries me is that they could become a shortcut. The
Commission lacks the courage to get to the bottom of the
transaction, and conditions become a very convenient way for
everybody to just wrap it up, a way for us to get out of----
Mr. Wynn. It seems to be prevalent here, which is an
objective which seems to be prevalent here: Wrap it up.
Mr. Powell. I think efficiency is prevalent, but efficiency
including wrapping it up means getting to an answer quickly,
and that answer should continue to be possible to be no.
In some instances, I believe that for some people's views
with respect to certain mergers and conditions that did not
cure the harm, it would have been a more defensible position to
vote against them than it would have been to pursue a mountain
of conditions that ultimately in some loose sense balance your
concerns about them.
If you would not mind, I would like to say another thing
about the questions you asked a minute ago, because I
personally want to be clear and on the record.
I will distinguish what Chairman Tauzin is talking about
outside the process. I am not sure I know what all of those
are. I have heard many similar concerns, but I personally do
not know anything about it. These meetings are not secret in
the cloistered sense. I mean, I know who is there. The bureau
is there. The professionals, the men and women who are charged
with reviewing the mergers are the ones who are there. Moreover
they often held, obviously, public forums in the context of
SBC-Ameritech. They held open forums in the view of the public
to discuss some of the proposed conditions.
Furthermore, the conditions, once they are drafted, are
subject to public notice and consideration. Let's be fair about
that.
But where they are still problematic is that they are the
product of an intimate negotiation. They do not include very
much input or evaluation by other parties that might have
interest who are not necessarily permitted or privy to be part
of their development. I think that is the honest and
intellectual critique of what goes on.
And I think Commissioner Furchtgott-Roth is right. There is
something disturbing, even to me, that we are not expected to
be a full part of the formative phase. We are sort of given the
opportunity to vote when it becomes crystallized and
formalized. But you would be astonished the amount of work I
have to do to find out in some of these cases what really
happened. Not because the bureau won't come up and talk about
it, but to get a fulsome explanation is a little more
difficult. So I think that is the fair recitation.
Mr. Gordon. Mr. Chairman, I would like one quick question.
Mr. Tauzin. Let me please--I have extended the time of the
gentleman without objection. Mr. Pickering has been here from
the start. I think we need to go to him and then I will
recognize the gentleman if the gentleman will allow me.
Let me, by the way, mention to my friend, Mr. Wynn, and all
of you, that our staff at O&I has the notes from those
meetings, that they were surrendered in the course of discovery
to SBC. And the notes of those meetings are available, and the
degree to which those conditions were, in fact, voluntary or
not can be read in those notes. I would invite my friend to
actually visit with staff, and the notes can be made available
to him and he might get a better picture of what occurred.
Mr. Gordon. Is it your understanding that a Commissioner
could not attend that meeting if he asked?
Mr. Furchtgott-Roth. I could give a quick answer, the
answer is no. I asked if my staff could attend and they were
flat out refused.
Mr. Gordon. Your staff?
Mr. Tauzin. The Chair will ask order again and the Chair
will recognize Mr. Pickering for a round of questions.
Mr. Pickering. Commissioner Furchtgott-Roth, let me thank
you for, one, identifying the problem that we have at the FCC
and defining both in its application to the law and in
practice. Commissioner Powell, let me thank you for giving good
instructive recommendations as we go forward in this process.
Mr. Ryan, let me thank you for your profile in courage. There
are many.
Mr. Ryan. Or my clients.
Mr. Pickering. There are many in this community that have
told us the horror stories that we are discussing now who may
not be willing to publicly speak because they may have a merger
pending at the FCC. I would say that I think your courage in
testifying will probably serve your interests, and I hope help
get the reform because we will be watching from the committee
how you and your clients are treated.
Going back to the earlier discussion, and what Commissioner
Furchtgott-Roth raised in the application of law, we are a
Nation that abides by the rule of law. We do not give licenses
or government favors based on what, in many places, occurs as
extortion or bribery. That there is a payment and in return for
a payment you get favorable government action. We try to apply
the law and the process equally and fairly. And if SBC did give
certain parties $50 million, to me that meets the definition of
extortion. And it has nothing to do with pro-competitive
standards or regulatory standards or public interest standards,
if that is any part of an agreement to have a merger approved
by Regulatory Commission. And I think those are things that we
do need to look at.
But getting to the issue at hand, and the discussion draft
and where we go from here, if you look back at the 1996 act,
Congress eliminated the FCC prior statutory role to review
telecom merger by excising section 221(a) of Communications Act
of 1934. And the conference report it was stated by returning
review of mergers in a competitive industry to the DOJ, this
repeal would be consistent with one of the underlying themes of
the bill to get both agencies back to their proper roles and to
end government by consent decree. The Commission should be
carrying out the policies of the Communications Act, and the
DOJ should be carrying out the policies of the antitrust laws.
If we look at the FCC announcement today on the Qwest-U.S.
West merger, they get it half right and half wrong, and I agree
with your comments, Commissioner Roth, in that they talk about
the license transfer application on section 271 compliance.
They tie part of it to having full compliance with section 271,
which I think is the right emphasis and the right objective of
getting the incentives to make sure there is compliance with
271 and the opening of local markets. But then they go beyond
that and get in conflict with what the intent of the 1996 Act
was and that DOJ look at the anticompetitive or the antitrust
issues, and you look at the conforming and compliance with the
1996 Act.
To that end, we, in our instruction, draft in section 417,
talk about the conditions under which FCC could deny
applications. And we specifically say where the applicant in 1A
where the applicant is in violation of the rules and
regulations in effect on the date of the application is
received, and then on 2A, the language states that the FCC can
condition approval only when necessary to ensure the applicant
is in compliance with the rules and regulations on the date the
application is approved.
Mr. Powell, you had mentioned that not only do we need to
look at the time, but the standards by which we should make
these approvals, or the approvals should be justified. Is that
the type of constraints or restraining of FCC review that you
believe is appropriate?
Mr. Powell. One observation, which I am not sure is an
oversight or an intent, but the legislative draft does not
refer to the statute, only to the Commission's rules and
regulations. I assume it to mean the statute as well. There is
a little bit of a circular risk here just to point out.
Arguably, the public interest is in the statute. It is there in
section 309, it is there in section 310, it is there in section
214, and if anyone were so inclined they would say they are in
full compliance with your proposed legislation by doing exactly
what they are doing today. That is one thing that I would
suggest that we need to talk about.
I do think it could be spelled out in more detail, but the
attempt to make sure that conditions bear some germaness to the
identifiable provisions of which you are citing for harm which
I have testified is critical. The only looseness there is you
wouldn't want to say it violates this provision, but the
conditions are about another provision. You would certainly
want them to be--that might be the absolute letter of the law,
but that is not, I don't think, what you are trying to get at.
So I do think in the main, it is the right effort, I still
think that there is probably more to be said about the
standard. And, again, I think if nothing was done, my own view
would be if everything else stayed the same, if the burden
shifted to the Commission to prove harm rather than to require
benefits, so much more of this would start to fall in place.
Mr. Pickering. If we just did two things, if we gave the
time lines similar to what DOJ has under their process, and we
shifted the burden away from the applicant and to the
government, would that in essence correct most of the problem?
Mr. Powell. My own view is that it corrects a substantial
amount of the problem of the--just consider, for example, the
differences in the burden. And some of this, to be fair, is the
intersection of the Administrative Procedures Act that I think
sometimes gets left out of the equation. But because the
statutory standard requires an affirmative finding that it is
in the public interest which we have interrupted to be
procompetitive, we have to prove to them why we let a merger go
through, rather than prove why it doesn't. And when you have to
prove why a merger goes through, No. 1, you can see how much
more time that consumes for a merger that you might be inclined
to say yes. You sort of have to write it up and go through the
record. Because of the Administrative Procedures Act, we have
points in the process in which opposing parties can throw all
kinds of things in the record about why it is not
procompetitive. And you know the APA, we have to slovenly march
through lots of those comments and identify on the record why
we have rejected them. You can see how much time is consumed
just by process.
I can tell you, there are mergers where very early on, we
know they are going to be approved. They still take forever
because of all of these obligations. If you look at the DC
Circuit cases, they are also quite insistent that we do so. If
the burden is otherwise, it seems to me, No. 1, you have
invited fewer opportunities to come in and say here is my list
of goodies I want on the list. It also may deal with some of
the chairman's concerns about extraneous or other side duties
because they do not go to harm. Those are just going to
benefit. And if they are nongermane, then I think it works.
And then temporal benchmarks I am a big believer in, so I
might dispute how much flexibility you allow for some
continuance. But I think those are the two cruxes of the
matter, if there can be two cruxes. I don't know if there can
be.
Mr. Pickering. Mr. Chairman, if you would allow one more
question.
Mr. Tauzin. Chair has been very generous with all members.
Proceed.
Mr. Pickering. Commissioner Furchtgott-Roth, our bill, the
discussion draft, looks at time lines and trying to constrain
the scope, trying to establish what is the appropriate standard
by which the review would be conducted.
Would you take a position that the FCC should have no role
in mergers and acquisitions and they should be done solely by
the DOJ?
Mr. Furchtgott-Roth. Mr. Pickering, I think the statutory
authority of the Commission is quite clear. We have a
responsibility to review license transfer applications and, in
some cases, license transfer applications may lead to an
inconsistency, either with the statute or with existing
Commission rules, and in those cases, I think the Commission
ought to step in. But I think is outside of the broader context
of mergers. It is simply to see, are you complying with
Commission rules?
Mr. Pickering. But just on mergers, should the FCC continue
to have a role in approving mergers?
Mr. Furchtgott-Roth. The only role we have now is through
the Clayton Act, and that is the way that the law currently is
written.
Mr. Pickering. Should we change the law?
Mr. Furchtgott-Roth. Mr. Pickering, I have had a long-
standing view of--I am not going to--I think the law can work
the way it is written and I am not here to lobby for any
changes.
Mr. Pickering. Thank you very much, Mr. Chairman.
Mr. Tauzin. I thank the gentleman.
Mr. Shimkus from Illinois is recognized.
Mr. Shimkus. Thank you, Mr. Chairman. Not being a lawyer, I
find this debate very interesting, just from a nonlegal
perspective. And so I am not going to get into the section
this, section that. I mean, that is why we have other people
with other skills.
But I do, and I think my colleagues on the other side were
getting a little fired up about the issue of not having access
to bureau meetings. And from a simple person from southern
Illinois, I would ask this question: why wouldn't commissioners
be ex officios or staff, be ex officios of major negotiations
of hearings that are going to come before you? I mean, would
you think it would be--am I missing something in is there an
inappropriateness to be sitting in on negotiations before you
review the license transfer? Is there some legal thing that--I
don't understand why, if you wanted access to evaluate and
follow the process before the completed process was slapped on
your desk for your review, and your comments and your vote, is
there--am I missing something?
Mr. Tauzin. Will the gentleman yield? Would there be any
problem with having a bill that said that every Commissioner
has a right to be present at any one of these negotiate
sessions? Would there be anything wrong with that?
Mr. Powell. No. There are no legal concerns with
commissioners, of course, being part of the deliberative
process that results in a decision. There is sometimes concerns
about whether you can be said to have prejudged an issue if
someone attempted to suggest that you had reached a decision
outside the context of the record. I think that what the
Commission would have to be very careful about, particularly
with Commissioner participation is just that, which I don't
think anybody should have any problem with, that you can
sufficiently and fairly be said to have reached your decision
about the matter on a written record that is available for
public scrutiny. And said to the extent that these meetings
occur with participation of commissioners, it might put a
higher premium on saying that there is a full documentation, so
nobody could say that Mike Powell made up at mind on something
that nobody had any access to. That would be the issue and I
don't think it is insurmountable.
Mr. Furchtgott-Roth. Mr. Shimkus, if I could just return
to--the specific act is the SBC-Ameritech license transfer
matter, not--SBC and Ameritech petitioned the Commission to
transfer licenses. There was public notice, there was
voluminous public comment. It was only after the Commission
received public comment that there began the series of
meetings.
In my view, we had sufficient information at the time the
public comment cycle was completed to have rendered a decision
within 90 days, or within some reasonable period of time.
I was--it was as far as I know an unprecedented process. I
don't know that there were not similar situations, but what was
particularly unique about this was the public announcement that
there would be this series of meetings, whether you want to
call them secret or private. In any case the public was not
allowed to participate. The public was kept in the dark. And a
lot of other people were as well.
Mr. Powell. Mr. Shimkus, I just wanted to expand on your
last question, because I forgot another one that Mr. Ryan
pointed out. Under the Sunshine Act, three commissioners cannot
be together and deliberate outside of a public context, so that
would be another limitation. The three of us could not show up
at the same meeting that was not noticed as a public forum and
participate, and that is a real impediment in a lot of things
that we do.
Mr. Pickering. Mr. Shimkus, could I ask a follow-up
question?
Mr. Shimkus. Please.
Mr. Pickering. In any of these voluntary agreements are
they published? Do they have sunshine full disclosure in any
way?
Mr. Powell?
Mr. Powell. If I understand the question, yes. I mean, they
are ultimately codified. They are ultimately provided for
public notice and they are appended to the final order of the
Commission.
Mr. Pickering. But are there some agreements outside these
so-called secret agreements, if SBC gave $50 million--I am not
saying they did or did not--but if they did, is that part of
the public record?
Mr. Powell. Apparently not. Just to be clear, I have no
idea. I mean, if such things exist, they are not part of any
deliberative activity I have participated in. So I just do not
know anything to shed light on that.
Mr. Shimkus. If I could just reclaim my time just to see if
I could get an answer. Would, with respect to the sunshine
applications, would making the commissioners or their
representatives ex officios of some extraneous deliberative
process, would that be helpful and would you be supportive of
that?
Mr. Furchtgott-Roth. Mr. Shimkus, bearing in mind my view
that the Commission could do----
Mr. Shimkus. I understand.
Mr. Furchtgott-Roth. [continuing] the whole process without
changing the statute----
Mr. Shimkus. But obviously if I could butt in, obviously
they can, but they are not.
Mr. Furchtgott-Roth. I am not certain why there needs to be
the negotiations in the first instance.
Mr. Shimkus. Okay, but if there are.
Mr. Furchtgott-Roth. Let me note something. The
negotiations go on not simply because the bureau staff on their
own motion goes out and decides to do them.
Mr. Shimkus. You are sounding like a politician.
Mr. Furchtgott-Roth. I am not. I am just a public servant
here.
Mr. Shimkus. Could this public servant just answer? Would
that be something that you think would be helpful or harmful?
Mr. Furchtgott-Roth. Mr. Shimkus, I think that the
Commission consists of five commissioners, and I think except
as specifically noted in the statute, they all have equal
responsibilities and equal powers. And so I would think that
anything that would say that would reinforce that would be----
Mr. Tauzin. Will the gentleman yield?
Mr. Shimkus. You can have my time.
Mr. Tauzin. Let me see if you can help you. You mentioned
the sunshine law would not allow any three of you to get
together in a process that might be deliberative without the
public being present. Does that apply to your staffs?
Mr. Powell. No.
Mr. Tauzin. So your staffs could attend these meetings if
he were allowed to? Was your staff allowed to attend any of
these meetings?
Mr. Furchtgott-Roth. No.
Mr. Tauzin. You were told you could not come and your staff
could not come?
Mr. Furchtgott-Roth. I did not request to attend but my
staff was told no.
Mr. Tauzin. Your staff was told no. So we have got a
situation where a series of private meetings are announced in
this case, and the commissioners and their staff are both told
to stay out of it. We are going to negotiate this on our own.
The bureau is going to do it.
That is essentially what happened. And the question I think
Mr. Shimkus is trying to get to is first of all, would it be
good public policy for us to be legislating on how these secret
meetings should be conducted? Is that sanctioning it? And would
you want us to legislate your right to be there? Would you want
us to do that? Or your right to have your staff there at least,
if staff presence would not violate the sunshine law? And I
guess Mr. Shimkus is just asking for an opinion. Do you think
that is a good policy or not for us to legislate your right to
be at private meetings, even those that may not be as secret as
others?
Mr. Powell. It would not hurt. But the reason it is a
difficult question to answer, it is a little embarrassing to
believe that it rises to the necessity of legislation.
Mr. Tauzin. It really does.
Mr. Powell. It is certainly superfluous. I agree with
Harold we have, in the existing statute, every right. And I
also believe that if I tore the house down, I could get in any
meeting that I needed to. But the problem is you have to keep
track of what is going on and when they are, and that is
actually more the challenge than getting there.
Mr. Tauzin. You have to know what is going on and that is
the tough part.
Mr. Powell. And you have to want to be there. These things
are constant and unending.
Mr. Tauzin. I remember a time, Commissioner Roth, when you
did have to tear down the walls and go public with the fact
that they would not even share information with you, the
bureau. The staff that works for the Commission was refusing to
share information with the Commission. Isn't that correct?
Mr. Furchtgott-Roth. Yes, sir.
Mr. Tauzin. We have some real problems here, do we not? The
answer is yes. Bottom line is that you made some good
suggestions. Let me ask a couple of questions and I will yield
back to any members who may want--there are several approaches,
I think Mr. Pickering was trying to feel this out.
If we did shift the burden of proof to the Commission to
actually find harm, could the Commission not still, or the
bureau, might still have negotiating sessions where extraneous
conditions were attached to the approval of a process?
Mr. Powell. Yes, I think that now you start to get a lot
further toward what I think Mr. Wynn was talking about. That
is, if the Commission affirmatively finds as a prerequisite to
condition exercise that there is harm sufficient to block the
merger, I think you are where you would expect to be, that we
can either do so or we believe that you believe could be
approved conditional on certain things.
What is critical to its validity to me is first, making a
decision about the harms and your willingness to act on them.
And then I don't think the conditioning exercise all by itself
is nefarious, but I think that you would you want procedurally
to do it in a way that----
Mr. Tauzin. But here is a problem with the other one that
you cited, Commissioner Powell. If there is not a provision in
our bill that specifically says the Commission has to order
these conditions, then you do not have a reviewable
circumstance. The poor party is caught with having voluntarily
agreed. I mean, that is the essence of this problem. You
pointed out in your testimony is that there are two evils
involved here. One is that mountains of conditions might be
voluntarily agreed to to satisfy a pebble of harm that may not
be even related to the mountain of conditions that have been
added to the process. That is a harm. That is bad. And you cite
it correctly.
The second is that once the poor applicant has agreed to
all of these things at the sacred or private meeting, whatever
it was, that he is estopped from going to court to complain
about it. At least, if the law requires the Commission to order
those things, he might have a chance if we had a proper law
written that said it has to be something required by the
regulations of the Commission, by some actual statute; and two,
that it had to have some relation to the harm involved. If we
had a law that said that, at least that party would have a
right to go to court and say that the Commission has
overstepped its bounds in requiring me to do this. But that
poor person is out of court if he voluntarily agrees to it.
That is the game. That is the government by consent decree
that goes on in this circumstance. The parties kicking and
screaming looked at these notes kicking and screaming, agree to
conditions and find themselves totally out of any chance to go
and ask a court to review them to see if they were illegal or
extra legal. So it seems to me that simply shifting the burden
of proof without affirmatively requiring the Commission to
address the harm by ordering conditions on the merger creates a
problem.
I am going to give you an example. I am going to give you
an example of an actual case. An applicant in a merger
situation in the DOJ process is told we want you to agree not
to acquire this part of the advertising business in this
community. We do not want you to own that much, whatever it
was.
Applicant says fine. I will agree to that. Then DOJ says
wait a minute, we want you to also agree that you will never
acquire it. You have to sign a statement saying that you will
never acquire it. And he says why do I have to sign that and
they said, well, we do not want to buy a lawsuit that we cannot
win. DOJ does that. That is a problem at DOJ. I wish we had
jurisdiction there. I would like to go cure those problems. We
are working on that, by the way. We may yet get there.
But that applicant then comes to the FCC and can go through
the same process all over again. If DOJ does not catch him, the
FCC can. And the condition that he can be required to
voluntarily agree to becomes something he can never complain
about in court, even though it was suprajudicial, even though
could not have been defended in court by any action of the
agency. Had it ordered as a condition to the merger.
Now, that to me is the essence of what you tell the
committee today we ought to try to cure. And I think--so it
really goes to the heart of the problems and the procedures.
And let me say to all of you, that I think it goes a long way
to curing what goes on on the outside as well. If as a party to
the process I know that I am going to get an answer on a
certain date, that I am going to get an answer that I can
appeal to a court if I think I have been unfairly treated; I do
not have to yield to outside pressures to make donations or to
hire people or to do whatever I have got to do because somebody
is holding out to me that they can somehow make a difference
for me somewhere. I am no longer vulnerable to those problems.
And it seems to me that is where I think Mr. Pickering and Mr.
Dingell and I want to go. And, again, you helped us a great
deal, and I think focusing our attention on the right cures,
and I thank you very much.
Let me see if any of my colleagues have any additional
questions.
Mr. Pickering.
Mr. Pickering. Mr. Chairman, I would just like to say, I
look forward to working with the commissioners and the
Commission, and with you as we try to find the right balance on
the time lines and if we do need to build flexibility within
the process, I look forward to looking at where the burden
should be upon which party. And I look forward to looking at
clearly establishing standards by which the FCC shall look at
mergers and acquisitions and by which they can make conditions.
So I hope the discussion draft is a good place to start and
look forward to working with all the members of this committee
and the Commission and the community affected as we move this
very important reform process forward. Because we need to keep
in mind this is not about the FCC, it is not about Congress,
this is about the marketplace and the applications and the
technologies and the innovations and the competition and the
convergence that will truly provide the public interest benefit
we all hope to see.
Mr. Tauzin. I thank the gentleman.
Mr. Wynn, do you have any final thoughts or questions?
Mr. Wynn. No, sir.
Mr. Tauzin. Mr. Shimkus?
Mr. Shimkus. No.
Mr. Tauzin. There is something that intrigues me. We are a
free speech society and yet we got rid of the ICC and we
deregulated trucking and we have kept the agency to regulate
speech in America and we go through all this horrible process
and argument about how we are regulating speech. It just makes
me wonder about whether we shouldn't embark as soon as we can
on some real restructuring and reform for marketplace of ideas
and speech that is becoming so incredibly diverse as the
Internet catches on.
At some point, I will ask your comments about that and ask
you to give us some thoughts about what ought to be basic
restructuring in the reform bill.
In the meantime, let me thank you. You have added
measurably to our store of knowledge and advanced our
processes, and the hearing stands adjourned.
[Whereupon, at 12:12 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of Hon. Cliff Stearns, a Representative in Congress
from the State of Florida
Mr. Chairman: Thank you for holding this hearing on the FCC's
merger review authority and accompanying legislation, the
Telecommunications Merger Review Act of 2000. I would like to thank
Commissioners Furchtgott-Roth and Powell, as well as Mr. Weening, for
appearing before the subcommittee this morning. I am, however,
disappointed that Chairman Kennard's schedule could not accommodate his
testifying before the subcommittee, for it is primarily because of his
direction we are holding this hearing and discussing legislation.
Since passage of the Telecommunications Act of 1996, the
telecommunications landscape has significantly changed shape. Changes
in law and the regulatory framework, coupled with technological
advancements and increased gobalization, have spurred a tremendous
amount of merger activity, with many telephone, long-distance, media,
and cable companies either merging or forming partnerships and
alliances. Many of these changes have brought consumers lower prices,
innovation, and high-quality goods. However, there are mergers which
hurt consumers by limiting innovation, raising prices, or reducing
quality, and anti-trust laws and consumer protection provisions serve
as triggers to ensure consumers and competition are not harmed.
So the purpose of today's hearing is to explore the current scope
of the FCC's authority to review telecom-related mergers, as well as
consider the need for legislation to limit the FCC's role in merger
approvals.
Mr. Chairman, does the way the FCC currently conduct merger reviews
need reform? The answer is a resounding yes. For the FCC, itself, has
formed a Transactions Team to review its own merger review process and
to develop procedures to streamline and accelerate the Commission's
merger review process. Why wasn't this done sooner?
While I do not fault the Commission for its self-initiation in
streamlining the merger review process, I remain skeptical as to
whether the end result will be substantive. For nothing the Commission
implements will change its duplicative jurisdiction with the Department
of Justice's Antitrust Division in reviewing telecommunications
mergers, and I fear the FCC will continue to apply it's ``public
interest'' test in conditioning merger approvals.
Mr. Chairman I remain skeptical as to whether the FCC even has an
antitrust role in approving mergers. For Section 601(b) of the 1996
Telecom Act repealed the FCC's only specific statutory merger authority
under Section 221(a) of the Communications Act, while also repealing
the FCC's authority under the Clayton Act. Nonetheless, the Commission
now cites other provisions of the Communications Act to direct merger
review authority.
Members of this committee may also be interested in The
International Competition Policy Advisory Committee's Final Report
presented to Attorney General Janet Reno and Assistant Attorney General
for Antitrust Joel I. Klein last month. The Final Report includes
policy recommendations on international antitrust issues such as
multijurisdictional merger review, anti-cartel enforcement and the
interface of trade and competition policy.
Specifically, the Advisory Committee found that ``the multiplicity
of reviewing bodies and the use of different standards for judging
mergers makes it difficult . . . to understand the merger review
process. This may have the cumulative effect of decreasing
transparency. This possibility is strongest where sectoral regulators,
acting under the mandate of broad ``public interest'' standards,
account for competition policy concerns in exercising their
jurisdiction over mergers. Sectoral regulators often have authority to
take into account social welfare considerations that extend beyond the
traditional focus of antitrust analysis. In many instances it may be
difficult to determine whether traditional antitrust concerns or social
welfare objectives motivated the sectoral regulators' decision to
intervene.'' Furthermore, the Advisory Committee raised an additional
concern that regulatory agencies, such as the FCC, are vulnerable to
capture by industry and generally more susceptible to political
influence compared with the DOJ.
Additionally, Commissioners Furchtgott-Roth and Powell, testifying
today, have publicly expressed concerns over the seemingly duplicative
jurisdiction of the Antitrust Division and the FCC during
telecommunications merger reviews. For the Antitrust Division examines
how the proposed merger might eliminate current competition or future
potential competition in a way that harms consumers. It investigates
and analyzes factors such as market concentration, potential adverse
effects, ease of entry into the market at issue, and efficiencies
likely to be created by the merger. Additionally, its analysis includes
determining whether the merger would lessen innovation in developing
new technologies. The FCC, then turns around and conducts the same
analysis, thereby producing no meaningful differences in the analysis.
Mr. Chairman, I would also like to make as part of the official
record Commissioner Furchtgott-Roth's November 5, 1999, op-ed piece in
the Wall Street Journal, titled ``The FCC Racket'' in which he argues
that the FCC's authority over merger review has become too broad and
without the necessary limits and standards and how the Commission's
``elaborate ruse--merger authority, voluntary conditions, and public
involvement--has created a self-perpetuating myth that the FCC has far-
reaching authority to sanction orreject mergers in the public
interest.''
Thank you again Mr. Chairman. I look forward to the testimony of
our witnesses.
______
[Friday, November 5, 1999--The Wall Street Journal]
The FCC Racket
By Harold Furchtgott-Roth
It's difficult to think of a large communications firm that hasn't
at least discussed a merger over the past few years. In each case,
companies, legislators and the media chant the mantra: This merger
would require Federal Communications Commission approval.
This is simply false. Although the FCC has limited authority to
review certain mergers under the Clayton Act, the agency has never
invoked that authority during the recent spate of condition-laden FCC
``merger approval'' orders. Invoking the Clayton Act requires the
commission to undertake the uncertainty and expense of winning a court
case in order to block any deal. The Justice Department and the Federal
Trade Commission are subject to these rigorous standards and the
corresponding limitations imposed by antitrust precedent. But the FCC,
extracting itself from that legal shackle, has created a merger
approval ``process'' that is lawless, standardless and endless.
Under the law, no merger requires FCC approval. Companies are
required to apply only to transfer FCC licenses, much like changing
title to an automobile. The FCC routinely processes tens of thousands
of license-transfer applications annually with nary a whimper. But
periodically the agency singles out a few, particularly those
associated with the mergers of large, heavily regulated companies, for
``special'' treatment.
This treatment is virtually indefinable, but inordinately powerful:
It brings companies to their knees begging for ``voluntary'' conditions
that drive up their costs of doing business. The process itself is both
arbitrary and indecipherable. The commission has no consistent rules on
the handling of license transfers, and it asserts this limitless
authority without deadlines or accountability. Because the conditions
are ``voluntary'' and the merger is time-sensitive, firms are virtually
barred from seeking judicial review.
Consider the recent case of SBC's request to acquire Ameritech's
FCC licenses. An initial review revealed no violation of federal law or
FCC rules. Yet with no official written notice, one commission official
publicly pronounced that the transfers were outside the public
interest--without defining what the ``public interest'' is.
SBC and Ameritech sensed that their transaction was in peril, but
they had no clear explanation why. What to do? Demand written
clarification? Go to court to challenge the process? Tell Congress and
the media of the mistreatment?
If recent history is any guide, none of the above. Instead, CEOs
privately contact the FCC and find out the ransom price to free their
licenses. They do not publicly complain too much because that would
annoy the FCC, which has ultimate regulatory control over their
business, both today and tomorrow. They do not go to court, out of fear
that the corresponding delay will sink this and future deals. They
cannot allow anything--no matterhow arbitrary and demanding--to
threaten their mergers.
What does the commission want? Don't expect it to be written down
anywhere, because a written quid pro quo might be illegal. Commission
staffers engage in months of secret negotiations without a clear
written record of what is being negotiated or why. The FCC issues
public pronouncements about open processes, and yet denies anyone from
the public access to, or minutes from, the secret meetings. Then,
remarkably, a complex and detailed set of ``voluntary'' promises are
submitted to the FCC for approval. Like puffs of smoke from the
Vatican, it is a sign: The deed is done.
Initially, of course, the merging companies had filed documents to
prove that the license transfers are in the public interest without any
conditions. But after a few months of private FCC meetings, these
companies discover that their shareholders and the public interest will
be advanced only by volunteering to a condition-laden transfer.
In the SBC/Ameritech merger, most of these conditions were neither
consistent with the law nor more stringent. Some conditions require the
companies to discriminate among different customers, thereby violating
federal law. All these conditions are to occur after the license
transfers. They are little more than promises of future behavior,
whether for good or ill. And the conditions are often not even remotely
related to the actual licenses being transferred.
The ``proposed'' conditions are then sent out for public comment.
This is often only a pro forma exercise. For example, most of the
competitors of SBC/Ameritech were adamantly opposed to the conditions.
They argued that they were better off to have the licenses transferred
to SBC without any conditions, but with the full and unambiguous
protection of the law. Yet not a single substantive change to the
conditions was made after public comment.
The results can be even more disturbing than the process. For three
years, SBC/Ameritech will be a regulatory Frankenstein, different from
every other regulated entity in America. It will have all of the
trappings of a regulated telecommunications carrier, plus FCC-blessed
regulatory appendages in every shape and form. Customers and regulators
can throw away their copies of the Communications Act and the
commission's regulations. The real rules are now in the FCC's orders
approving this particular transaction.
What happens if SBC/Ameritech fails to meet the conditions? Then
the company could owe $2 billion in ``voluntary'' payments to the
federal government or to charitable institutions. These payments are
not ``fees,'' because no government service is provided in return, nor
are they ``fines'' or ``penalties,'' because no federal law or
regulation would be violated. A company could not lawfully approach a
member of Congress or the administration--or vice versa--and ask for
favorable consideration in return for such ``voluntary'' contributions.
Yet no one has dared to ask about the enforcement of these payments.
This elaborate ruse--merger authority, voluntary conditions, and
public involvement--has created a self-perpetuating myth that the FCC
has far-reaching authority to sanction or reject mergers in the public
interest. In fact, the only thing that clearly emerges from the FCC's
merger review process is that the public has no interest in this sham.
______
Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
Thank you, Mr. Chairman.
The Subcommittee will consider legislation this morning that would
substantially limit the FCC's authority to review telecom-related
mergers.
This is an important hearing, indeed. The telecommunications
industry is in the midst of rapid consolidation.
Bell companies are combining with each other . . . AT&T is trying
to purchase MediaOne . . . MCI wants to acquire Sprint . . . AOL looks
to own Time Warner . . . and just yesterday, Tribune Broadcasting
announced that it would be acquiring Times Mirror.
So what should the FCC's role be in this period of industry
consolidation?
This is a difficult question, to which there is no easy answer.
Among other things, the answer should include a requirement that the
FCC conduct itself in an open and transparent manner--not just in the
way it reviews mergers . . . but in any rulemaking or adjudication.
It's true that the 1996 Act assigned the FCC important
responsibilities. But Congress didn't make the FCC a ``czar.''
In recent months, no one has tried to make this point more
forcefully than Chairman Tauzin. Mr. Chairman, I share your interest in
establishing FCC practices and procedures that promote transparency.
The American public deserves nothing less.
It is therefore an opportune time for this Subcommittee to initiate
this review. I note that the draft legislation before the Subcommittee
this morning would limit the amount of time the FCC can take in
reviewing mergers. The legislation would also limit the FCC's ability
to make public interest considerations in the course of reviewing
mergers.
I commend the drafters of this legislation for their hard work, and
I look forward to the witnesses comments.
In particular, this Subcommittee needs to know whether this
legislation would cure the problem. Or is it possible that the cure is
worse than the disease? That is, will tight time and scope limitations
only promote more, and not less, back-room dealing?
Again, I want to thank Chairman Tauzin for holding this hearing,
and I look forward to the testimony of today's witnesses.
I yield back the balance of my time.
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