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September 14, 1998


Re: Application of WorldCom, Inc. and MCI Communications Corporation For Transfer of Control of MCI Communications Corporation to WorldCom, Inc.; CC Docket No. 97-211.

I support today's decision approving the proposed merger between WorldCom, Inc. and MCI Communications Corporation. I concur in that result, but write separately to express my concern with several aspects of the underlying reasoning and to disapprove explicitly of the conditions imposed on this merger. I am also unwilling to adopt in its entirety the proposed framework for analyzing mergers presented here as I believe that it is (i) essentially duplicative of the merger analysis already conducted by the Department of Justice, (ii) excessively time-consuming since this agency waits until after DOJ clearance has been granted before proceeding, and (iii) too speculative in its analysis of who may be potential competitors.

Cumbersome Review Process

We have before us today the merger of two nimble and aggressive firms: WorldCom and MCI. They, and many other firms, operate in many markets, some domestic and some distinctly international. They serve many consumers in the United States and around the world.

Many regulatory authorities, both in the United States at the state and federal level, and in other countries, have already approved the merger with various qualifications. The FCC is the final among countless agencies to offer an opinion. I concur in the decision of this Commission to approve the merger. I concur, however, with deep reservations about the process that these companies have had to endure and about the process that has led to decisions directly affecting American consumers but without recourse to American consumers or American voters.

In part, I am troubled that this agency has taken as long as it has to review this merger, for which we received our first petition for review on October 1, 1997, and which was approved by the Justice Department on July 15, 1998. Surely, future mergers will be handled more expeditiously.(1)

Our staff has invested substantial talent and resources in the review of this merger, as is evident by the accompanying Order. But our staff is hard working and has many demands placed on their time. Another agency of the federal government, one with specific statutory authority to review mergers and with substantially more staff that specialize in nothing other than merger analysis, has already examined this merger in all market contexts in great detail and has found it acceptable. The heroic efforts of our staff notwithstanding, we have little to add or to subtract from the market analyses or the judgment of this other federal agency but a more detailed public record.

For this reason, I would prefer a more thorough consideration of ways to eliminate the duplicative nature of this dual analysis of proposed mergers. Surely there is a more efficient and less time-consuming process that could be followed. For example, it is the obligation of this agency to find the transfer of licenses is in the "public interest."(2) A finding by this agency that the transfer of licenses involves merging parties that have in the past and are currently complying with existing Commission rules, and that no extraordinary reason to oppose the transfer of licenses is articulated by the public, would seem the proper basis for this agency to exercise its responsibility.

But instead, the Commission has undertaken a wide-ranging analysis of the merger that exceeds even DOJ's principles and that examines broader social issues beyond this agency's expertise or authority. For example, under the precluded competitor framework used in part here, our analysis of potential competitors is too speculative, as we do not require the same type of evidence that the Department of Justice's merger guidelines require of intent to enter the market. Even with our expertise in telecommunications, I question whether we can make such assumptions and whether they are even relevant to a narrow public interest analysis. In addition, I am not convinced that a review of applications to transfer licenses as part of a merger analysis is an appropriate forum in which to assess or craft commitments for broader social policy questions. Is there any limit on the additional benefits that the Commission could examine or requirements it could impose in determining whether a transfer of licenses is in the public interest?

Conditional Approval

Even if this Commission had stayed narrowly to its statutory authority, however, I would still be troubled by the process outside of this agency that these merging firms have had to endure. I have no reason to doubt that this transfer of licenses falls squarely within any reasonable definition of the "public interest."(3) But I have substantial reason to doubt that the entire process of merger review -- in which this agency is rightly only a small appendix -- is within any reasonable definition of the "public interest."

I fear that the cumbersome nature of this process, and the opportunities for an agency in one country to demand compliance with rules outside of its territorial jurisdiction, pose a threat to international commerce, to firms such as WorldCom and MCI that engage in international commerce, and to American consumers.

I do not have a specific solution to propose to this problem. This agency, by itself, can do little to affect the overall merger process around the world. This agency can, however, voice its concerns. We can state forthrightly that interference in international commerce generally, and international telecommunications in particular, will not be sanctioned by the United States. Enterprises that wish to engage in international commerce need not fear that one nation can dictate the terms and conditions under which that enterprise does business in any other country.

This Commission conditions approval of the merger on MCI's divestiture of Internet assets within the United States. I am not convinced that this divestiture is either economically or legally necessary. Entry and exit in various segments of the Internet business do not appear to have substantial barriers. Indeed, the market structure changes rapidly with countless entities vying in different segments. Were ours a truly independent review, I would emphatically oppose conditioning the merger on divestiture, even if I believed that this Commission can properly consider market structure in the review of the transfer of licenses.

But this agency cannot make any pretense of conducting a truly independent review of the newly constituted MCI and WorldCom. The EU has effectively required divestiture of MCI Internet assets in the United States. We, at the FCC, have at best rationalized a decision already made by others.

The Importance of Open Markets to America

I was privileged soon after joining the Commission to have an opportunity to vote for rules that would implement the World Trade Organization's (WTO's) agreement to open telecommunications markets in all nations, including the United States, to carriers from any nation. It was a proud moment. Open markets are good for consumers, particularly American consumers. Open markets are good for businesses, particularly the many competitive American businesses that seek to compete around the world.

More fundamentally, however, open markets are important for the fulfillment of American ideals. In America, the government serves the individual, and not visa versa. Whether in individual or business conduct, freedom from excessive regulation has long been important to Americans. It was, indeed, the efforts of a distant government to restrict commerce within America, and international commerce with America, that ignited the American revolution.

The importance of free international commerce has waxed and waned in American history, but in every generation, the United States has taken principled positions to preserve open international commerce. Even as a young and relatively powerless nation, the United States stood for open international commerce. It negotiated treaties with European powers to secure access to commerce in the Mississippi Valley. Restrictions on American commerce on the high seas led to hostilities with England and France. It was the weak and distant United States, not the nearby and powerful European nations, that refused to pay tribute to the Barbary pirates. The federal government of the United States two hundred years ago was, by contemporary standards, extraordinarily weak. It was small, had few assets other than land, regulated little, and taxed perhaps even less. There was little of a standing army or navy. But that government lacked nothing of determination in protecting the young nation's sovereignty. It would not tolerate threats to its sovereignty on the high seas, much less at home.

The Importance of Jurisdictional Boundaries to International Commerce

Open international commerce does not mean that businesses are immune from national or local laws in areas of appropriate jurisdiction or treaty obligations. Those laws, and regulations under them, to the extent they do not obstruct commerce, actually enhance international commerce by providing a clear and predictable legal framework for commercial activities.

Jurisdictional boundaries, however, must be respected for international commerce to be truly open. A nation may reasonably regulate the business activities of a firm within its borders as a condition of operating within that country, but a nation may not reasonably restrict business activities in a third country. Nations do coordinate, harmonize and even reciprocate regulatory treatment of businesses, but only through duly authorized agreements or treaties.

If every one of the nearly two hundred countries in the world sought to require international firms to abide by its regulations not merely within its national boundaries, but in other countries as well, international businesses and international commerce would cease to exist as we know them. Indeed, if even one country sought to compel businesses to conform to its regulations, international commerce would cease to be open.

MCI, the EU, and Duress

To secure approval for its merger with WorldCom from EU regulatory authorities, MCI was forced to make concessions on its assets not merely in countries under EU jurisdiction but in the United States as well. In particular, MCI was required to divest itself of much of its internet business activities in the United States, including retail household services.

Some will say that MCI, a private party, agreed to these conditions, and thus there is no reason for government concern. These concessions, however, were made under duress, concessions that MCI would not willingly have made to another private party, or even to many governmental entities.

Which Merger is the FCC Reviewing?

The matter before this Commission is ostensibly the transfer of licenses between WorldCom and MCI based on a petition filed on October 1, 1997.(4) That petition was made before the EU review and demands. What is before this Commission today is the transfer of licenses between substantially altered entities in large part as the result of requirements on U.S. assets imposed by the EU. The option to review the transfer of licenses between the originally proposed parties is today largely an academic exercise. Even if this Commission were to approve the transfer of licenses between the original unaltered entities, the future of those entities has been irretrievably altered by the EU decision.

In this Order today, we go through the motions of that academic review of the merger of two firms one of which today cannot be sustained in the future. We reach the fortuitous conclusion that all is well if the EU prescription of divestiture is followed. It is a fortuitous conclusion because what would the practical effect have been had the Commission reached the opposite conclusion such as the following: the public interest would be served in the transfer of licenses if MCI does not divest itself of its internet assets but instead WorldCom should divest itself of its assets? Or what would the result have been if the public interest would best be served if neither company divested anything? Indeed, the FCC has been urging that companies like MCI provide advanced services to the retail consumer markets. What if the Commission had concluded that by forcing the merged company to divest the largest piece of their internet backbone, the Commission only hinders the possibility that residential costumers will indeed see the benefits of such advanced services?

The simple answer to these questions is that the Commission analysis can do little more than rubber stamp those decisions already made by the EU unless we should find that further forms of divestiture, forfeiture, or regulatory punishment are warranted. As I have indicated above, I am troubled that the Commission engages in extensive market analysis and the development of conclusions about market structure and performance and remedies for the illegal use of market power that duplicate work done by other federal agencies. I am even more troubled that we should make these analyses when they can do little more than rubber stamp decisions made by foreign regulatory entities.

Timing and Jurisdiction

In a world of competing jurisdictions over mergers among various international, national, state, and local authorities, agencies that review the merger first -- and impose conditions first -- may have disproportionate effects on the final structure of the multiple reviews. The first judgments can be modified but not fully overturned. In a world of competing jurisdictions, this review process may create incentives for some agencies to attempt to move first to the disadvantage of agencies that move subsequently. The race to review first, however, would largely evaporate if agencies agreed on jurisdictional responsibilities such that there were little if any overlapping jurisdiction.

EU as Close Friends of the United States

The EU consists of some of the United States closest allies and best friends in the world. It is difficult to imagine that the EU would have required MCI divestiture within the United States had there been the slightest likelihood of dissatisfaction from the United States. To exercise jurisdiction where it is tacitly allowed is not a hostile or unwelcome act. The EU should not be blamed for acting where it is allowed. Had the United States simply signalled that we can apply our own laws to assets in the United States, this problem would not have developed.

As I noted upon passage of the WTO implementation rules, in international commerce the United States must lead by example. We must have the most open and freest market in the world. We must champion the cause of consumers and businesses, both in this country and around the world, who seek better lives and more technological advances through competition and free markets. And we must find better and more expeditious ways to review international mergers.

1. Indeed, I am deeply troubled that other mergers appear to be taking longer to review once they clear Department of Justice. For example, the merger application for SBC Communications Inc. and Southern New England Telephone ("SNET") -- a smaller transfer and one that appears to raise fewer legal issues -- was filed on February 20, 1998 and cleared the Department of Justice without condition on February 21, 1998. But, the Commission does not yet have an item before it. I fear that the Commission's internal procedures that typically limit Commissioners' input until after an item has been fully drafted and presented is not only precluding full consideration of important issues by the entire Commission in a timely manner, but ultimately delaying the decision-making process. I look forward to working with my colleagues to attempt to rectify this situation.

2. I emphasize that it is the obligation of this agency to find only the transfer of licenses is in the public interest, not the merger or acquisition of the underlying firms.

3. The Commission has some limited shared Clayton Act jurisdiction, but that jurisdiction does not involve a "public interest" standard. The standard there is quite specific: "substantially to lessen competition, or tend to create a monopoly," 15 U.S.C. Section 18, and does not require that a proposed merger be demonstrably "pro-competitive." The Commission makes no specific findings with respect to this standard. Moreover, another federal agency, with substantially more expertise, has already applied that standard.

4. Following WorldCom and MCI's November 9, 1997 merger agreement, the companies jointly filed an amended application for transfer of control of MCI's licenses and authorizations to WorldCom on November 21, 1997. On July 31, 1998, Applicants filed a minor amendment listing additional private land mobile radio licenses held by MCI, but not included in the initial application.