June 16, 2000 STATEMENT OF COMMISSIONER MICHAEL K. POWELL, CONCURRING IN PART AND DISSENTING IN PART Re: Applications of GTE Corp., Transferor, and Bell Atlantic Corporation, Transferee, for Consent to Transfer Control of Domestic and International Sections 214 and 310 Authorizations and Application to Transfer Control of a Submarine Cable Landing License, CC Docket No. 98-184, Memorandum Opinion and Order Just over eight months ago, I wrote separately and at length to criticize sharply the form and content of the Commission’s analysis of another merger of major incumbent local exchange carriers (LECs), namely SBC’s acquisition of Ameritech. Among other shortcomings, this analysis allowed the applicants’ “voluntary” conditions to compensate for largely unrelated alleged public interest harms. Because the majority persists in its reliance on this faulty analysis in evaluating Bell Atlantic’s proposed acquisition of GTE, I must respectfully dissent from some aspects of this Order and only concur as to other aspects. Specifically, although I again concur in the conclusion that there are public harms that might well result from this combination that are not entirely offset by the applicants’ asserted benefits, I am unsatisfied that any one of these harms bears the weight assigned to it in this Order. Thus, I believe fewer conditions, tailored to address the specifically identified harms, would have been the correct result. This Order suffers from the same flawed analytical framework as in the SBC/Ameritech Order. In that order, I expressed extreme discomfort with a merger review standard that places harms on one side of a public interest “scale” and then examines whether those harms are outweighed by beneficial conditions placed on the opposite side of that scale, regardless whether the compensating conditions actually rectify the harms. I explained that this approach results in a number of pernicious effects. Sadly, these effects are not significantly avoided in this Order. For example, in the SBC/Ameritech Order, I lamented that the majority’s faulty merger review framework would make it easier for regulators to visit identified harms upon the public in exchange for unrelated benefits. This problem evidences itself again in this Order. Despite the fact that the majority concludes that the merger will result in harms they characterize as significant, such as precluded competition, increased discrimination, and loss of major incumbent LEC benchmarks, the Order allows these purportedly significant harms to occur largely unmitigated by the proposed conditions. This leads me to question whether the majority truly believes that the harms are significant, or whether they believe, as do I, that the described harms are too speculative and thus may be exaggerated. My skepticism surrounding the alleged harms of major LEC mergers is exacerbated in this proceeding because these harms should be, at least according to the majority’s reasoning, more significant in this merger than in the SBC/Ameritech proceeding. For example, according to the majority’s theory, the bigger the merged LEC is, the more incentive and ability to discriminate it will have. As such, it follows that there must be greater risk of potential harm associated with this merger than with respect to the SBC/Ameritech merger, which yielded a smaller merged entity than the one we sanction in this Order. Similarly, the majority’s benchmarking rationale postulates that it will become increasingly difficult for regulators to find useful major LEC benchmarks as the number of these LECs declines. It follows, then, that the further consolidation among major LECs that the Bell Atlantic/GTE merger represents must involve greater risk of harm than that associated with the previously approved SBC/Ameritech merger. If I were convinced that the risk of these harms was as significant as the majority’s analysis suggests, and that no conditions could correct them, I would be very hesitant to subject the public to these harms and would instead disapprove the merger, rather than try to offset it with commitments that are wholly unrelated to the harms. Unfortunately, none of the shortcomings I address here or in my previous statement on these issues will ever be addressed unless the Commission begins to reform the majority’s “balancing approach” to merger review that we apply again here, or seriously question the aforementioned specious theories of potential harm. At most, these theories evidence our reluctance to confront directly what appears to be an unstated distaste for horizontal mergers in this area. Until then, I must, with respect to both the majority’s unworkable analytical framework, and as to their assessment of potential harms, respectfully dissent from application of this reasoning in our merger review. See Applications of Ameritech Corp., Transferor, and SBC Communications Inc., Transferee, for Consent to Transfer Control of Corporations Holding Commission Licenses and Lines Pursuant to Section 214 and Section 310(d) of the Communications Act and Parts 5, 22, 24, 25, 63, 90, 95, and 101 of the Commission’s Rules, CC Docket No. 98-141, Memorandum Opinion and Order (Separate Statement of FCC Commissioner Michael K. Powell) (Oct. 8, 1999) (“SBC/Ameritech Separate Statement”) [Available on the World Wide Web at < http://www.fcc.gov/Speeches/Powell/Statements/stmkp930.doc>]. Although I dissent in part to the Order, I do concur with the item’s Section 271 analysis. See SBC/Ameritech Separate Statement at 1. 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. And fourth, the process of obtaining “voluntary” conditions inevitably involves bilateral negotiations with the parties that leave the integrity of the Commission’s process vulnerable to criticism. See SBC/Ameritech Separate Statement at 5-19. I would note, in addition, that I find little comfort in the fact that, in contrast to the proceeding leading to the SBC/Ameritech Order, this proceeding did not involve nearly as much haggling between the applicants and Commission staff regarding the proposed conditions. Among other things, I argued in that previous context that the process of obtaining “voluntary” conditions inevitably involves bilateral negotiations with the parties that leave the integrity of the Commission’s process vulnerable to criticism. Although the proposed conditions here were not subject protracted negotiations with these two applicants, they are modeled so closely on the conditions negotiated by SBC and Ameritech that they carry the same taint. In short, we cannot turn a blind eye to the troubled origins of these conditions, simply because the applicants anticipated what would satisfy the Commission based on its previous negotiations with SBC and Ameritech. That said, I am at least pleased that the Commission did not pursue extensive negotiation with these applicants over the proposed conditions. See SBC/Ameritech Separate Statement at 12 (“Sadly, all that one is left with after reading the [SBC/Ameritech] Order’s benchmarking analysis (and, indeed, its discrimination analysis) is the sense that, for some reason, the Bell Companies and perhaps GTE are on the ‘too large to merge’ side of the dividing line between permissible and impermissible mergers. If this was supposed to be the moral of the benchmarking and discrimination stories in this Order, I would have preferred to relay that moral more directly, rather then through these theoretical constructs.”). 1