April 5, 1999

Re:	Applications of SBC Communications Inc. and Ameritech Corp. For Transfer of Control (CC Docket No. 98-141)

Dear Mr. Notebaert:

I would like to take this opportunity to share with you my thoughts regarding the letter that you recently received from Chairman Kennard.

According to the letter, the Communications Act requires the Federal Communications Commission (FCC) to "determine whether the proposed merger [between SBC Communications and Ameritech] is in the public interest." The Act, however, does no such thing. It does not speak of mergers at all, only of license transfers. The Clayton Act, on the other hand, gives the FCC a limited role in reviewing certain combinations. But the Chairman does not rely on that provision; indeed, the Commission almost never relies on that direct source of statutory authority, choosing instead the less constraining "public interest" provision.

During my tenure at the FCC, I have frequently noted the wholly ad hoc nature of the license review process. The Commission annually approves tens of thousands of license transfers without any scrutiny or comment, while others receive minimal review, and a few are subjected to intense scrutiny. We clearly apply highly disparate levels of review to applications that are filed under the identical statutory provision. 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. Outside parties thus have little basis for knowing, ex ante, how they will be treated. This lack of transparent standards makes it all too easy for decisionmakers to discriminate among industries and even companies – in other words, to engage in arbitrary and capricious review.

Moreover, given that the Commission has failed to articulate any classifications to distinguish applications that merit scrutiny from those that do not, the "public interest" standard would currently appear to apply to all applicants on an equal basis. Yet applying different standards to different license transfers is precisely what the FCC has been doing for years.

Regrettably, your companies are now experiencing just how ad hoc and arbitrary the "merger" review process at the Commission can be. Consider the "public interest" concerns raised in the Chairman’s letter. These concerns are not based on standards to be found in any specific provision of the Communications Act or in any FCC rule; the Commission, of course, has no published rules for merger reviews. As I have pointed out in other contexts, this kind of quid pro quo – if you do X, which I may not be able to require outright in a rulemaking, I will grant your license transfer – is damaging to the integrity of this institution.

Furthermore, these standards are not even remotely similar to the information provided in the Chairman’s recent response to Chairman McCain’s inquiry regarding the criteria used to process license transfer applications. Simply stated, it is impossible that you or any other party could have divined in advance the concerns and implied standards that Chairman Kennard now raises, nearly a year after the submission of your applications.

While five "public interest" concerns are listed in the letter, they boil down to three points. The first three amount to qualms about whether the proposed merger will undermine the pro-competition policy of the Telecommunications Act. I take a back seat to no one when it comes to advocating competition. I believe firmly in the virtues of competition and the evils of government-created, government-regulated monopolies. But we cannot go beyond our statutory authority in pursuit of this goal. That is, we cannot impose new substantive burdens on companies simply in the name of "competition"; rather, we should be able to point to a section of the Act indicating that Congress at least envisioned the imposition of the duties at issue. Also, we must regulate in a non-discriminatory, reasonable manner, applying the law equally to similarly situated parties. Put another way, we must not create stricter tests for some companies and lesser ones for others, or set higher standards for merging parties than for other transferors and transferees.

Even if "pro-competition" had been properly established as the Commission’s test for license transfers, the Commission has not been consistent in applying any such standard. The Commission reviews tens of thousands of license transfer applications every year. It cannot be said that each one demonstrates a clear pro-competitive effect. In the vast majority of cases, we do not even ask the question.

Moreover, we cannot, based on speculation, impute to license transfer applicants future behavior that might result from the fact of the merger. A merged party might hypothetically want to cheat on its taxes, but that theory must be tested. Why would not two separate companies want to cheat? Similarly, a merged company might want to thwart competition, but so too would the unmerged parties. Ironically, the very questions that this letter asks are the same questions that DOJ staff undoubtedly asked during its merger review. Would the merged entity significantly lessen competition? DOJ must have reached a negative conclusion, or at least a conclusion that could not be defended in court. Otherwise, DOJ would certainly have opposed the merger, but they did not.

The second concern expressed in the Chairman’s letter is a novel one regarding the Commission’s "ability to fulfill its responsibilities under the Communications Act by reducing its ability to ‘benchmark’ the performance and capabilities of telecommunications carriers." This language is not to be found anywhere in the Communications Act. Nor is it an issue that has been raised in the context of any other license transfer reviews, to my knowledge. Furthermore, in my view, it is an odd policy position indeed which holds that an otherwise legitimate merger will be prohibited if it impairs the government’s ability to regulate.

The third concern in the letter pertains directly to the public interest standard, expressing the proposition that the public interest is associated exclusively with consumer welfare. This definition of the public interest standard has never been expressed in these terms. Nor has any prior Commission review of a license transfer required or provided any quantitative or qualitative estimate of enhancement of consumer welfare. Moreover, the standard is fundamentally circular: consumer welfare is a laudable goal, but I for one believe that such welfare is not maximized by governmental regulation.

Finally, although the letter lists many concerns about the merger, it appears that there are none with respect to the transfer of the licenses. Of the hundreds of licenses for which transfer of control is sought, not a single one is listed as problematic.

I am also troubled by the unilateral nature of the attempt to seek a dialogue "on a cooperative and public basis" in order to determine "whether it would be possible to craft conditions that address the public interest concerns." This plan has not been shared with, much less considered or voted upon by, the Commission. At this point, I cannot say whether placement of conditions on the license transfers is a good idea or not. I am certain, however, that embarking upon "talks" regarding conditions sets a dangerous and legally problematic precedent for the consideration of license transfer applications.

The Commission has issued a public notice on the licenses that your companies propose to transfer. The period for public comment on that notice has expired. It is unclear to me why certain parties should be permitted to create an additional, private record before the Commission. Even if this practice comported with the Commission’s ex parte regulations (and this is open to doubt), that does not make it fair. We should either reopen the comment period, or close the record and proceed to a final decision by Commission vote and order. Assuming that the imposition of conditions is permissible here, I fail to see why the Commission would need to consult the parties to determine whether it "would be possible to craft conditions" that would allay any public interest concerns we might have. Surely the Commission knows how to do so on its own.

In my opinion, the Chairman proposes a process that would require full Commission authorization. For example, the Commission would have to agree to attend a public forum in late April; the Commission would have to approve a public notice in late May; and the Commission would have to vote on final license transfer approval. In my view, the questions whether and how to proceed, as well as the details of any future process, are not subject to either private or public negotiation between one Commissioner and two private parties. With all due respect to you and the Chairman, I do not believe that the three of you can agree to, or enforce, the proposed process. Even if pursued, you cannot be assured that the schedule will not "slip" or that the rules of the road will not change midway.

Rather than discussing the license transfer process with only the Chairman, I would urge you to discuss this issue with all of the Commissioners. We collectively must decide whether to approve or deny the license transfer applications. Not all of us have had the benefit of hearing the Common Carrier Bureau’s conclusions about possible problems with the license transfers or their recommendation as to how to proceed from here on out. All the Commissioners must be fully informed of the staff’s concerns and possible solutions prior to any decision to impose conditions or even to engage in settlement discussions.

Specifically, only when we have all been fully informed should we even consider whether: (1) the Bureau should immediately grant the license transfers, as it does for tens of thousands of other applicants; (2) a sufficient basis exists for the Commission as a whole to move immediately to consideration of the license transfer applications; or (3) the Commission needs to collect further information, perhaps in the manner outlined by the Chairman or in some other manner.

Accordingly, I have asked the Bureau to present to the Commission its recommendations in this matter. The Chairman’s letter implies that the Bureau could be prepared very soon to present its recommendations based on the existing record. If the Chairman is correct in this regard, my request would not delay this review. Indeed, making recommendations to all of the Commissioners would speed the process, as all of those ultimately responsible for voting on the license transfers would be engaged in the dialogue and could ensure that any concerns they have are addressed. Without such a process, I fear that any conditions ultimately agreed to by the parties and the Chairman may not satisfy the concerns of the other Commissioners.

As I have yet to be briefed on the final staff findings, I cannot speak to the underlying merits of the concerns reflected in the Chairman’s letter, i.e., whether your proposed license transfer is "pro-competitive." It is clear to me, however, that it would be both premature and inappropriate for conclusions to be reached in private conversations between you and Chairman Kennard by April 7 about how this Commission ought to proceed.

CC:	Chairman William E. Kennard Commissioner Susan Ness Commissioner Michael K. Powell Commissioner Gloria Tristani