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The FCC Racket
By Harold Furchtgott-Roth
Published in The Wall Street Journal
Friday, November 5, 1999

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 matter how 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.