CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION
HOUSE COMMITTEE ON COMMERCE
SUBCOMMITTEE ON TELECOMMUNICATIONS, TRADE AND CONSUMER PROTECTION
THE TELECOMMUNICATIONS MERGER REVIEW ACT OF 2000
MARCH 14, 2000
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:
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.
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.