Overview of FCC Review of Complex Transactions, by To-Quyen Truong Associate Bureau Chief, Cable Services Bureau

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FCC Transactions Forum March 1, 2000
"Overview of FCC Review of Complex Transactions"
To-Quyen Truong
Associate Bureau Chief, Cable Services Bureau

The FCC approves most mergers and acquisitions involving the transfer of FCC licenses and authorizations in short order. In the Cable Bureau, for example, out of approximately 2500 transfers that we have approved during the wave of mergers, acquisitions, and swaps from 1996 to the present, only one transaction (the AT&T/TCI merger) took a significant period of time, and even that merger took less than five months between the Public Notice and the final Order. The public focuses on the very small percentage of cases that take a significant period of time because they involve very large and complex transactions. I'm here to provide some background regarding the Bureaus' handling of these major transactions, in order to provide additional context to our efforts to establish a proposed timeline for these transfer reviews.
The public's interest in these major transactions is, in fact, a primary reason that we need additional time to review them. We apply the same Public Interest standard to all transfer applications. But those transactions expected to have major impact on communications services -- whether in terms of the sheer number of consumers affected or the competitive impact on communications services -- necessitate additional steps to ensure that the public has a full opportunity to participate and to follow developments in our review process. This process is very important because the FCC is unique in being (1) the only forum for the public to comment on these transactions and (2) the expert agency with the responsibility, not only to preserve existing competition, but also to promote new competition in the provision of communications services. After public comments are filed, the number and complexity of the comments and relevant competitive issues raised determine the amount of resources and time devoted to the review.
The rapid changes occurring in the communications field and the convergence of services between the different industries - with cable companies providing not only video, but also telephony and Internet services, for example - means that many novel issues are raised and we need to pool the expertise from all the different Bureaus.
For those transactions that have major impact on the provision of communications services, which usually require transfer of multiple FCC licenses and authorizations, representatives from all the relevant Bureaus get together to meet with the transfer applicants prior to the filing of the application in order to discuss the technical filing procedures and the substantive information that should be included in the application.
After the application is filed, we review it for accuracy and completeness from both a technical standpoint and a substantive standpoint, before issuing a Public Notice to invite public comment. Our close review has helped to correct many omissions and errors in identifying relevant licenses and authorizations and their holders. It also has facilitated the timely amendment of the application when necessary to provide substantive information and arguments needed by commenters and Commission staff to conduct an informed competitive analysis.
These proceedings inevitably implicate major communications policy issues before the Commission. For example, many of the most recent mega-mergers raise major broadband issues, and several of the mergers of the last two years relate directly to the Commission's policy to promote local telephony competition. The review team accordingly must get an in-depth understanding of all these policy issues and the related rules -- from the historical context of the Commission's many related proceedings, to application of the existing rules to novel circumstances, to the impact of these transactions on the Commission's later enforcement of our rules and broader policy, and of course the manner in which our actions in this transfer proceeding may advance rather than retard the Commission's policies.
As a threshold matter, we have to determine whether the transaction would result in the violation of any of our rules. In many cases, review of the applicants' holdings reveal that the transaction would result in a violation of our cross-ownership rules or ownership limits, requiring divestiture. The review team often has to struggle with much more difficult issues of statutory and regulatory interpretation, however. Because these transactions often result in novel business arrangements and relationships, we often have to analyze and decide regulatory issues of first impression.
As to the competitive policy analysis, the public is well aware that we solicit and review public comments and meet with interested parties to discuss the issues, and review substantial volumes of documents produced by the applicants. The public may not be as aware that the merger review team also conducts an extensive, independent investigation and analysis of the issues. Aside from studying our internal rules and policies, we compile and analyze the literature from academics, Wall Street analysts, consumer groups, trade associations, all sources, on issues related to these transactions, which often include the most prominent communications issues of the day. We often invite these experts to meet us for further discussion on these issues, which range from a business analysis of the corporate structure and strategic plans of the applicants, their chance for success, and the impact on other industry players, to an academic analysis of the development of the Internet and related policy options.
We also consult with the DOJ and FTC, sharing information and coordinating our review to avoid duplication of efforts. We obtain waivers from the applicants in order that we can review the confidential documents filed with the DOJ and FTC and have confidential discussions with those agencies regarding our concurrent reviews. We discuss ways to coordinate our efforts so that the DOJ and FTC can focus on their responsibility to ensure that the transaction won't reduce existing competition, while we can focus on our responsibility under the Communications Act, and particularly the 1996 Act, to ensure that the transaction won't slow the growth of new competition and the decline of market power by dominant firms in the relevant communications markets.
In some instances, our analysis of the issues has identified areas requiring further production of information or discussion from the applicants. Substantial amounts of time and resources are spent discussing these issues with the applicants to obtain the relevant information and to review the documents produced.
In a few cases, the parties decide to revise their applications late in the process. Some of you no doubt are familiar with cases where the applicants have requested a waiver of our rules. If we were operating under an inflexible timetable for review, we probably would have had to deny the original application on the ground that the transaction would violate our rules. Instead, we have operated with more flexibility, allowing the parties to amend their application. Some applicants seek extensive discussions with Commission staff regarding the issues prior to revising their application. In one case, the parties asked the Commission to halt consideration of their application until they could present a proposal for compliance with Section 271, and they actually did not submit such a proposal until several months later. When the parties do revise their application, the Commission provides a full opportunity for public comment and evaluates the revised application in light of these comments.
The complexity of the issues involved and the extensive public interest they generate sometimes also necessitate a Commission en banc hearing or Bureau level public forum to air the issues. A substantial amount of Commission staff's time and resources also is spent responding to public inquiries about these transactions on virtually a daily basis.
Finally, at the end of this process, the merger review team presents its recommendation to the Commissioners and drafts the order to reflect the various parties' arguments and the staff's analysis. After a majority of the Commissioners have reached a consensus, the staff revises the order as necessary to reflect the views of the Commissioners.