Advice to the new president on the FCC and communications policy.

• Author: Troy, Daniel E.

1. INTRODUCTION

   The Telecommunications Act of 1996 ("1996 Act")(1) promised the first major revision of communications policy since the passage of the Communications Act of 1934 ("Communications Act").(2) In passing the 1996 Act, Congress intended to "promote competition and reduce regulation."(3) Congress believed that the 1996 Act would "secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies."(4) President Clinton characterized the 1996 Act as "revolutionary legislation" aimed at bringing the future to the doorsteps of the American people.(5) Vice President Al Gore claimed to be championing the Clinton Administration's efforts to promote the goals of private investment, competition, and flexible regulation.(6)

   One year after the passage of the 1996 Act, former Federal Communications Commission ("FCC" or "Commission") Chairman Reed Hundt asked, "Is it working?"(7) The answer was clearly no. Unfortunately, and largely due to actions of the Clinton FCC, the regulatory framework created by the 1996 Act has failed to produce many of the benefits promised by its supporters.(8) The Act has instead provided an excuse for the FCC to expand its already swollen bureaucracy.(9) Although some in Washington "paradoxically and mischievously" refer to the current state of affairs as "deregulation," the FCC continues to regulate emerging communications technologies and to re-regulate previously deregulated communications industries.(10)

   The 1996 Act was supposed to end "outdated, invasive regulation," which should, according to elementary common sense principles, require a smaller budget.(11) Nonetheless, on the third anniversary of the 1996 Act, President Clinton submitted a budget to Congress asking for a 20% hike in the FCC's budget for fiscal year 2000.(12) For fiscal year 2001, the FCC requested and received an additional 11.5% increase, bringing the agency's current allocation to a staggering $237,188,000.(13) All the while, the FCC has kept on its books hundreds of regulations which have long outlived their usefulness and has refused to heed the command of Congress to deregulate American communications markets.(14)

   Given the rapid pace of change in the telecommunications industry, the new Administration should work with Congress and the FCC to make the Commission do less, faster. Only then will the American public obtain the benefits of the competitive, innovative telecommunications industry that the 1996 Act envisioned. To accomplish these goals, the new President should take the following "top ten" steps. He should ensure that:

   1. the FCC stops using its merger reviews to extract conditions it could not otherwise impose;

   2. the FCC exercises its statutory power to forbear from regulation more often;

   3. the FCC adopts a customer service mentality;

   4. the growth of the FCC as an administrative agency is halted;

   5. the FCC ends its regulation of mass media content;

   6. the FCC modifies its ownership restrictions;

   7. the FCC keeps it hands off the Internet;

   8. the FCC eliminates access charges and reforms its regulatory fee structure;

   9. the FCC reforms its spectrum allocation policies to increase the use of auctions and allow for spectrum flexibility; and

   10. the FCC gives more respect to states' rights.

2. DISCUSSION

   1. Limit FCC Merger Review and Attendant Conditions

      Since the passage of the 1996 Act, the FCC has become far more heavy-handed in its review of mergers between telecommunications companies.(15) Given the FCC's increased focus on communications mergers, many will be surprised to learn that the 1996 Act did not increase the FCC's merger review authority. Indeed, no provision of the Communications Act expressly authorizes most of the Commission's current merger review activities. Moreover, the FCC's current merger review process is often inconsistent with the 1996 Act's deregulatory goals.

      To be sure, the FCC has the authority to review proposed station license transfers between parties and to review proposed transfers of interstate operational authorizations for common carriers to ensure that such transfers are in the "public interest, convenience and necessity."(16) The Act also grants the Commission authority to impose conditions on transfers of licenses and section 214 authorizations.(17) In addition, the Clayton Act, which prohibits combinations in restraint of trade, gives the FCC authority to review mergers between common carriers per se.(18) However, the Commission has not relied on this power in any of its recent merger review proceedings, perhaps due to the high evidentiary hurdles it would be forced to clear.(19) Instead, the FCC has used its general "public interest" authority, which, by its very nature, can lead to unpredictable and inconsistent results.

      Rather than analyzing the merits of a proposed transaction pursuant to established rulemaking and adjudicatory procedures, the FCC has too often placed behind-the-scenes pressure on companies that often have billions of dollars at stake to accede to "voluntary" conditions. Companies seeking merger approval often succumb to this pressure rather than risk interminable delay or, at worst, disapproval of their transactions. Such activities signal a troubling move away from public participation in the regulatory process. They also fail to provide businesses with a transparent and predictable framework for evaluating the likely level of inquiry into the merits of a proposed transaction.

      The SBC/Ameritech merger proceedings, for example, included "`discussions' between the companies and Common Carrier Bureau staff unauthorized by the full Commission, with `ground rules' set by the Chairman and thus subject to change at his personal whim ... and even special `fora' to discuss the transfers."(20) The use of such closed door conversations finds no support in Commission precedent or procedure.(21) It also can raise serious questions as to the FCC's impartiality.(22)

      In addition, the conditions which the Commission has imposed in recent merger orders tend to suffer from several major defects. Although the FCC has authority to condition license transfers and section 214 authorizations,(23) such conditions obviously may not violate federal communications laws. Also, common sense suggests that conditions must be proportionate to alleged potential harms and reasonably calculated to remedy those harms. Yet in many recent cases, conditions imposed on licensees were both violative of federal communications law and disproportionate to the harms sought to be addressed.(24) Moreover, the FCC's characterization of many of these conditions as "voluntary" is laughable, given that many conditions were the result of intense pressure by the Commission itself.(25)

      Instead of limiting its public interest review to matters concerning compliance with the Communications Act and the FCC's rules, the Commission has expanded its limited authority to review license transfers into a sweeping power to engage in searching investigations of the competitive effects of arbitrarily selected communications mergers. Not only does the Commission lack this authority, but its exercise duplicates the efforts of the Department of Justice's Antitrust Division and the Federal Trade Commission.(26) The FCC's efforts waste precious government resources and create a risk of inconsistent results.(27)

      The public interest "standard" which the FCC purports to apply to recent communications mergers often fails to constitute any standard at all. Some communications mergers trigger extensive inquiries, while others receive little attention. The Commission has failed to articulate a sound basis for distinguishing between mergers that deserve intense analysis and those that should receive limited review.(28) The general proposition that a merger violates the public interest if it will have anti-competitive effects fails to provide much useful guidance, and the FCC seems not to have recognized any limits to this "merger review" authority.(29) Moreover, if and when the Commission begins an extensive investigation, companies generally have no means by which to determine the substantive standard which will govern approval.(30)

      The FCC would do better to confine itself to determining whether a merger or license transfer would violate existing federal laws or regulations.(31) Under this approach, a transaction would not violate the "public interest" unless it violated specifically applicable rules.

      In short, the use of "voluntary" conditions should be prohibited unless they are directly related to violations of law that the merger would create. The FCC should apply a uniform, transparent standard to determine whether a proposed transfer is in the public interest. Failing that, the FCC should be stopped from reviewing the competitive effects of communications mergers under the guise of its limited power to review and condition license transfers and transfers of section 214 authorizations.

   2. Increase the FCC's Use of Regulatory Forbearance

      Consistent with its deregulatory aims, the 1996 Act authorized the FCC to:

      forbear from applying any regulation or provision of [the Communications] Act[, in whole or in part,] to a telecommunications service ... if the Commission determines that: (1) enforcement of such regulation ... is not necessary to ensure that the charges, practices, classifications, or regulations ... in connection with that telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory;

      (2) enforcement of such regulation or provision is not necessary for the protection of consumers; and

      (3) forbearance from applying such provision or regulation is consistent with the public interest.(32)

      In determining whether forbearance is in the public interest, the FCC is directed to "determine whether forbearance from enforcing the provision or regulation will...