Merger Review at the North Pole: The Problems of Dual Review in Telecommunications Mergers and a Proposal for FCC Leadership.

Date01 July 2020
AuthorGreene, Audrey

TABLE OF CONTENTS I. INTRODUCTION 247 II. BACKGROUND 248 A. FCC Process and Standard of Review 248 B. DOJ Process and Standard of Review 250 C Coordination Between the DOJ and FCC During Merger Reviews 251 D. Weaknesses of the Current Merger Review System 252 1. Merger Reviews Often Take More Than 180 Days 252 2. Some Voluntary Commitments Are Unrelated to the Merger Under Review 255 3. The Dual Review System Wastes Government Resources 257 E. Potential Reforms to the Merger Review System 258 1. Some Call for a Reduction of the FCC's Role 258 2. Some Call for a Reduction of the DOJ's Role 259 III. ANALYSIS 259 A. The Case for FCC Leadership in Telecommunications Mergers 259 1. The FCC's Merger Review Scope is More Comprehensive 260 2. The FCC Has More Expertise Regarding Telecommunications 262 3. The FCC's Merger Review Process is More Transparent 263 4. As an Independent Agency, the FCC is Better Insulated from Political Pressure 263 B. Reforming the Dual Review System through Elevation of the FCC's Role and Reform of its Processes 265 1. Congress Should Revise the Clayton Act to Exempt Mergers Involving Telecommunications Licenses from DOJ Review 265 2. The FCC Should Issue Guidelines Limiting the Nature of Voluntary Commitments 266 3. Congress Should Pass Legislation Holding the FCC to the 180-Day Timeline Absent a Judicial Extension 266 C. Rebutting Potential Counter-Arguments 267 1. This Proposal is Neither Underinclusive nor Overinclusive 267 2. The FCC Has the Economic Expertise Needed to Lead this Review Process 268 3. This Proposal Would Not Lead to the Approval of Anticompetitive Mergers, Nor Would it Lead to the Denial of Procompetitive Mergers 269 4. This Proposal Would Not Open a Pandora's Box 269 IV. CONCLUSION 270 I. INTRODUCTION

At Christmastime, Santa is the decision-maker. Every year, children write him notes, explaining their good behavior and why they deserve a toy truck rather than a lump of coal. (1) To increase their chances, they might even leave out milk and cookies on Christmas Eve.

Imagine, for a moment, that children had to obtain approval from both Santa and Mrs. Claus for that truck. A child would have several questions. Why do I have to write two letters instead of one? Do Mr. and Mrs. Claus have different definitions of "good" and "bad"? Why don't the Clauses divide up this task?

Whether or not one believes in Santa Claus, this anecdote may be familiar to readers in the telecommunications world. Both the FCC and the Department of Justice (DOJ) have authority to review telecommunications mergers, leading to a protracted and unpredictable review process. Many have advocated for a simpler review process, but few agree on what changes are best. A majority of scholars suggest that the DOJ should obtain primary authority over telecommunications mergers, while a minority would give it to the FCC.

The minority's view is correct for four reasons. First, the FCC's merger review process is more comprehensive than that of the DOJ. Second, the FCC has more expertise regarding telecommunications. Third, the FCC's merger review process is more transparent than that of the DOJ. Fourth, as an independent agency, the FCC is a more neutral decisionmaker than the DOJ, which is part of the executive branch. The FCC is not perfect, but its weaknesses can be addressed through simple reforms relating to time limits and voluntary commitments. In summary, this Note calls for Congress to pass a law granting the FCC sole authority over mergers involving transfers of telecommunications licenses.

Part II of this Note summarizes the current dual review system and identifies its weaknesses. The leading criticisms of the status quo are, first, that it is inefficient, and, second, that the FCC's use of voluntary commitments is problematic. Part II also provides a survey of suggested reforms, several of which call for the FCC to take on a smaller role than this Note proposes. Part III explains why a larger role for the FCC--paired with reforms to the FCC's own process--is the optimal solution. Part IV concludes that, with common sense reforms that focus on processing time and voluntary commitments, the FCC is well positioned to lead the review of telecommunications mergers.

  1. BACKGROUND

    This section summarizes the dual review system. Sub-Parts A and B explain the FCC's and DOJ's authority to review mergers, focusing on their respective organic statutes, as well as their standards of review. In Sub-Part C, this Note discusses the interaction between the two agencies, which is characterized by inconsistency and a lack of transparency. Finally, Sub-Part D identifies the weaknesses of the status quo, which include a protracted review process, uncertainty stemming from voluntary commitments, and a waste of government resources.

    1. FCC Process and Standard of Review

      Under Sections 214(a) and 310(d) ofthe Communications Act of 1934, (2) the FCC reviews mergers that involve transfers of telecommunications licenses. (3) While small mergers are "granted quickly," large mergers take longer. (4) The FCC aims to review mergers within 180 days, but, as discussed below, it often pauses this "shot clock" due to internal or external delays. (5) The merger review process unfolds in four steps. First, the process begins when the parties file applications with the FCC and the FCC issues a notice permitting the public to submit comments on a transaction-specific webpage. (6) Second, merger applicants respond to public comments, and commenters respond in turn. (7) Third, the FCC requests additional information related to the merger. (8) Fourth, the FCC makes a determination. (9)

      The FCC may decide that a merger would violate a statute or rule, and therefore deny the transaction. (10) The FCC may instead decide that the transaction would serve the public interest if the parties agree to specific conditions," (11) the content of which vary widely. (12) These conditions are frequently referred to as "voluntary commitments." (13) Alternatively, the FCC may decide that the transaction would not serve the public interest--even with voluntary commitments. (14) In this scenario, the FCC "designates" the case to an Administrative Law Judge (ALJ). (15) Most merger applicants withdraw before the hearing, fearing a long and costly battle before the ALJ. (16)

      The FCC's organic statute requires it to decide whether the proposed merger will serve the "public interest, convenience, and necessity." (17) In FCC v. RCA Communications, the Supreme Court grappled with the definition of public interest, admitting that it "no doubt leaves wide discretion and calls for imaginative interpretation." (18) The public interest standard requires the FCC to consider traditional competition concerns, an inquiry consistent with DOJ methods. (19) However, the FCC's review goes beyond competition concerns. (20) In its decision regarding the merger between satellite radio companies Sirius and XM, the Commission summarized its approach to the public interest standard as follows:

      [W]e evaluate whether the proposed transaction complies with the specific provisions of the [Communications Act of 1934, as amended], other applicable statutes, and the Commission's rules. We also consider whether it could result in public interest harms by substantially frustrating or impairing the objectives or implementation of the Act or related statutes. We employ a balancing process, weighing any potential public interest harms of the proposed transaction against any potential public interest benefits. Applicants bear the burden of proving, by a preponderance of the evidence, that the proposed transaction, on balance, will serve the public interest. (21) In summary, the FCC employs a holistic approach that extends beyond competition concerns.

    2. DOJ Process and Standard of Review

      Under the Clayton Act, the DOJ and FTC have authority to review and prevent a merger if its effect "may be substantially to lessen competition, or to tend to create a monopoly." (22) Telecommunications mergers are reviewed by the DOJ, not the FTC. (23) The process begins when the parties submit a notice of the proposed merger. (24) Shortly thereafter, the applicants may avoid further review by divesting themselves of any problematic assets. (25) If the applicants choose not to do this, and the DOJ needs additional information to evaluate the proposed merger, it will issue a request for additional information, also known as a "Second Request." (26) Following the parties' compliance with a Second Request, the DOJ has thirty days to make a decision regarding the transaction. (27) The DOJ may permit the transaction to proceed or negotiate conditions that lessen competition concerns. (28) Alternatively, the DOJ may decide to litigate the issue and seek an injunction from a federal court. (29) The thirty day waiting period can be extended by agreement of the parties. (30)

      The Clayton Act requires the DOJ to apply for an injunction in court if, during the course of merger review, it wishes to prevent the closing of a deal. (31) In practice, however, the DOJ need not always apply for an injunction, as the parties cannot finalize a merger until FCC review is complete. (32) When reviewing potential telecommunications mergers, the DOJ follows Horizontal Merger Guidelines, which are maintained jointly by the DOJ and FTC. (33) The guide states that the agencies should seek to prevent mergers that would "enhance[e] market power." (34) Further, "[a] merger enhances market power if it is likely to encourage one or more firms to raise price, reduce output, diminish innovation, or otherwise harm customers as a result of diminished competitive constraints or incentives." (35) However, this thirty-four-page guide is only the starting point for defense lawyers, as merger review is a "fact-specific process." (36)

      C Coordination Between the DOJ and FCC During Merger Reviews

      Public-facing DOJ and FCC materials say little...

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