Optimizing dual agency review of telecommunications mergers.

• Author: Rinner, William J.

The 2008 merger between XM Radio and Sirius Radio showcased the Federal Communication Commission's (FCC) authority to review proposed mergers and acquisitions. (1) The FCC's merger review authority overlaps with that of the Department of Justice (DOJ), as the Commission conducts its own inquiry into the antitrust justification for the proposed merger--but with a thumb on the scale against approval, requiring merging parties to prove affirmatively that the merger is in the public interest. (2) Justified by the FCC's special expertise in the complex and evolving telecommunications sector, (3) this concurrent authority to conduct antitrust review has provoked critics to charge that any economic benefits and public interest concessions that the FCC obtains are outweighed by the costs of duplicative regulation. (4) The absence of a statutory time limit for the Commission's review threatens to drain telecommunications mergers of their economic benefits.

This Comment suggests a judicial solution to the pitfalls of overlapping antitrust review authority. The Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) provides a waiting period for the DOJ to complete its review before firms above a certain size may consummate their merger. In almost every industry context except FCC review, this deadline's expiration permits firms to merge. The Communications Act of 1934 contains no such provision, so merger review under its substantive authority impairs the procedural impact of the HSR Act. If and when parties appeal FCC merger approval orders to a federal court of appeals, conditions that the FCC adopts after the DOJ statutory review deadline should be held unenforceable. By applying the canon of construction that more recent and specific statutes should govern over generally applicable statutes, holding post-deadline merger conditions unenforceable would serve two central aims. First, it would relieve the statutory tension inherent in having two procedural standards of overlapping review authority, which undermines the HSR Act's goal of expediting complex merger review. (5) Second, it would compel each agency to conduct its analysis pursuant to its comparative advantage rather than to duplicate efforts, while still allowing the FCC to weigh the unique factors that impact the public interest.

1. TWO STANDARDS OF ANTITRUST REVIEW OF TELECOMMUNICATIONS MERGERS

   While the FCC's authority to review telecommunications mergers overlaps with the DOJ's review authority, (6) the standards that each agency employs differ both substantively and procedurally. Under section 7 of the Clayton Act, the DOJ may prohibit any acquisition that may "substantially ... lessen competition, or ... tend to create a monopoly." (7) The HSR Act of 1976 established a formal preclearance mechanism for reviewing mergers that might violate the Clayton Act. (8) Its blanket coverage requires merger preclearance if the newly merged commercial entity "would hold an aggregate total amount of the voting securities and assets" greater than $200 million. (9) One primary goal of the Act was to overcome difficulties in "unscrambling" mergers that occurred before the DOJ or FTC could undertake enforcement action--once transactions were consummated and two companies combined, no effective remedy would be available to undo the merger. (10)

   The HSR Act's preclearance process also ensures timely DOJ review of the proposed merger. Notification of a proposed merger triggers a thirty-day waiting period that allows the DOJ to determine whether the transaction may be consummated. (11) If the DOJ takes no action by the end of the waiting period, the parties may complete their transaction. (12) On the other hand, if the DOJ decides to investigate further the competitive effects of the merger, it may request additional information from the parties before the initial waiting period expires. Upon receiving the requested information, which yields a large volume of documents and testimony from the parties, the DOJ evaluates whether the companies have "substantially complied" with its requests for full documentary information. (13) A finding of substantial compliance triggers a new thirty-day waiting period, in which the DOJ must complete its review. (14)

   Any DOJ challenge to a proposed merger requires the DOJ to bear the burden of proving a violation of the antitrust laws. (15) This procedural posture is crucial--mergers are presumed not to substantially lessen competition absent a contrary showing. Against this backdrop, the DOJ's analysis of proposed mergers results in a predictable standard that allows companies to forecast the benefits of the merger, discounted by the probability of enforcement. Rather than standing as an impediment, the traditional DOJ review process serves as a loose filter for transactions that might substantially undercut competition. (16)

   The FCC reviews potential mergers pursuant to its broad license transfer authority under the Communications Act (17) to determine if the transactions promote "the public interest, convenience and necessity." (18) The public interest standard is construed broadly--the Commission inquires into whether the proposed license transfer might violate any provisions of the Communications Act or "promise[] to yield affirmative public benefits." (19)

   The Commission's review roughly follows the informal adjudication model used for new license applications, (20) though it retains aspects of rulemaking--parties seeking license transfer through merger often must submit supporting materials, interested parties may offer their input through a notice-and-comment process, and FCC staff may request additional documentation. (21) Unlike the DOJ review process, the FCC faces no statutory deadline for completing its review and may request further public comment. (22) A self-imposed 180-day deadline for review (23) is rarely followed, (24) "lead[ing] to long delays that risk undermining the very reasons for a merger." (25)

   The FCC may reach a binary decision on whether to approve a proposed merger outright, or it may request concessions, which are conditions the merging parties must meet to obtain approval. (26) In these cases, merging parties must either negotiate the conditions requested by the Commission staff or risk being subjected to a rare formal adjudicatory hearing whose prospective costs are sufficiently high to deter any proposed merger. By agreeing to the conditions, merging parties sacrifice most avenues for judicial review of the final approval order. (27)

   In determining the range and scope of conditions to seek from the merging parties, the FCC conducts its own antitrust analysis that mimics steps "taken directly from the Horizontal Merger Guidelines issued by the Department of Justice and the [Federal Trade Commission]," probing further into "potential participants in each relevant market" than the DOJ's prospective competition review. (28) This broad antitrust analysis, which focuses on potential, rather than existing, competition, is justified by the agency's industry expertise and forecast of competitive conditions yet to ensue. (29) Courts have upheld the agency's antitrust authority as necessary to be "weigh[ed] ... along with other important public interest considerations." (30)

   In contrast with the DOJ's antitrust review standard, parties seeking FCC merger approval carry a considerably higher burden of proof, under an "amorphous" public interest analysis. (31) The parties must prove affirmatively that the transaction...