Reforming the FCC

The third principal type of action taken by the FCC is merger review proceedings. Technically speaking, these proceedings are adjudications, but practically speaking, these proceedings are often negotiations where the FCC seeks to leverage its authority to approve the merger to obtain concessions that often have little or nothing to do with the competitive issues raised by the transaction.^[121] In his criticism of this process, former Chairman Powell noted that it “places harms on one side of a scale and then collects and places any hodgepodge of conditions-no matter how ill-suited to remedying the identified infirmities-on the other side of the scale.”^[122] Thus, unlike the Justice Department, the FCC does not make any effort to ensure that there is “a significant nexus between the proposed transaction, the nature of the competitive harm, and the proposed remedial provisions.”^[123] But because the very nature of the proceeding involves “voluntary” concessions, this type of action is outside the scope of judicial review.

In conducting its merger reviews, the FCC often engages in a form of the rushed judgments that it makes at the end of a rulemaking proceeding. Consider, for example, the review of the merger between AOL and Time Warner in 2001.^[124] In that case, the FCC evaluated whether it should impose an interoperability mandate on AOL’s instant messaging service (AIM). In so doing, the agency not only failed to analyze the connection of the remedy to the merger, but it cursorily concluded that it had the authority to regulate in an area outside its traditional mandate. Notably, the FCC concluded that instant messaging and “AOL’s [names and presence database] are subject to our jurisdiction under Title I of the Communications Act.”^[125] As then-Commissioner Powell pointed out in dissent, it was questionable for the FCC to reach such a judgment in haste, as “such a grand conclusion should only be reached after very careful and thoughtful deliberations and full comment by a wide range of interested parties[.]”^[126] As to the merits of the FCC’s action, there were serious questions at the time that its decision was flawed on competition policy grounds.^[127] The passage of two years revealed as much and the FCC decided to remove the condition.^[128]

A second flaw in the FCC’s use of its merger authority is that the willingness of applicants to negotiate “voluntary conditions” facilitates the agency’s tendency to make decisions in an ad hoc manner. Despite the fact that such conditions only apply to the merging parties, the FCC sometimes uses such proceedings to decide issues that are otherwise pending in industry rulemakings-leading to one set of rules for those who have merged and another set of rules for similarly situated parties who have not. Consider, for example, the issue of whether local telephone companies should be required to provide”naked DSL” (i.e., DSL service without providing a telephone line). Rather than address the issue in an industry-wide rulemaking, the FCC used the pendency of two merger proceedings involving the largest telephone companies (AT&T and Verizon) to impose such a requirement on them alone.^[129] Similarly, with respect to network neutrality, the FCC had originally suggested that its Internet policy statement was non-binding;^[130] nonetheless, when SBC and Verizon proposed to merge with AT&T and MCI, respectively, the FCC imposed a condition that the companies agree to abide by follow those principles.^[131] In urging that the agency not operate in this fashion, then-Commissioner Abernathy highlighted that “the customary administrative weaponry in the Commission’s arsenal-rulemaking, enforcement, and so on-does not suddenly evaporate once a merger is approved.”^[132]

The final flaw that often inheres in the FCC’s merger review process is the agency’s practice of accepting a variety of “voluntary conditions” that it later declines to enforce. Consider, for example, the FCC’s decision to condition the merger between SBC and Ameritech on, among other things, SBC’s commitment to entering into thirty markets outside of its region.^[133] The sheer ambition of enforcing such a commitment begs so many questions-what constitutes “real entry,” is a transitory entry sufficient, etc.-that it did not surprise seasoned observers of the agency that there was little or no follow-through on enforcing the commitment. Nonetheless, the agency continues to impose a variety of conditions that are far from self-executing and are outside its normal regulatory mandates, doing so most recently in the merger of XM and Sirius, where the agency imposed a series of conditions ranging from an “a la carte” mandate to a requirement to provide non-commercial channels.^[134] Despite the request of some parties to adopt a specific enforcement mechanism to ensure that such requirements are followed,^[135] the FCC declined to do so, suggesting that, once again, the past may well be prologue in terms of enforcing merger conditions.

It would be unfair to suggest that the FCC’s merger review processes are invariably and necessarily dysfunctional and that they can only be remedied by stripping the agency of such authority altogether. To be sure, former Commissioner Harold Furchtgott-Roth has made this very claim.^[136] This position, however, overlooks that there are successful cases of FCC merger review and the agency’s oversight of mergers can be a productive part of the process.^[137] Consider, for example, the FCC’s review of the News Corp./DirecTV merger. In the case, the agency stuck to devising competition policy remedies that were necessitated by the merger.^[138] Notably, the Justice Department concluded that the FCC action “addresse[d] the Department’s most significant concerns with the proposed transaction[]” and the FCC’s action justified its decision to close its investigation.^[139] In imposing a set of conditions as part of clearing the merger, the FCC did not adopt a standalone regime that it would be unlikely to enforce, but rather imposed a set of requirements that were harmonized with its existing regulatory requirements.^[140] Finally, as for the rules imposed as part of the merger that had no counterpart in the FCC’s regulatory requirements, the agency developed a special procedure of the kind it declined to adopt in the XM/Sirius matter-i.e., it instituted an arbitration regime with appeal to the Commission.^[141]