The FCC Racket

By Harold Furchtgott-Roth

Published in The Wall Street Journal

Friday, November 5, 1999

It\'s difficult to think of a large communications firm that hasn\'t at
least discussed a merger over the past few years. In each case,
companies, legislators and the media chant the mantra: This merger would
require Federal Communications Commission approval.

This is simply false. Although the FCC has limited authority to review
certain mergers under the Clayton Act, the agency has never invoked that
authority during the recent spate of condition-laden FCC \"merger
approval\" orders. Invoking the Clayton Act requires the commission to
undertake the uncertainty and expense of winning a court case in order
to block any deal. The Justice Department and the Federal Trade
Commission are subject to these rigorous standards and the corresponding
limitations imposed by antitrust precedent. But the FCC, extracting
itself from that legal shackle, has created a merger approval
\"process\" that is lawless, standardless and endless.

Under the law, no merger requires FCC approval. Companies are required
to apply only to transfer FCC licenses, much like changing title to an
automobile. The FCC routinely processes tens of thousands of
license-transfer applications annually with nary a whimper. But
periodically the agency singles out a few, particularly those associated
with the mergers of large, heavily regulated companies, for \"special\"
treatment.

This treatment is virtually indefinable, but inordinately powerful: It
brings companies to their knees begging for \"voluntary\" conditions
that drive up their costs of doing business. The process itself is both
arbitrary and indecipherable. The commission has no consistent rules on
the handling of license transfers, and it asserts this limitless
authority without deadlines or accountability. Because the conditions
are \"voluntary\" and the merger is time- sensitive, firms are virtually
barred from seeking judicial review.

Consider the recent case of SBC\'s request to acquire Ameritech\'s FCC
licenses. An initial review revealed no violation of federal law or FCC
rules. Yet with no official written notice, one commission official
publicly pronounced that the transfers were outside the public interest
\-- without defining what the \"public interest\" is.

SBC and Ameritech sensed that their transaction was in peril, but they
had no clear explanation why. What to do? Demand written clarification?
Go to court to challenge the process? Tell Congress and the media of the
mistreatment?

If recent history is any guide, none of the above. Instead, CEOs
privately contact the FCC and find out the ransom price to free their
licenses. They do not publicly complain too much because that would
annoy the FCC, which has ultimate regulatory control over their
business, both today and tomorrow. They do not go to court, out of fear
that the corresponding delay will sink this and future deals. They
cannot allow anything \-- no matter how arbitrary and demanding \-- to
threaten their mergers.

What does the commission want? Don\'t expect it to be written down
anywhere, because a written quid pro quo might be illegal. Commission
staffers engage in months of secret negotiations without a clear written
record of what is being negotiated or why. The FCC issues public
pronouncements about open processes, and yet denies anyone from the
public access to, or minutes from, the secret meetings. Then,
remarkably, a complex and detailed set of \"voluntary\" promises are
submitted to the FCC for approval. Like puffs of smoke from the Vatican,
it is a sign: The deed is done.

Initially, of course, the merging companies had filed documents to prove
that the license transfers are in the public interest without any
conditions. But after a few months of private FCC meetings, these
companies discover that their shareholders and the public interest will
be advanced only by volunteering to a condition-laden transfer.

In the SBC/Ameritech merger, most of these conditions were neither
consistent with the law nor more stringent. Some conditions require the
companies to discriminate among different customers, thereby violating
federal law. All these conditions are to occur after the license
transfers. They are little more than promises of future behavior,
whether for good or ill. And the conditions are often not even remotely
related to the actual licenses being transferred.

The \"proposed\" conditions are then sent out for public comment. This
is often only a pro forma exercise. For example, most of the competitors
of SBC/Ameritech were adamantly opposed to the conditions. They argued
that they were better off to have the licenses transferred to SBC
without any conditions, but with the full and unambiguous protection of
the law. Yet not a single substantive change to the conditions was made
after public comment.

The results can be even more disturbing than the process. For three
years, SBC/Ameritech will be a regulatory Frankenstein, different from
every other regulated entity in America. It will have all of the
trappings of a regulated telecommunications carrier, plus FCC-blessed
regulatory appendages in every shape and form. Customers and regulators
can throw away their copies of the Communications Act and the
commission\'s regulations. The real rules are now in the FCC\'s orders
approving this particular transaction.

What happens if SBC/Ameritech fails to meet the conditions? Then the
company could owe \$2 billion in \"voluntary\" payments to the federal
government or to charitable institutions. These payments are not
\"fees,\" because no government service is provided in return, nor are
they \"fines\" or \"penalties,\" because no federal law or regulation
would be violated. A company could not lawfully approach a member of
Congress or the administration \-- or vice versa \-- and ask for
favorable consideration in return for such \"voluntary\" contributions.
Yet no one has dared to ask about the enforcement of these payments.

This elaborate ruse \-- merger authority, voluntary conditions, and
public involvement \-- has created a self-perpetuating myth that the FCC
has far- reaching authority to sanction or reject mergers in the public
interest. In fact, the only thing that clearly emerges from the FCC\'s
merger review process is that the public has no interest in this sham.