OPENING STATEMENT
of
MICHAEL K. POWELL
Commissioner
Federal Communications Commission

Before the
Subcommittee on Telecommunications, Trade
and Consumer Protection of the House Committee on Commerce
on
The Telecommunications Merger Act of 2000




Tuesday, March 14, 2000

10:00 a.m.

2322 Rayburn House Office Building

	Good morning, Mr. Chairman and other distinguished members of the House 
Subcommittee on Telecommunications, Trade and Consumer Protection.  Thank you for inviting 
me here to testify on the Telecommunications Merger Review Act of 2000.

	The FCCs merger review process is rightly the subject of various reform efforts.  It is 
the topic of several pending bills in the House and Senate, and is now the focus of an FCC Team.   
Reforming the FCCs role in mergers is timely, as the blinding pace of strategic consolidations in 
telecommunications and media markets continues unabated.  I appreciate this opportunity to 
offer my views about the fundamentals of a sound and more efficient merger review process.  
After providing some background, I will discuss three broad areas where reform should be 
considered:  (1) the duplication of merger review between the FCC and U.S. antitrust authorities; 
(2) the standards applied by the FCC to mergers and the selection of conditions; and (3) the 
FCCs review process, including its timeliness.   Although I know that there is a specific 
proposal that is the subject of this legislative hearing today, my remarks will focus on these 
broad areas of concern and offer several reform options for each area.

I. Background
	The FCCs authority to review license transfers derives principally from various sections 
of Title III of the Communications Act of 1934 (entitled Provisions Relating to Radio) that 
direct the Commission to review applications to transfer licenses and determine whether the 
public interest, convenience, and necessity will be served by the granting of such application . . 
..   If the Commission so finds, it must grant the application.  Section 214 of the Act is the 
source of authority for approving applications for the acquisition and transfer of lines by 
common carriers.   Thus, strictly speaking, the precipitating event for our review is a request to 
transfer licenses and lines from one company to another.  We are not, it should be emphasized, 
specifically directed by Congress to review the potential anticompetitive effects of the 
underlying transaction itself.

	Nonetheless, the Commission, over time, has come to interpret its obligation to make an 
affirmative finding that a license transfer is in the public interest as a fairly broad mandate to 
shift the public interest burden to the applicants and to review the benefits and harms of the 
transaction itself.    In selected transactions, this has come to include comprehensive merger 
analysis.  That is, an evaluation of the competitive benefits and harms of the entire transaction 
rather than a more limited determination that the lines and licenses would be put to valued public 
use.  

	It is useful to contrast FCC review with that of the federal antitrust authorities 
(Department of Justice and the Federal Trade Commission).  The FCCs review is not formally 
rooted in the antitrust statutes and thus is not bound by judicial precedents in that area.  In fact, 
the courts have held that the Commission's decision that a license transfer is in the public 
interest is entitled to substantial judicial deference.   Additionally, while the antitrust 
authorities must sue companies in court to block a merger they believe is harmful, the FCC may 
block a merger (technically a license transfer) on its own, with limited, if any, judicial review.  
Moreover, this difference affects the burden of proof.  The antitrust authorities must prove their 
case by a preponderance of the evidence to block a merger, whereas the FCC places the burden 
on the applicants to affirmatively prove the transaction is pro-competitive, a fairly recent 
pronouncement. 

II.	Duplication of Merger Review Functions
	Proponents of FCC review in defending the duplicative merger review process often cite 
the distinctions I have just outlined.  However, the actual differences in analysis and outcome 
when one examines actual cases are substantially less.  In most cases, the FCCs review follows 
the same line of analysis as that found in the merger guidelines employed by the antitrust 
authorities.  We define product and geographic markets, we evaluate market power in those 
markets, we propound on the anticompetitive effects of the combination, and we consider 
efficiencies and barriers to entry to mitigate those effects.  In the main, there are no meaningful 
differences in the analysis among the agencies.  Thus, despite the different foundations, 
procedures and standards among the respective authorities, the evaluations by the FCC and the 
antitrust authorities are largely duplicative.   This imposes significant costs on a transaction. The 
costs to the parties include greater uncertainty of result, increased legal costs to defend a 
proposed transaction before multiple agencies, and greater uncertainty of time before closure.  
The government bears a cost as well with the duplicative expenditure of resources inherent in 
concurrent jurisdiction.  In the FCCs case, scarce resources are diverted from other critical 
activities, for example section 271 applications. 

	This is not to say, however, that there is no role for the expert agency in some 
transactions. There are communications policies that may be implicated by a license transfer that 
are not encompassed in antitrust statutes and, thus, given little consideration by the antitrust 
authorities.  The classic example is the impact on diversity of voices, when media licensees 
merge.  Congress has often chosen to protect such values, even where a consolidation might not 
raise classic concentration concerns.   In these cases, the FCCs review does not duplicate that of 
the antitrust authorities.

	In sum, while todays duplicative merger process within the federal government needs to 
be reformed, I believe that there is room to preserve a role for the FCC that is more 
complimentary or supplementary.  The Commission should be constrained to consider only 
issues such as whether the merger would violate an express provision of the Communications 
Act or the Commissions rules.  In addition, it is appropriate for it to consider the merger's 
impact on other communications policies such as media diversity and universal service that are 
not appropriately considered by antitrust authorities.  However, I believe that the Commission 
should be required to defer to the antitrust authorities competitive analysis and leave it up to 
them (and the courts) to address specific competitive harms that they identify.
	
	Finally, a full-blown merger review is not the only way for the FCCs expertise to come 
to bear.  The Commission could file comments with the appropriate antitrust authority reviewing 
a merger or issue an advisory opinion on a given merger.

Reform Options
? Require deference to antitrust authorities competitive analysis.  Permit FCC to file 
comments with antitrust authorities in communications transaction.

? Limit FCC review to questions about whether the combined company would be in 
compliance with the Communications Act, and matters that are not fairly encompassed in 
the Clayton and Sherman Acts.

II. Review Standards and Conditions
There are two areas in which standards come into play.  First, there is a serious question 
about what standards the Commission employs for determining which license transfers receive 
extensive merger evaluation.  Commissioner Furchtgott-Roth has spoken extensively about this 
problem and I will not repeat his criticism, but I do agree that the Commissions process on this 
point is vulnerable to challenge as arbitrary.  The second standard issue involves the standard 
under which we review mergers: the public interest standard.

	The public interest standard has been a part of the law since the inception of the 
Federal Radio Commission and, its successor, the FCC.  This standard was introduced to 
communications regulation in a time when scholars and Congress believed in the supremacy of 
regulators in ordering economic relationships.  But we are now in an era just after the pro-
competitive, deregulatory 1996 Act in which Congress sought to remove decisions from the 
"enlightened regulator" to the market.  It is hard to imagine a member of Congress today 
expressing the view articulated by Senator Clarence Dill, in the 1927 Radio Act debates, that the 
public interest standard would gain meaning by the staffing of the Commission with "men of big 
abilities and big vision."   

	I am substantially less comfortable than Senator Dill with a standard that depends heavily 
on the quality and vision of those who happen to occupy a Commission seat at any given time.  
The standard clearly lacks guiding principles that can more predictably govern Commission 
decisions.  Whatever the merits of the standard in some contexts (and there are some), I believe 
its application to merger analysis is flawed.  Particularly, since its has been employed as a simple 
balancing process that weighs the potential public interest harms of the proposed transaction 
against its potential public interest benefits.

	Consistent with my long-standing concerns regarding our license transfer process, I have 
fundamental difficulties with the public interest standard as developed and applied in the 
Commissions merger reviews.  Simply put, I am very uncomfortable with a standard that places 
harms on one side of a scale and then collects and places any hodgepodge of conditionsno 
matter how ill-suited to remedying the identified infirmitieson the other side of the scale.  This 
balancing approach leads to a number of problems:  First, the approach creates a great temptation 
to load up the benefits side of the scale with a big wish list of conditions that are non-germane to 
the mergers harmful effects.  Second, the approach makes it easier for identified harms, even 
significant ones, to be visited upon the public in exchange for other benefits.  Third, the 
conditions that are sought are more often surrogates for policies and rules of general, rather than 
merger-specific, applicability, but without the extensive deliberative process and the check of 
judicial review normally afforded a rulemaking.   


A.	The Problem of the Mountain and the Pebble 

To conceptualize the problems with the public interest standard when reviewing a license 
transfer (i.e., a merger), consider a simple balancing scale of the see-saw variety.  On the left 
side of the scale are public interest harms and, on the right, public interest benefits.  The 
balancing approach requires that the benefits outweigh the harms.  If the harms weigh but an 
ounce more than the proposed benefits, the standard (if faithfully applied as articulated) would 
require us to block the merger.  This approach is troubling on one level, for if the government 
were neutral with respect to the asserted benefits, it still could be compelled to stop a merger 
based on essentially negligible harms.  This has led me to believe that perhaps the FCC should 
bear the burden of demonstrating a basis for blocking or conditioning a merger (much as the 
antirust authorities do) rather than placing an affirmative duty on applicants to show their 
combination is pro-competitive.

The more serious problem arises with the public interest scale, however, when the 
Commission, rather than weighing the harms against the proffered benefits, attempts to tip the 
balance by adding weight to the benefits platter with conditions.  The public interest standard, 
as the Commission applies it, does not require that the conditions cure or remedy the identified 
harms.  The conditions need only outweigh the harms.  Thus, the Commission is free to 
compensate for a pebble of harm on one side of the public interest scale by throwing a mountain 
of purportedly beneficial conditions on the other side of the scale.  In other words, when 
conditions are not calibrated to remedy harms, there is no constraint on how voluminous or 
unrelated they might be.  The consequence of this approach is that the slightest harm opens up a 
quarry of would-be-nice-to-haves that can be piled on the scale.  Moreover, the coercive effect 
of having the applicants over a barrel hoping to gain merger approval dramatically improves the 
chances that the companies will agree to abide by the conditions.  Thus, the temptation and the 
enticement to stack the scale with precious gems is irresistible to competing companies, interest 
groups and the Commission itself.

B.	Poor Joshua! 
The second difficulty I have with the Commissions merger standard is that in theory, it 
will allow a merger to go forward that it finds will harm the public, as long as the public gets 
something good in return.  In the humorous extreme, one could analogize this to allowing a 
stranger to beat your dog as long as he commits to giving the dog a bone and some fun squeaky 
toys.  No doubt, the "ol boy" has been quite anxious to get a bone and add to his saliva-laden 
collection of playmates, but not at the expense of a beating.  Of course, this analogy is perhaps 
less humorous if one assumes that the public interest is entitled to better treatment than your dog.

Jests aside, the point is that when merger conditions are not designed to remedy harms, 
all the unrelated benefits in the world will not cure the loss to the public. If one is convinced of 
the significance of a proposed mergers harms, it is unsettling that the merger would proceed 
without significantly mitigating those harmful effects with remedial conditions.  

C.	Wither Thoughtful Deliberation?
I think it a profound mistake to use license transfer proceedings as a way to advance 
policies of general applicability that are otherwise, and more appropriately, the subject of 
rulemakings.  My reasons are three:

First, no matter how much we try to include other parties, a merger review is primarily an 
intimate, bilateral dance between the government and the applicants.  The nature of this dance is 
one of negotiation. Where there are some harms and the question is finding a set of conditions 
that will allow the merger to proceed, the tango proceeds until there is a meeting of the minds 
between the government and its suitor.  The parties inevitably go back and forth in an effort to 
find a compromise where the government gets a satisfactory list of conditions, but not so many 
that the applicants walk away from the deal.  Thus, the process is not sufficiently fulsome to 
broach broader policy questions.  The point also shows the importance of requiring conditions to 
be merger specific. 

Second, by importing parts of rulemakings and transforming them into merger 
conditions, we risk substantially confusing both the industry and state commissions with respect 
to rules previously adopted. The conditions often overlap significantly with many of our ongoing 
proceedings to implement the Telecommunications Act of 1996.  In tackling these other 
proceedings, the Commission must consider more than the interests of the merging parties. 
Relying on conditions that overlap with more general proceedings will require us to distinguish 
carefully this conditioning exercise from our broader duties under the Act. 

Third, I personally am uncomfortable essentially promulgating rules without the 
deliberative process of notice and comment normally afforded in a comprehensive rulemaking.  
Moreover, I think it unacceptable to pursue matters as conditions where they are insulated from 
judicial review.  In a classic rulemaking, parties have the right to petition for review in court.  
But when a merger is approved with conditions, the applicants are unlikely to pursue a challenge 
to terms that regulators will claim they acceded to voluntarily as the price for gaining 
favorable approval.
 
Finally, I do not subscribe to an essential assumption of this process, that is, the idea that 
a regulated entity can voluntarily offer and commit to broad-ranging legal obligations and 
penalties.  There is never anything voluntary about the regulatory relationship.  And, even if 
there were, I do not believe that the guiding structures of the regulatory process (either 
rulemaking or adjudication) should be supplanted by a unilateral offer from a license transfer 
applicant.

Reform Options

? Establish standards or thresholds for determining which, if any, license transfers should 
be subject to more comprehensive review.

? Establish guiding principles to curtail the breadth of the public interest standard.

? Require conditions to either cure a violation of the statute, or remedy clearly identified 
public harms.

? Place the burden on the Commission to demonstrate that a license transfer would not be 
in the public interest.


III. Process

	This brings me to my last area of consideration, the process of reviewing mergers at the 
FCC.  Chief among the concerns of parties contemplating merger transactions is how long will it 
take to get through all of the regulatory hurdles.  This is especially concerning to a competitive, 
technology-focused industry that is now running on Internet time.  I believe that reform in the 
substantive areas I have already discussed could alleviate much of the delay of major 
transactions caused by monkeying with competitive issues that are not within our core expertise, 
inviting and addressing all sorts of non-germane challenges and negotiating voluntary 
conditions.  But the process itself also needs examination.

	The FCC Office of General Counsels Transactions Team has recently proposed a 180-
day timeline for completing our review of major transactions.  Under the staffs proposal, the 
clock would start at the release of the FCC staffs Public Notice announcing the applications 
underlying the transaction have been accepted for filing and inviting the filing of petitions and 
comments.  I applaud the Commissions self-initiated efforts in this area, though much work 
remains to be done.
 
	Some of the pending legislative initiatives that have been offered, including the measure 
that is the subject of this hearing today, would require the Commission grant or deny the merger 
applications within a set period (e.g., 90 days) from the date the application is filed.  I believe the 
current statute itself offers some guidance as to how to structure the chronology of review.  I 
would note that section 5(d) of the Communications Act, added by Congress in the early 50s, 
provides for a non-binding objective of rendering a final decision (1) within three months from 
the date of filing in all original application, renewal, and transfer cases in which it will not be 
necessary to hold a hearing, and (2) within six months from the final date of the hearing in all 
hearing cases.  In addition, Section 309 of the Act, especially subsections (d) and (e), provide a 
well-understood process of handling all Title III applications and oppositions thereto.
  
	I believe that time constraints are wise, but must not be completely rigid or unbending.  
Mergers are fact intensive reviews that are not always easily boxed into particular time windows.  
Moreover, short time frames may be fine for pro-competitive mergers, but in the face of real 
public harm, it is important for the government to act thoroughly and decisively.  Short time 
frames may also allow the parties to game the process to deny the Commission the information it 
needs to make an informed judgment in order to run out the clock.  I think the more prudent 
approach is to set clear temporal benchmarks and require the full Commission to authorize any 
further review, and then only for limited blocks of time.   Let me offer an example:
(1) Filing and Quick-look:  Once an application is filed, the appropriate Bureau will give 
the application a quick-look to ensure the application is complete.  If so, the application 
is accepted and placed on public notice (within 5 to 10 business days).

(2) Comment Period:  For 30 days, parties in interest have an opportunity to petition to 
deny the application under section 309,  and the applicant will be afforded the 
opportunity to file a reply.

(3) Stage 1 Review:  After the comment period ends the bureau will review the application 
to determine if the transfer would result in public harms (45 to 60 days).

(4) Commission Review:  At the end of stage 1 review, the Commission by formal action 
must either:

(a) Grant the application (and denying the petitions to deny) with or without conditions;

(b) Authorize further investigation by the staff for a defined interval (e.g., 60 days), 
triggering stage 2 review, with perhaps additional comment; or 

(c) Designate the application for administrative hearing in accordance with section 309 
of the Communications Act and applicable provisions of the Administrative 
Procedures Act.  (Congress could authorize a less onerous paper hearing, than a 
hearing on the record.)

(5)	Decision:  The vast majority of cases should take no longer than 60 to 90 days.  In the 
most complex cases, where significant and germane public harms have been identified in 
the Stage 1 review, our final decision should be rendered within six to nine months from 
the filing of the application.

IV. Conclusion


	I look forward to continuing to work with Members of Congress and with my colleagues 
on the scores of transactions that are likely to come before us and the initiatives to reform this 
process. 

	Thank you for your attention.  I will be happy to answer any questions you may have.
  47 U.S.C.  309(a); id.  308, 310(d). Though we do have some express antitrust authority under the Clayton Act, 
to my knowledge the FCC has rarely (if ever) invoked such authority as the basis for reviewing a merger merger. 
See 15 U.S.C.  21(a).

  See 47 U.S.C.  214(a)-(d).

  See, e.g Applications of Ameritech Corp., Transferor, and SBC Communications, Inc., Transferee, For Consent to 
Transfer Control of Corporations Holding Commission Licenses and Lines Pursuant to Sections 214 and 310(d) of 
the Communications Act and Parts 5, 22, 24, 25, 63, 90, 95, and 101 of the Commission's Rules, CC Docket 98-141, 
Memorandum Opinion and Order, 14 FCC Rcd 14712 (1999); Applications For Consent to the Transfer of Control 
of Licenses and Section 214 Authorizations from Tele-Communications, Inc., Transferor to AT&T Corp., 
Transferee, CS Docket No. 98-178, Memorandum Opinion and Order, 14 FCC Rcd 3160 (1999); Application of 
WorldCom, Inc. and MCI Communications Corporation for Transfer of Control of MCI Communications 
Corporation to WorldCom, Inc., CC Docket No. 97-211, Memorandum Opinion and Order, 13 FCC Rcd 18025 
(1998); Applications of NYNEX Corporation Transferor, and Bell Atlantic Corporation Transferee, For Consent to 
Transfer Control of NYNEX Corporation and Its Subsidiaries, File No. NSD-L-96-10, Memorandum Opinion and 
Order, 12 FCC Rcd 19985 (1997).
 
  SBC Communications, Inc. v. FCC, 56 F.3d 1484, 1490 (D.C. Cir. 1995), quoting FCC v. WNCN Listeners Guild, 
450 U.S. 582, 596 (1981).

  See Applications of NYNEX Corporation, Transferor, and Bell Atlantic Corporation, Transferee, for Consent to 
Transfer Control of NYNEX Corporation and its Subsidiaries, File No. NSD-L-96-10, Memorandum Opinion and 
Order, 12 FCC Rcd 19985, 19994, 20061,  16, 153 (1997).  But see also Applications of Pacific Telesis Group, 
Transferor, and SBC Communications, Inc., Transferee, for Consent to Transfer Control of Pacific Telesis Group 
and its Subsidiaries, Report No. LB-96-32, Memorandum Opinion and Order, 12 FCC Rcd 2624 (1997).  Eight 
months before the Bell Atlantic/Nynex decision, the Commission concluded in the SBC/PacTel proceeding that the 
proposed transfer will result in pro-competitive effects, efficiencies, and other public interest benefits that could be 
real but, if they occur, will not likely be dramatic. We emphasize that it is not these benefits of the proposed transfer, 
but rather its lack of any significant and foreseeable anti-competitive effects, that has led us to approve it. Id. at 
2661  84 (emphasis added).

  I would call the Committees attention to a recent report issued by the Department of Justices International 
Competition Policy Advisory Committee, which specifically addresses the overlapping merger-related functions of 
the U.S. antitrust authorities, sectoral regulators like the FCC, and the states.  See Final Report, Justices 
International Competition Policy Advisory Committee to the Attorney General and Assistant Attorney General for 
Antitrust at 142-154 and Annex 3-B.

  It is important to note that the FCC has substantially fewer people trained in competitive analysis to review 
mergers than does DOJ or the FTC.

  See, e.g., 47 U.S.C.  533 (Cable Television Ownership Restrictions) and Pub. L. No. 104-104,  202 (Broadcast 
Ownership).
  A fuller recitation of my critique of standards and conditions can be found in my separate statement, dissenting in 
part, in the SBC/Ameritech merger Order.
   This famous refrain is drawn from DeShaney v. Winnebago County Dept. of Social Services, 489 U.S. 189 (1989) 
(J. Blackmun, dissenting) (holding that state had no constitutional duty to protect Joshua, a child, from his father 
after receiving reports of possible abuse).  In DeShaney, Justice Blackmun wrote:  Poor Joshua!  Victim of repeated 
attacks by an irresponsible, bullying, cowardly, and intemperate father, and abandoned by respondents who placed 
him in a dangerous predicament and who knew or learned what was going on, and yet did essentially nothing except 
. . . dutifully record[ ] these incidents in [their] files.  Id. at 213.
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