U.S. merger review double standards are not smart.
Kudos to Senators Mike Lee and Orin Hatch, and Rep. Blake Farenthold for their leadership and wisdom in advancing the SMARTER Act, H.R. 5402, “Standard Merger and Acquisition Reviews Through Equal Rules.”
Senators Lee and Hatch are right in exposing that there is no good reason for companies to have to confront different standards in enforcing our nation’s laws at the Federal Trade Commission and the Department of Justice. Specifically, Senator Hatch hits the nail on the head in saying, “businesses seeking to merge deserve consistent treatment without regard to which agency decides to review the merger.”
It is common sense that companies in every industry should be able to know in advance what consistent antitrust/competition standard they will face if they decide to merge or acquire.
What is not common sense is that only U.S. communications companies must also suffer a second merger review double standard – the FCC’s Public Interest Test (PIT) for mergers.
Other sectors do not face the redundant burden of securing antitrust agency approval and an additional approval froman independent regulator.
Financial institution mergers do not have get approval from the SEC, CFTC, or the Consumer Financial Protection Board (CFPB). Airline mergers do not have to be approved by the FAA. Health care mergers do not have to be approved by the FDA. Consumer goods company mergers do not have to be approved by the Consumer Product Safety Commission (CPSC). Energy or chemical company mergers do not have to be approved by the EPA. Transportation company mergers do not have to be approved by the Surface Transportation Board (STB).
Only communications companies’ mergers must pass muster with a DOJ/FTC objective legal standard that is accountable to the rule of law, and an FCC subjective political “standard” that is practically unaccountable to the same rule of law.
As I have written before, the FCC’s Public Interest Test (PIT) merger review process is a gross double standard because it is arbitrary, unpredictable, obsolete, discriminatory, and extortionate.
Arbitrary: The utter amorphousness of the FCC’s subjective PIT merger review “standard” makes it inherently arbitrary. With no formal guidelines or limitations, the PIT, and the FCC’s process, has been described as an "empty vessel" and a Rorschach test, because in practice, it has devolved into whatever three unelected FCC commissioners define it to be at any given time. In 2011, the FCC helped to arbitrarily block the pending AT&T-T-Mobile merger in an unprecedented extra-legal manner. FCC staff released a factually-biased draft analysis opposing the merger that completely ignored the Internet's impact on wireless competition. Since the draft analysis was never officially approved by the FCC, the companies had no real due process opportunity in court to appeal for due process.
Unpredictable: With no objective guidelines or binding precedents, the PIT routinely degenerates into an unpredictable ad-hoc, political-free-for-all that begs capricious manipulation by special interests and competitors seeking regulatory advantages. In the case of the proposed Comcast-Time Warner Cable merger, the FCC actually changed the competition “standard” with which it would evaluate and block the merger, almost one-year into the fifteen-month merger review process! Then it radically changed the definition of broadband, from 4 Mbps to 25 Mbps (when the national average was only 10.5 Mbps), so it could exclude from the broadband market four national wireless broadband providers who each offered 5-10 Mbps service to consumers. That FCC merger review was quintessentially unpredictable.
Obsolete: The PIT was originally a 1880s railroad utility regulation concept that the Government applied to radio broadcast licenses in the 1920s, and then automatically to all technological variations of wireless licenses since. The PIT now rests on three obsolete assumptions. First, the PIT approach incorrectly assumed technological innovation could not create competitive alternatives (when cars, trucks and planes became alternatives to railroads, and TVs, computers and the Internet became alternatives to radios). Second, the PIT approach assumed new technologies are natural monopolies requiring regulation, and that facilities-based competition was not possible (when cell phones, cable-telephony, and VoIP became competitors to voice, and when cable, wireless, and satellite became competitors to dial-up Internet service.) Third, the PIT assumed spectrum would remain government property, when Congress changed the law so wireless licenses could be private property that companies could buy and sell.
Discriminatory: The PIT review is unfair because it applies only to transactions, not fairly to all similar situations. Only companies that seek to adapt, grow, and transform via acquisition are subject to one-off regulation via FCC merger conditions. Moreover, it generally applies to companies using licensed spectrum, but not to those who do the same thing via unlicensed spectrum. The DOJ or FTC already review all potentially anti-competitive communications transactions, and afford companies a fair process, reasonable timetable, and the due process of appeal to a court of law. The discriminatory FCC PIT does none of that.
Extortionate: The inherently arbitrary, discriminatory and political nature of the PIT process makes it exceptionally prone to abuse. Special interest groups and competitors routinely ambush companies in the FCC's PIT process because they know the PIT turns companies into proverbial "sitting ducks." The PIT provides political leverage to extort regulatory concessions that could never be achieved in a fair industry-wide rulemaking subject to the rule of law. To add insult to injury, the FCC represents these merger conditions as "voluntary," when everyone involved knows they are coercive.
In sum, the SMARTER Act warrants becoming law with a statutory elimination of the FCC’s unique, redundant, and unnecessary role in merger reviews.
A modern antitrust policy where all competitors face equal merger review rules will best serve consumers, competition, innovation and economic growth.
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Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, a research consultancy for Fortune 500 companies, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests.
