Merger Review Authority of the Federal Communications Commission

Congressional research reportDec 8, 2009

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Merger Review Authority of the Federal

Communications Commission

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Legislative Attorney

December 8, 2009

Congressional Research Service

7-....

www.crs.gov

RS22940

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Prepared for Members and Committees of Congress

Merger Review Authority of the Federal Communications Commission

Summary

With the proposed merger between Comcast and NBC/Universal announced recently, Congress

has expressed an interest in the process of merger reviews at the Federal Communications

Commission (FCC or Commission). This report will explain the merger review process at the

FCC, as well as highlight some of the difference between the FCC’s process and the more

traditional antitrust merger review conducted by agencies such as the Department of Justice

(DOJ) or the Federal Trade Commission (FTC).

Whenever companies holding licenses issued by the FCC wish to merge, the merging entities

must obtain approval from two federal agencies: the DOJ and the FCC. The Commission and the

DOJ do not follow precisely the same process or reasoning when examining the potential effects

of proposed mergers. Though both agencies have the authority to proceed under the antitrust laws

(as the DOJ must), the Commission generally chooses to examine proposed mergers under its

Communications Act authority to grant license transfers. The act permits the Commission to grant

the transfer only if the agency determines that the transaction would be in the public interest. The

public interest standard is generally broader than the competition analysis authorized by the

antitrust laws and conducted by the DOJ. Therefore, the Commission possesses greater latitude to

examine other potential effects of a proposed merger beyond its possible effect on competition in

the relevant market, and greater latitude when placing conditions upon the proposed transfer of a

license than the DOJ may have when placing conditions upon the proposed merger that

necessitates the license transfer.

Congressional Research Service

Merger Review Authority of the Federal Communications Commission

Contents

Introduction ................................................................................................................................1

Sources of Commission Merger Review Authority ......................................................................1

Commission License Transfer Review Process and the Public Interest Standard ..........................3

Negotiated Conditions on Telecommunications Mergers..............................................................5

Contacts

Author Contact Information ........................................................................................................6

Congressional Research Service

Merger Review Authority of the Federal Communications Commission

Introduction

Companies holding licenses issued by the Federal Communications Commission (FCC or

Commission) are in a unique position when they seek to combine. In the United States, when

most corporations plan to merge, the proposal is reviewed by only one of two federal agencies,

the Department of Justice (DOJ) or the Federal Trade Commission (FTC) (which agency reviews

the merger proposal depends on the outcome of a process known as “clearance”).1 Companies

holding FCC licenses, on the other hand, must obtain approval from two federal agencies in order

to consummate a merger: the DOJ2 and the FCC. Though both agencies analyze the potential

effects on competition a proposed merger may have, their processes differ, sometimes

substantially. This report will focus on the FCC’s authority to approve mergers and its process for

reviewing these proposed transactions.

Sources of Commission Merger Review Authority

The Commission has authority under Sections 7 and 11 of the Clayton Act to review the proposed

mergers of common carriers.3 Specifically, the Commission may disapprove proposed mergers of

“common carriers engaged in wire or radio communication or radio transmission of energy”

where “in any line of commerce or in any activity affecting commerce in any section of the

country, the effect of such acquisition may be substantially to lessen competition, or to tend to

create a monopoly.”4

The Commission also finds authority to review mergers through its power to approve or deny the

transfer of the licenses it issues under the Communications Act. Sections 214(a) and 310(d) of the

Communications Act require the Commission to deny the transfer of licenses if the Commission

determines that the transfer is not in “the present or future public convenience and necessity”5

under §214(a) or is not in the “public interest, convenience and necessity”6 under §310(d). This

standard is widely referred to as the “public interest” standard.

Although the Commission has explicit authority under the Clayton Act to review the proposed

mergers of certain common carriers, it does not seem to have ever utilized that authority. 7 The

Commission most often proceeds solely pursuant to the Communications Act, because that

The FTC and DOJ have agreed that, to avoid unnecessary duplication, neither agency would proceed until the other

agency “cleared” the investigation to it. The “clearance” policy, recently revised in 2002, is embodied in the

Memorandum of Agreement Between the Federal Trade Commission and the Antitrust Division of the Department of

Justice Concerning Clearance Procedures for Investigations and is available online at http://www.ftc.gov/opa/2002/02/

clearance/ftcdojagree.pdf[hereinafter, Clearance Agreement].

Id. The Clearance Agreement identifies the DOJ as the agency that, generally, will gain clearance to investigate media

mergers, though the FTC may, in certain circumstances, obtain clearance to investigate.

Codified as 15 U.S.C. §§ 18, 21(a).

15 U.S.C. §§ 18, 21(a).

47 U.S.C. § 214(a).

47 U.S.C. §310(d).

In United States v. Federal Communications Commission, the United States Court of Appeals for the District of

Columbia held that it was in the agency’s discretion to institute enforcement proceedings when the agency had reason

to believe a violation of the Clayton Act was occurring. 652 F.2d 82, 85-86 (D.C. Cir. 1980).

Congressional Research Service

Merger Review Authority of the Federal Communications Commission

authority “necessarily subsumes and extends beyond the traditional parameters of review under

the antitrust laws.”8 Indeed, courts have “insisted that the agencies [given licensing and

regulatory authority over industry] consider antitrust policy as an important part of their public

interest calculus,” though they are not bound by the dictates of antitrust laws.9 Not only must the

Commission consider competitive effects in its public interest calculus, but the threshold required

for a transaction to be approved is higher under the public interest standard than under traditional

antitrust laws.

Proposed mergers that are reviewed under the Communications Act are held to a higher standard

when examining their potential competitive effects than the same proposed transaction would be

under the antitrust laws.10 Under the Clayton Act, if the reviewing agency decides not to approve

a proposed merger, the agency must either reach a remedial agreement with the parties or file suit

to block the merger in federal court where the agency will bear the burden of persuading the court

that the proposed merger will have substantial anticompetitive effects.11 Not only must the

government prove that the merger will decrease competition as compared to the current market, 12

but the government must prove that the proposed merger will substantially decrease

competition.13 This standard seems to indicate that proposed mergers that will be competitively

neutral (preserve the current level of competition) would not violate the Clayton Act. In contrast,

under the license transfer provisions of the Communications Act, the parties proposing to merge

(as opposed to the reviewing agency) bear the burden of persuading the Commission14 that the

merger would enhance (rather than merely preserve) competition.15 This standard that suggests a

competitively neutral merger (which likely would be approved under the Clayton Act) could be

denied by the Commission when acting under its Communications Act authority. The

Commission reasons, therefore, that a review pursuant to the Communications Act’s public

interest standard renders the exercise of the Commission’s Clayton Act authority unnecessary.16

In the Applications of NYNEX Corporation Transferor, - and - Bell Atlantic Corporation Transferee, For Consent to

Transfer Control of NYNEX Corporation and Its Subsidiaries, 12 FCC Rcd 19985 -19987 at ¶ 2 (1997) [hereinafter,

NYNEX -Bell Atlantic Order].

U.S. v. FCC, 652 F.2d at 88 (citing Northern Natural Gas Co. v. FPC, 399 F.2d 953, 959 (1968)).

See In the Matter of Applications for Consent to the Transfer of Control of Licenses XM Satellite Radio Holdings Inc,

Transferor to Sirius Satellite Radio, Inc., Transferee, Memorandum Opinion and Order and Report and Order, MB

Docket No. 07-57 at ¶ 32 (2008).

15 U.S.C. § 18a.

See United States v. Baker Hughes, Inc., 908 F.2d 981, 983 (D.C. Cir. 1990) (“The ultimate burden of persuasion ...

remains with the government at all times.”).

15 U.S.C. § 18.

47 U.S.C. §309(e) (burdens of proceeding and proof rest with the applicant).

See In the Matter of Applications for Consent to the Transfer of Control of Licenses XM Satellite Radio Holdings

Inc., Transferor to Sirius Satellite Radio, Inc., Transferee, Memorandum Opinion and Order and Report and Order, MB

Docket No. 07-57 at ¶ 32 (2008); MCI -BT Order, 12 FCC Rcd at 15354, ¶ 3; NYNEX -Bell Atlantic Order, 12 FCC

Rcd at 19987, ¶ 2.

In the Matter of the Merger of MCI Communications Corporation and British Telecommunications, PLC, 12 FCC

Rcd 15351-15354 ¶ 30 (1997) (hereinafter MCI -BT Order).

Congressional Research Service

Merger Review Authority of the Federal Communications Commission

Commission License Transfer Review Process and

the Public Interest Standard

When attempting to receive approval for the transfer of relevant licenses in the context of a

merger, the merging companies must submit an application for the transfer of all relevant licenses

and certifications to the Commission.17 The Commission, after receiving input from the public,

then reviews the proposed transfer to determine whether it will serve the “public interest,

convenience and necessity” as required by the Communications Act. The Commission is not

required to complete this review in any set period of time, but has created an “informal timeline”

of 180 days for consideration of license transfers.18 The amount of time required to analyze

license transfers is dependent upon the complexity of the proposed transaction and the intricacy

of the public interest analysis it may require, and the 180-day goal is not always met.19

The public interest standard of the Communications Act generally is considered to be an

amorphous standard, and, as noted above, is broader in scope than traditional antitrust standards.20

The Supreme Court has stated that the public interest standard “no doubt leaves wide discretion

and calls for imaginative interpretation.”21 The Commission, therefore, has found that the public

interest standard “necessarily encompasses the broad aims of the Communications Act.”22 Factors

considered to be in the public interest may include, among other things, “a deeply rooted

preference for preserving and enhancing competition in relevant markets, accelerating private

sector deployment of advanced services, promoting a diversity of license holdings, and generally

managing the spectrum in the public interest.”23 The Commission also may consider whether the

proposed transaction will affect the quality of communications services or will result in the

provision of new or additional services to consumers. Relevant to this analysis are technological

and market changes, and the nature, complexity, and speed of change of the communications

industry.

For each proposed license transfer, the Commission’s analysis of the potential harmful

competitive effects of a proposed merger largely tracks the analysis presented in the DOJ and

47 U.S.C. § 214(a), 310(d).

Informal Timeline for Consideration of Applications for Transfers for Assignments of Licenses or Authorizations

Relating to Complex Mergers, http://www.fcc.gov/transaction/timeline.html.

For example, the Sirius/XM Satellite Radio merger took 412 days to complete. The FCC timeline is available at

http://www.fcc.gov/transaction/xm-sirius.html.

Western Union Division, Commercial Telegrapher’s Union, A.F. of L. v. United States, 87 F.Supp. 324, 335 (D.

D.C.), aff’d, 338 U.S. 864 (1949).

FCC v. RCA Communications, Inc., 346 US 86, 90 (1953).

In the Matter of Applications Filed for the Transfer of Certain Spectrum Licenses and Section 214 Authorizations in

the States of Maine, New Hampshire, and Vermont from Verizon Communications Inc. and its Subsidiaries to

FairPoint Communications, Inc., 23 FCC Rcd 514, 520 ¶ 12 (2008), In the Matter of AT&T and Bell South

Corporation, Application for Transfer of Control, 22 FCC Rcd 5662, 5673 ¶ 20 (2007).

See 47 U.S.C. § 157 nt. (incorporating section 706 of the Telecommunications Act of 1996, P.L. 104-104, 110 Stat.

56 (1996) (1996 Act), 254, 332(c)(7)); 1996 Act, Preamble. In the Matter of Applications Filed for the Transfer of

Certain Spectrum Licenses and Section 214 Authorizations in the States of Maine, New Hampshire, and Vermont from

Verizon Communications Inc. and its Subsidiaries to FairPoint Communications, Inc., 23 FCC Rcd 514, 520 ¶ 12

(2008), In the Matter of AT&T and Bell South Corporation, Application for Transfer of Control, 22 FCC Rcd 5662,

5673 ¶ 20 (2007).

Congressional Research Service

Merger Review Authority of the Federal Communications Commission

FTC Merger Guidelines.24 The Commission first defines the relevant product and geographic

markets. 25 After defining the markets, the participants must be defined. 26 The Commission then

analyzes the potential horizontal competitive effects within the markets, as well as the efficiencies

that may be created by the proposed combination. The agency does the same for the vertical

competitive effects and efficiencies. In this portion of the analysis, the Commission generally

examines whether the merger will concentrate power in the hands of the merging parties in such a

way that consumers could be harmed by, for example, increased prices, decreased services, or the

exit of competitors from the marketplace.

After evaluating potential competitive effects, the Commission examines claimed public interest

benefits of a proposed transaction, such as the potential provision of new programming or

services, lower prices for services, increased service coverage, etc. The public interest benefits

must be transaction-specific, meaning that “the claimed benefit must be likely to be accomplished

as a result of the transaction but be unlikely to be realized by other means that entail fewer

anticompetitive effects.”27 This standard does not mean that the claimed benefit must be nearly

impossible absent a merger. Rather, the benefit must be unlikely to occur absent a merger. The

claimed benefits must be supported by evidence and, in order to be in the public interest, the

effects of the claimed benefits must flow through to consumers and not inure solely to the

merging entities.

The Commission weighs these benefits against the potential harms to the public interest using a

“sliding scale approach.”28 In this approach, where potential harms seem likely to occur,

applicants must show that the claimed benefits are of a higher degree of magnitude and likelihood

than when potential harms appear less likely. If the Commission’s analysis suggests that the

parties have shown that the merger, on balance, benefits the public interest, the Commission

generally approves the transfer without condition. 29 If the Commission determines that the

proposed merger will harm competition or the public interest, the Commission may either

designate the proposed transaction for hearing, 30 or may negotiate with the parties to place

voluntary conditions on the transaction to alleviate those harmful effects. In most instances, the

Commission and the parties choose to negotiate.

See Department of Justice and Federal Trade Commission 1992 Merger Guidelines, 4 Trade Reg. Rep. (CCH) P

13,104 (1992) [hereinafter, Merger Guidelines]. It is important to note that the Commission is not bound by the Merger

Guidelines.

See e.g., In the Matter of Applications for Consent to the Transfer of Control of Licenses XM Satellite Radio

Holdings Inc, Transferor to Sirius Satellite Radio, Inc., Transferee, Memorandum Opinion and Order and Report and

Order, MB Docket No. 07-57 at ¶¶ 35-73 (2008).

See In the Matter of Applications for Consent to the Transfer of Control of Licenses XM Satellite Radio Holdings Inc,

Transferor to Sirius Satellite Radio, Inc., Transferee, Memorandum Opinion and Order and Report and Order, MB

Docket No. 07-57 at ¶ 48 (2008). If the Commission is unable to define the relevant markets, the Commission will

conduct its analysis by adopting “worst-case assumptions” which maximize the likelihood of harm. Id.

Id. at ¶ 75.

Id. at ¶ 76.

See e.g., In the Matter of Applications Filed for the Transfer of Certain Spectrum Licenses and Section 214

Authorizations in the States of Maine, New Hampshire, and Vermont from Verizon Communications Inc. and its

Subsidiaries to Fairpoint Communications, Inc., WC Docket No. 07-22, FCC 07-226 (January 9, 2008).

Under 47 U.S.C. § 309(e), if the Commission is unable to make the finding that the proposed transaction is in the

public interest or after all information is submitted a substantial and material question of fact is presented, the

application must be formally designated for a hearing.

Congressional Research Service

Merger Review Authority of the Federal Communications Commission

Negotiated Conditions on Telecommunications

Mergers

The Commission finds its authority to negotiate and enforce voluntary conditions on license

transfers under §303(r) of the Communications Act, which grants the Commission the authority to

“prescribe such restrictions and conditions, not inconsistent with the law, as may be necessary to

carry out the provisions” of the act,31 and §214(c), which grants the Commission the power to

place “such terms and conditions as in its judgment the public convenience and necessity may

require” on the certificates the agency issues pursuant to its license transfer review authority.32

The parties and the Commission may agree to any condition upon the proposed transfer that is

tailored to mitigate the specific harms anticipated by the Commission’s review. For example, the

Commission has approved license transfers to be in the public interest when conditioned upon

such varied commitments as the divestiture of certain assets;33 the creation of new programming

and a la carte options;34 maintenance of promised conditions to protect national security

(including the citizenship status of certain key employees) where the merger involves a foreign

owned corporation;35 temporary price freezes;36 compliance with increased reporting

requirements;37 unbundling of certain services;38 and compliance with the Commission’s “net

neutrality” policy.39 In each of these cases, the Commission made clear that, absent these

voluntary commitments, the proposed transactions would have resulted in significant public

interest harms (such as monopoly power or potential to increase prices for extended periods) and

the license transfer would not have been approved. Therefore, negotiation of acceptable

conditions emerges as an important part of the license transfer process for many corporations

seeking to combine.

47 U.S.C. § 303(r).

47 U.S.C. § 214(c).

See e.g., In re News Corp. & DircTV Group, Inc., 23 FCC Rcd 3265, 3294 at ¶ 63 (2008) (ordering the severance of

attributable interests in certain assets).

In the Matter of Applications for Consent to the Transfer of Control of Licenses XM Satellite Radio Holdings Inc,

Transferor to Sirius Satellite Radio, Inc., Transferee, Memorandum Opinion and Order and Report and Order, MB

Docket No. 07-57 at ¶ 111-112.

In the Matter of Intelsat Holdings, Ltd. and Serafina Holdings Limited Consolidated Application to Transfer Control

of Holders of Title II and Title III authorizations, 22 FCC Rcd 22151 (2007).

In the Matter of Applications for Consent to the Transfer of Control of Licenses XM Satellite Radio Holdings Inc,

Transferor to Sirius Satellite Radio, Inc., Transferee, Memorandum Opinion and Order and Report and Order, MB

Docket No. 07-57 at ¶ 105-110; In the Matter of SBC Communications and AT&T Corp. Applications for Approval of

Transfer of Control, 20 FCC Rcd 18290, Appendix F (2005).

In the Matter of SBC Communications and AT&T Corp. Applications for Approval of Transfer of Control, 20 FCC

Rcd 18290, Appendix F (2005).

Id.

In the Matter of Verizon Communications, Inc. and MCI, Inc. Applications for Approval of Transfer of Control,

Order, FCC 05-184, Appendix G (November 15, 2005).

Congressional Research Service

Merger Review Authority of the Federal Communications Commission

Author Contact Information

(name redacted)

Legislative Attorney

[redacted]@crs.loc.gov, 7-....

Congressional Research Service

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