Federal Communications Commission Chairman Kevin Martin told Congress there are no grounds for alarm over the growing trend of private equity acquisitions of telecom and media companies, including a major carrier in the wireless sector.
“Private equity owners are covered by industry-wide consumer protection initiatives to the same extent as other owners. . Thus far, we have no evidence that there is a difference in quality of service between carriers owned by private equity owners and others,” stated Martin in response to questions from House Commerce Committee Chairman John Dingell (D-Mich.) and telecom subcommittee Chairman Edward Markey (D-Mass.).
Cost-cutting perception
It is unclear whether Martin’s position will assuage concerns of the two lawmakers, who have watched private equity firms pay top dollar for major assets, including No. 5 operator Alltel Corp.
“Some observers note that, as a generalization, the history of private equity ownership suggests a financial management style focused on cutting costs, increasing revenues, and the ultimate resale of the enterprise,” wrote Dingell and Markey in their letter to Martin. “Such ownership intentions may run contrary, for example, to the historic role of [FCC licensees] as trustees of the public’s airways.”
At the same time, the two powerful House members acknowledged arguments that stepped-up private equity presence in the market is beneficial because their firms are better shielded than publicly-traded companies from Wall Street earnings’ pressures and thereby can take the kind of comprehensive, long-term view that benefits the commercial health of their holdings.
Yet Dingell and Markey suggested they remain troubled that core public interest principles are vulnerable to being undermined because private equity ownership is typically characterized by a lack of transparency and a state of “fluid asset management where actual holdings and control may vary significantly.”
In the near term at least, the run of private equity buyouts could slow due to the tightening of the credit market.
Meantime, Martin promised to keep an eye on the situation. But he clearly does not view the private equity-telecom buying spree with much urgency.
“The commission will continue to monitor the impact of private equity ownership on the ability of commission licensees to make capital investments in the communications infrastructure that will enable them to serve the public interest now and in the future,” the FCC chief stated. “Given the recent origins in the communications sector, it is too early to identify all of the issues that this investment vehicle might raise.”
