WASHINGTON-The merger train rolled through the Federal Communications Commission last week as the FCC reacted to a number of telecommunications industry-changing mergers.
The FCC does not officially review mergers but has to review the transfer of licenses, considered to be a key part of any merger.
The commission approved with conditions the transfer of Ameritech Corp.’s licenses to SBC Communications Inc., but FCC Chairman William Kennard strongly questioned whether a proposed merger between MCI WorldCom Inc. and Sprint Corp. would benefit consumers. The chairman also announced the agency’s general counsel will lead a merger review team to be in place before Jan. 3.
SBC/Ameritech
The FCC on Wednesday approved the transfer of Ameritech’s licenses to SBC, clearing the way for the two companies to merge.
As part of its approval, the FCC imposed 30 conditions on the license transfer, including interconnection rules considered favorable to wireless carriers. Fines for not complying with the conditions could reach $2.2 billion.
SBC reports 8.3 million wireless customers, while Ameritech has 3.2 million wireless customers.
The vote to approve the merger was unanimous, but FCC Commissioners Michael Powell and Harold Furchtgott-Roth both dissented in part. While Furchtgott-Roth agreed with approving the merger, he did not agree with conditioning it.
“I dissent in full, however, from the adoption of the conditions on these transfers … legally dubious, overbroad, potentially unenforceable, privately negotiated conditions on a merger that it is statutorily unauthorized to review, and assessment of which was governed by not clear procedural or substantive standards,” Furchtgott-Roth said.
The exact opposite position was taken by FCC Commissioner Gloria Tristani.
Kennard had signaled in April that the merger could not be approved unless conditions were attached. This process led Powell and Furchtgott-Roth to conclude the conditions were not voluntary.
“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,” Powell said.
Following Kennard’s April letter, SBC/Ameritech originally agreed in July to 26 conditions, with attached fines of potentially $2 billion. The FCC put these out for comment and additional suggestions.
The original merger condition document was less than 100 pages, but a revised document released in late August was more than 250 pages. It was during this round that the proposed fines were increased.
The revised conditions contained a proposal sponsored by the Personal Communications Industry Association to include requests from any interconnecting carrier rather than just competitive local exchange carriers.
PCIA and Paging Network Inc. had lobbied the FCC “to take the proposed conditions, currently `wireless-free’ and make them helpful not only for wireline competitors, but for wireless competitors as well,” said BethAnn Zuczek, PCIA manager of media relations.
SBC/Ameritech also proposed a default-pricing scheme during mediation and negotiation so interconnection can commence before negotiations on a final agreement are completed. This provides interim relief during negotiations, said Angela Giancarlo, PCIA director of federal regulatory affairs.
If PCIA was happy, the Consumers Union was not.
“This is an enormous disappointment. It’s embarrassing that the chairman of the FCC is surrendering to the monopolies like this. These so-called `conditions’ that the FCC is imposing cannot undo the problems that this will cause. Adding one more monopoly to a second monopoly only gives you a bigger monopoly. It does not mean more choices or lower prices for consumers,” said Gene Kimmelman, co-director, Consumers Union.
MCI WorldCom-Sprint
The large merger between MCI Worldcom and Sprint, valued at more than $100 billion, was met with skepticism and criticism from telecom policy makers.
Kennard said the competition in the current long-distance market-where MCI is No. 2 and Sprint is No. 3-has “produced a price war in the long-distance market. This merger appears to be surrender. How can this be good for consumers?”
Kennard made his statements at an FCC-sponsored event at the Georgetown Law Center. Speaking to reporters at the event, Kennard said “his job is to serve the public … nobody blames me for serving the consumer.”
Speaking on a panel at the same event, Powell said the proposed merger is ironic. “The irony is that the company that took out the largest telecommunications company in America will be the largest telecommunications company in the world,” he said.
The FCC is not the only one questioning the merger. Members of Congress and industry representatives also made their views known last week.
Sen. Conrad Burns (R-Mont.), chairman of the Senate communications subcommittee, said he is “keeping an open mind. I will not support any deal until I’m convinced that it allows for healthy competition.”
The leadership of the Senate antitrust subcommittee, Sens. Mike DeWine (R-Ohio) and Herb Kohl (D-Wis.), issued a joint statement, saying that “combining two of the largest long-distance telephone companies-in the largest business merger ever-obviously raises some competitive concerns.”
The United States Telephone Association said the merger was proof “of the existence of a `duopoly’ in the long-distance market … [it] will create a monolithic company with extreme power over consumers.”
Wright to head merger review team
The FCC has come under intense fire for its license transfer review, or merger review, procedures.
To stem this criticism, Kennard announced at the Georgetown event that FCC General Counsel Christopher Wright will head a merger review team.
“Chris Wright will create a merger review team to create some more transparency.” The review team “will not be a revisiting of the competition division,” said Kennard. The team hopefully will help expedite the review process and complete the reviews “within a definite time period.” The merger review team will try to complete its reviews within six months and will have “speed-of-service goals,” Kennard told reporters after his speech.
Criticism from inside the FCC has come mainly from Furchtgott-Roth, who has said the FCC does not have any set procedures for reviewing mergers. When asked what he thought of Kennard’s announcement, Furchtgott-Roth said he didn’t know about the plan to create a merger review team.
Criticism from outside the FCC has come from Congress, where some members have said the FCC should not review mergers because the Department of Justice and the Federal Trade Commission do.
“We do a review based on our public-interest standard. It is different,” said Lawrence Strickling, chief of the FCC’s Common Carrier Bureau.
