Posted by Social Science Research Network
Proposals to Streamline Federal and State Regulatory Review of Transactions in the Communications Industry
By Samuel Feder (Jenner & Block LLP)
Abstract: Companies operating in the communications industry must pass through a series of regulatory requirements before they can engage in most transactions commonplace in other industries. In addition to being subject to the same antitrust laws as other companies, they face additional oversight by the Federal Communications Commission (“FCC” or “Commission”) and state public utilities commissions (“PUCs”). Whether engaging in significant transactions (such as acquisitions or mergers) or even small ones (such as intra-family corporate reorganizations or taking on secured debt), companies holding communications licenses frequently must obtain signoffs from both state and multiple federal regulators before their transactions can move forward.
As a general rule — absent a conclusion by the antitrust authorities that a transaction would harm competition in relevant markets — the public interest is best served by allowing willing market participants freely to allocate resources and assets. The processes by which the FCC and state PUCs review applications for proposed transactions, however, is marked by significant obstacles to the ability of transacting companies (“applicants”) to complete transactions on a reasonably prompt and predictable schedule. These obstacles also substantially increase the costs of such transactions, ultimately harming consumers. Applicants frequently face extended delays in the process, as well as unpredictable and excessive demands from some regulators who treat their authority to withhold approval for transactions as opportunities to extract concessions and advance preferred policy objectives. Such delays and excessive approval conditions increase the costs and burdens of transactions and deprive market participants of the certainty needed to engage in business planning.
These problems are compounded by the fact that both the FCC and state PUCs act with near-impunity with respect to transaction reviews. National and multistate transactions in today’s economy typically require applicants to close within reasonably prompt timeframes, as applicants often must obtain financing (frequently on terms that are time-sensitive), retain personnel and talent (who seek out other opportunities during times of extended uncertainty), and engage in both short- and medium-term planning for the operations of their businesses, which require certainty as to whether regulators will allow a pending transaction to proceed. These scheduling necessities make a timely approval by the FCC and PUCs a must in most transactions — which, in turn, often requires capitulating to even some unreasonable agency conditions lest review be further delayed. Additionally, judicial review of agency decisions to deny approval of a particular transaction (or to grant such approval only in exchange for conditions) is in many cases effectively unavailable in practice because of the ability of the agencies to delay court proceedings (for a year or longer) past when a transaction is scheduled to close. This functional immunity from judicial supervision has predictably empowered the FCC and some state PUCs to place undue demands on applicants, including demands in excess of the respective agencies’ jurisdiction and legal authority.
At the federal level, this frequently has manifested itself in the form of the FCC’s conditioning transaction approvals upon “voluntary” commitments by applicants that the FCC would have lacked statutory authority to compel directly (such as investing money in the FCC’s preferred projects or abiding by rules the FCC could not impose generally). Such an approach effectively amounts to back-door rule- and policy-making that circumvents the Administrative Procedure Act and, too often, the FCC’s statutory authority. Additionally, while there is a self-imposed 180 day shot clock governing the FCC’s review of transactions, in practice the FCC regularly extends its review by stopping the clock with little or no reason, thus rendering it difficult to predict when a review might be complete.
At the state level, many states have avoided these problems with more rational and streamlined review processes that forgo inquiry into simpler transactions and complete review of more significant ones within reasonable timeframes. Certain state PUCs, however, have become notorious tollbooths that exploit their de facto ability to block national transactions as opportunities to impose conditions favoring their own citizens or advancing parochial interests at the expense of others. These include commitments to retain or create jobs in the state or to steer investments towards specific state projects.
And at both the FCC and state PUCs, these problems escalate over time: each transaction approval establishes baseline requirements against which agencies and advocates evaluate future applications, resulting in a spiral of ever-more-burdensome conditions to obtain regulatory signoff. The process at both the FCC and state PUCs also creates incentives for third parties to intervene to gain leverage over the timeframe and results of the review, even when they do not have substantive issues related to the transaction. By doing so, they insert themselves into the process that often leads to voluntary or mandated conditions, or can seek unrelated side-deals in exchange for not further delaying review.
The result is to make transactions in the communications space unduly costly, burdensome, and unpredictable, preventing some transactions altogether and making others less efficient and less beneficial. These costs are ultimately borne by the public, as procedures that frustrate timely consummation of market-driven transactions protect inefficiencies in the status quo.
The process should be reformed. Where the expert agencies tasked with evaluating the effects of proposed transactions on competition (i.e., the United States Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”)) have made a decision to permit a transaction to move forward, there should be a strong presumption that the transaction is in the public interest unless it is unlawful (for reasons specific to the communications industry) or calls into question the qualifications of applicants to abide by the rules and obligations of their regulatory authorizations. When regulators attempt to go beyond those parameters in considering transactions or delay transactions well after these agencies have rendered their conclusion, consumers ultimately suffer from the inefficiencies that result from that lack of restraint. I propose below several concrete reforms to help the FCC and state PUCs focus their regulatory review more clearly on matters within their core expertise, and to limit the extent to which these agencies unnecessarily obstruct transactions in the public interest.
