FCC: Internet Ditch-digger or
Puppet to the Powerful?

"When one find's oneself in a hole of one's own making, it is a good time to examine the quality of the workmanship."—John Renmerde

by Patricia Fusco ISP-Planet Managing Editor [March 9, 2000]

Rather than face skeptical inquiries on Capitol Hill last week, America Online and Time Warner issued a pre-emptive strike in the form of an agreement to open their cable networks to competing ISPs, if they are allowed to merge.

The memorandum of understanding between the two is expected to lead to a binding agreement as AOL and Time Warner move toward completing their $169 billion merger. But the merged company would still have to work within the confines of exclusive contracts with RoadRunner, which don't expire until December 31, 2001.

The agreement is generally seen as a positive endorsement of nondiscriminatory cable access in that it deals with two key issues that the AT&T-MindSpring letter of intent failed to address. First, AOL plans to provide consumers with a choice of ISPs over Time-Warner's cable networks. Second, independent ISPs may determine their level of AOL cable services rendered.

Bandwagon effect
FCC Chairman William E. Kennard was quick to embrace the AOL-Time Warner announcement as a victory for market forces at work to create competition in the broadband marketplace. The event finally gave Kennard a chance to say, in effect, 'I told you so.'

"In the Internet Age, consumers want choice and speed. Never before has the market shown more potential to meet these consumer needs," Kennard said. "For some time now, I have encouraged the fast-moving broadband marketplace to find business solutions to consumer demand as an alternative to intervention by government. The announcement is a significant step in the right direction."

But the AOL-Time Warner memo does more than de-politicize the cable access issue in the U.S. It may be just the remedy required to heal the FCC's merger malady on Capitol Hill. Here's how Congress has already moved to light a legal fire under the FCC.

Regulating the regulators
Last year four legislative initiatives degraded the FCC for its 9,600 baud rate on merger reviews. Both the House and Senate proposed legislation that would either limit the time allowed for FCC merger review or abandon its redundant merger examination altogether.

February 25, 1999 Senator Mike DeWine (R - OH) and Senator Herb Kohl (D - WI) introduced a bill to improve section 7A of the Clayton Act (S 467). If approved, FCC merger review would be limited to 180 days with a single 60-day extension.

May 26, 1999 Senators John McCain (R-AZ), John Ashcroft (R - MO), Orrin Hatch (R - UT), and Connie Mack (R - FL) introduced legislation that would eliminate FCC merger review entirely when the Department of Justice or the Federal Trade Commission review the business transaction (S 1125).

July 25, 1999 Representatives Hyde Henry (IL-6), George Gekas (PA-17), and Bob Goodlatte (VA-6) introduced the Fairness in Telecommunications License Transfers Act (HR 2533). The bill would require the FCC to write rules governing its review of telecom license transfers.

August 5, 1999 Rep. Chip Pickering (MS-3) introduced a bill that would further limit the amount of time the FCC has to review mergers and decisions on license transfers (HR 2783). The untitled bill would allow the Commission 60 days for merger approvals, upon receipt of the application. The bill also provides that the FCC could extend its review for 30 days -- only with a majority vote of the Commission. Finally, the legislation would require that the Commission rule on pending license transfers within 45 days and not be subject to any extensions.

Wakeup call
The FCC Chairman has directed the federal agency's top attorney to evaluate the commission's merger review process, in response to what he calls "unprecedented consolidation in the telecom industry" and growing political pressures from Capitol Hill.

Kennard dispatched General Counsel Christopher Wright in January to evaluate the FCC's merger review process.

Wright's challenge is how to facilitate reviews of major transactions while ensuring public interest is met in an era of communication consolidation and convergence.

Wright and his staff, which will consist of five lawyers, an economist and two support staffers, reportedly are working on a timetable that would ensure all merger transactions, even the most complex proposals, are processed within 180 days.

The group also wants to make internal, streamlined procedures uniform and transparent across the agency, according to FCC documents. These procedures would ensure that applicants know what's expected when they file, what will happen after they file, and the current status of their applications.

The commission could present the group's findings during an open meeting this month, offering industry leaders and consumer groups the opportunity to herald the revised FCC merger-review guidelines as a "big win for consumers."

Cause for celebration?
But the group would not really be offering a dramatic departure from business as usual at the FCC, even if they limit the federal regulators to a six-month review timetable.

For example, SBC announced its intent to acquire Ameritech on May 11, 1998. SBC shareowners approved the merger seven months later, on December 16, 1998. Three months later, the Department of Justice on March 23, 1999 cleared the deal. The FCC placed the acquisition on a "fast track" priority after the DoJ rubber-stamped the merger.

The FCC finally approved the deal seven months later, after 12 weeks of discussions between the companies and FCC staff, which started in June 1999. When SBC finally completed the Ameritech acquisition on October 8, 1999, the 18-month-long process was trumpeted as a "win for consumers" by the FCC.

Would it have made a significant difference if the FCC had trimmed its merger review by 30 days—reducing the process from seven to six months? Looking ahead to an as-yet unresolved merger review, would consumers be better served if the FCC shaved 5 percent from its now-630-day-old consideration of the Bell Atlantic-GTE deal?

The "Baby Bell" moved to acquire GTE July 28, 1998. The DoJ cleared the deal on May 7, 1999, after the companies consented to resolve wireless overlap issues. The companies submitted a formal proposal to the FCC on Jan. 27, 2000 as to how they would meet regulatory requirements by spinning off an independent company to operate for GTE's backbone, with other comprehensive commitments to facilitate prompt approval of their merger.

After 21-months of regulatory hurdles, what's the big deal if the FCC approves the merger in July instead of August? What's another 30-days? At the rate the Bell Atlantic-GTE merger is plodding along, the AOL-Time Warner deal may pass them on the regulatory roadway to FCC review this summer.

Tawdry track record
The FCC has been criticized by congress for how long it takes to review a merger. The Commission has been castigated by industry leaders for failing to offer guidelines governing its review of telecom mergers. It has been lambasted for exercising antitrust merger review authority by one of its concurring commissioners. Incumbents have cursed the agency for its lackadaisical exercise of authority to grant license transfers.

Chairman Kennard was right about the market's ability to "open" cable networks in the U.S. As long as "open" is defined as consumers getting to choose between AT&T-owned or AOL-owned cable modem services.

Now you see it . . .
Kennard's attempt to appease Congress with a so-called streamlined merger process is the same type of political slight-of-hand that will one day be heralded as a "big win for consumers" by all parties concerned.

Chairman Kennard is very familiar with what happens to progress when an industry is over-regulated. He has only to look at his phone bill. If the proposed Time-Warner merger is "streamlined" more than it is scrutinized, Kennard will soon be equally familiar with the vista of an AOL-dug ditch once dubbed the "information superhighway."

—End