Copyright 1999 Federal News Service, Inc.
Federal News Service
NOVEMBER 3, 1999, WEDNESDAY
SECTION: IN THE NEWS
LENGTH:
2816 words
HEADLINE: PREPARED TESTIMONY OF
ROY NEEL
PRESIDENT AND CEO
UNITED STATES TELECOM ASSOCIATION
BEFORE THE
HOUSE JUDICIARY COMMITTEE
SUBJECT - USTA'S POSITION
BODY:
Summary
USTA believes that, at a
minimum, the FCC merger review process ought to be statutorily shortened or even
quite possibly eliminated altogether, except for spectrum management issues, as
the review by the FCC has become truly duplicative of the review by the DOJ. FCC
merger review of telecommunications mergers in an era of no barriers to entry
and competition is an anachronism with all of the trappings of the legislation
from which the Communications Act was derived -- the Interstate Commerce Act,
written for railroad regulation in 1887.
Delay is our principal and most
compelling concern. USTA has developed a legislative proposal that gives the FCC
a maximum of 180 days to review a telecommunications merger from start to finish
for larger companies and 90 days for smaller companies. This is important
because everyone in the business world today operates at rapid Internet time,
except the FCC. These merging companies need certainty and prompt action in an
era where technological advances are measured in weeks and months, not years.
USTA's View of H.R. 2533
USTA believes that H.R. 2533 is a positive
contribution to the legislative debate regarding the reevaluation of the FCC's
role in the telecommunications merger review process. First, it repeals the
FCC's remaining and unneeded Clayton Act authority. Second, it requires the FCC
to establish Administrative Procedure Act Merger Review rules which must include
a definition of the public interest standard. Third, it requires the FCC to
establish in these rules the period of time the FCC has to approve or deny an
application.
Although this piece of legislation is a positive development,
USTA strongly urges that H.R. 2533 be modified in several important ways. First,
the legislation infers that the extant FCC authority to review
telecommunications mergers is appropriate, with the only problem being the
absence of prescribed rules of procedures, by which to conduct the review. USTA
would urge that the legislation codify what we believe to be Congress' original
intent when it repealed Section 221(a), prohibiting the FCC from using its
ministerial license and line operation transfer authority to replicate what the
DOJ does in the merger review process thus resulting in a lengthy, expensive and
second comprehensive merger review. No other industry that we are aware of is
subjected to two such comprehensive reviews.
Second, USTA urges that the
legislation not leave the time period for FCC action up to the FCC itself. We
believe that the legislation must specify that the FCC process, from start to
finish, should not exceed 180 days, with a shorter time of 90 days or less for
mergers that do not result in companies providing more than two percent of the
nation's access lines.
*****
TESTIMONY OF ROY NEEL
PRESIDENT AND CEO
UNITED STATES TELECOM ASSOCIATION
BEFORE THE
THE COMMITTEE ON THE
JUDICIARY
UNITED STATES HOUSE OF REPRESENTATIVES
NOVEMBER 3, 1999
Thank you, Mr. Chairman, for giving me, on behalf of the United States
Telecom Association (USTA), the opportunity to testify on telecommunications
mergers and particularly on your legislation H.R. 2533 "Fairness in
Telecommunications License Transfer Act of 1999."
I am President and CEO of
USTA which has for 102 years represented local exchange carriers. Today USTA has
over 1100 members. USTA is extremely interested in your legislation and the
issue of telecommunications mergers. The current telecommunications merger
review process takes far too long in large part because of the duplicative and
redundant roles of the Federal Communications Commission (FCC) and the
Department of Justice (DOJ).
We read in newspapers and magazines, see on
television and hear on the radio extensive coverage concerning the merger of
large telecommunications companies such as MCI/Worldcom, AT&T/TCI,
SBC/Ameritech and MCI/Worldcom/Sprint, but I would also like you to be aware
that there are many other telecommunications mergers between smaller telephone
companies that also get caught up in the maelstrom of this byzantine
telecommunications merger review process.
These smaller company mergers are
not mergers between Fortune 100 companies that will move markets or affect
significantly the competitive telecommunications landscape globally, nationally
or even regionally. These smaller company mergers, such as Alltel's acquisition
of Aliant, achieve only efficiency and cost savings. Yet they must also go
through two comprehensive federal agency merger reviews. No other industry must
have their mergers comprehensively reviewed by two federal agencies plus the
state agencies in the state where they provide service.
The House Judiciary
Committee and staff played a key role in the passage of the Telecommunications
Act of 1996. I remember full well that after the House had passed H.R. 1555 and
the Senate had passed S. 652, the House, included as Conferees members of the
House Judiciary Committee. I also vividly remember one day late in 1995 while
the Conference Committee was resolving differences between those two bills
discussing with my industry colleagues a proposal being advanced by Chairman
Hyde and the other House Judiciary Conferees to repeal Section 221(a) of the
Communications Act of 1934 (47 U.S.C. 151 et seq.).
Section 221(a) from the
time of its passage in 1934 to the time of its repeal on February 8, 1996, had
given the FCC the authority to review mergers and to give the FCC the authority
to make inapplicable any other law (e.g., antitrust laws) that would make the
proposed transaction unlawful. Section 221(a), prior to its repeal, was the
FCC's statutory merger authority and provided as follows:
FCC MERGER
AUTHORITY REPEALED BY THE 1996 ACT
SEC.
SEC.
221. (a)
Upon application of one or more telephone companies for authority to consolidate
their properties or a part thereof into a single company, or for authority for
one or more such companies to acquire the whole or any part of the property of
another telephone company or other telephone companies or the control thereof by
the purchase of securities or by lease or in any other like manner, when such
consolidated company would be subject to this act, the Commission shall fix a
time and place for a public hearing upon such application and shall thereupon
give reasonable notice in writing to the Governor of each of the States in which
the physical property affected, or any part thereof, is situated, and to the
State commission having jurisdiction over telephone companies, and to such other
persons as it may deem advisable. After such public hearing, if the Commission
finds that the proposed consolidation, acquisition, or control will be of
advantage to the persons to whom service is to be rendered and in the public
interest, it shall certify to that effect; and thereupon any act or acts of
Congress making the proposed transaction unlawful shall not apply. Nothing in
this subsection shall be construed as in any wise limiting or restricting the
powers of the several States as now existing to control and regulate telephone
companies. (Emphasis Added)
As a consequence of its role in reviewing
telecommunications mergers, the FCC in 1996 also had complementary authority
under Sections 18 and 21 of the Clayton Act.
The Telecommunications Act of
1996 Merger Review Provisions
On February 8, 1996, the Telecommunications
Act of 1996 was signed into law by President Clinton. This Act repealed Section
221(a) as the House Judiciary Committee Conferees had been seeking during
Conference Committee consideration.
We at USTA believed at the time of
enactment that the DOJ would as a result of the repealof Section 221(a) become
the dominant agency in telecommunications merger review, with the FCC's role
being diminished to that of administratively reviewing the transfer of radio
licenses from the entity to be acquired to the acquiring party. I do not recall
any of us thinking then that the repeal of Section 221(a), the FCC's only
specific statutory merger authority, would result in two comprehensive
telecommunications merger reviews by two separate agencies of the federal
government. I also do not believe that this was your intent either.
Section
601(b) of the 1996 Act, to refresh our mutual recollection, was entitled
"Antitrust Laws" and provided as follows:
(b) ANTITRUST LAWS.- (1) SAVINGS
CLAUSE.-- Except as provided in paragraphs (2) and (3), nothing in this Act or
the amendments made by this Act shall be construed to modify, impair, or
supersede the applicability of any of the antitrust laws. (2)
REPEAL.--Subsection (a) of section 221 (47 U.S.C. 221(a)) is repealed. (3)
CLAYTON ACT.-- Section 7 of the Clayton Act (15 U.S.C. 18) is amended in the
last paragraph by striking "Federal Communications Commission."
Please take
particular note of paragraphs "(2) Repeal" and "(3) Clayton Act." These
provisions we believed were intended to repeal the FCC's statutory merger
authority. So the FCC's continuing, uninterrupted and unchanged, but possibly
even more aggressive role in the merger review process, even after the passage
of these two cited paragraphs, comes as somewhat of a surprise to us, and I will
wager to you and this Committee, as well. The recent set ofconditions, such as
penalty payments of up to $1.125 billion dollars to the U.S. Treasury for
failure to meet performance goals; unbundled loop discounts; resale discounts;
access to cabling in multi-unit properties; and DSL rollout
plans, imposed by the FCC in the SBC/Ameritech Merger Order obligate that
company to meet requirements that are well beyond anything that the
Communications Act or FCC rules currently require. The FCC is now using merger
reviews as a policy making vehicle when their role is supposed to be review of
license transfers.
If the FCC's review of mergers was not intended to be in
any way altered or diminished, why were these two paragraphs quoted above
enacted? Just to eliminate the FCC's ability to grant antitrust immunity? I did
not think so at the time of passage. Page 201 of the Conference Report for the
1996 Act (H.R. Conf. Rep. 104-458 at 201) seemed to us to clearly capture the
purpose of these changes when it said:
The new language contains a
conforming change to clarify that these mergers will now be subject to
Hart-Scott-Rodino review. By returning review of mergers in a competitive
industry to the DO J, this repeal would be consistent with one of the underlying
themes of the bill -- to get both agencies back to their proper roles and to end
government by consent decree. The Commission should be carrying out the policies
of the Communications Act and the DOJ should be carrying out the policies of the
antitrust laws. The repeal would not affect the Commission's ability to conduct
any review of a merger for Communications Act purposes, e.g., transfer of
licenses. (Emphasis added)
Does it not seem clear what your Congressional
intent was here? Section 221(a), which was being repealed by Section 601(b)(2)
of the 1996 Act, had authorized the FCC to determinewhether any "... proposed
consolidation, acquisition or control will be of advantage to the person to whom
service is to be rendered and in the public interest ..." In other words from
1934 to 1996, the FCC had a clearly specified statutory role in reviewing
mergers of telephone companies from a public interest perspective, but the 1996
Act repealed that authority. Section 221(a) was, in other words, the FCC's
merger review authority. As the Conference Report indicates, the Congress
appears to me to have intended "returning review of mergers in a competitive
industry to the DOJ...", leaving only license transfer review to the FCC.
Concurrently, Section 601(b)(3) of the 1996 Act also repealed the FCC's
authority under the Clayton Act section (15 U.S.C. Section18) dealing with
"Acquisition by one Corporation of Stock of Another." The FCC's role after the
repeal of Section 221(a) and the Clayton Act repeal was intended, as we
understood it at the time of passage and as the Conference Report seems to
indicate, to reduce the FCC merger review role to a review of "the transfer of
licenses." The FCC's current merger review surely goes well beyond the review of
the "transfer of licenses." The merger reviews conducted by the FCC today are
even more extensive than they were prior to the passage of the 1996 Act which
repealed the FCC's merger authority. This new expanded review trend began with
the Bell Atlantic/NYNEX merger, and each successive merger simply adds new
appraisals, analysis and demands to the process, as the recent SBC/Ameritech
Order amply demonstrates.
The FCC merger review today is, at a minimum, the
same as it was prior to the passageof the 1996 Act. The FCC uses, in lieu of
Section 221(a), its Communications Act authority under the Section 214(a) with
respective to the acquisition and operation of lines, Section 310(d) regarding
the transfer of radio licenses and Section 4(i) authorizing the FCC to "perform
any and all acts ... as may be necessary in the exercise of its functions."
These three Communications Act provisions have more than compensated the FCC's
loss of its direct merger review authority under the former Section 221(a) and
some of its Clayton Act authority. Finally, the authors of the 1996 Act
eliminated the FCC's authority under 15 U.S.C. Section18, but not under 15
U.S.C. Section21 which has to be an inadvertence because 15 U.S.C. Section21
cross references 15 U.S.C. Section18, the FCC role that was deleted by 601(b)(3)
of the 1996 Act. H.R. 2533 corrects this Clayton Act inadvertence.
Last week
no less an expert on federal agency telecommunications merger reviews than FCC
Commissioner Michael Powell, who had been Chief of Staff at the Antitrust
Division of the DOJ before going to the FCC, testified along with Chairman
Kennard and the other Commissioners before the Subcommittee on
Telecommunications of the House Commerce Committee. Commissioner Powell
testified that the DOJ's merger review and the FCC's merger review are
analytically the same. Was this what you intended when you repealed Section
221(a)? I think not. USTA's Position
USTA believes that, at a minimum, the
FCC merger review process ought to be statutorily shortened or even quite
possibly eliminated altogether, except for spectrum management issues, as the
review by the FCC has become truly duplicative of the review by the DOJ. FCC
merger review of telecommunications mergers in an era of no barriers to entry
and competition is an anachronism with all of the trappings of the legislation
from which the Communications Act was derived -- the Interstate Commerce Act,
written for railroad regulation in 1887.
Delay is our principal and most
compelling concern. USTA has developed a legislative proposal that gives the FCC
a maximum of 180 days to review a telecommunications merger from start to finish
for larger companies and 90 days for smaller companies. This is important
because everyone in the business world today operates at rapid Internet time,
except the FCC. These merging companies need certainty and prompt action in an
era where technological advances are measured in weeks and months, not years.
USTA's View of H.R. 2533
USTA believes that H.R. 2533 is a positive
contribution to the legislative debate regarding the reevaluation of the FCC's
role in the telecommunications merger review process. First, it repeals the
FCC's remaining and unneeded Clayton Act authority. Second, it requires the FCC
to establish Administrative Procedure Act Merger Review rules which must include
a definition of the public interest standard. Third, it requires the FCC to
establish in these rules the periodof time the FCC has to approve or deny an
application.
We would strongly urge you to modify your legislation in
several ways. First, your legislation infers that the extant FCC authority to
review telecommunications mergers is appropriate, with the only problem being
the absence of prescribed rules of procedures, by which to conduct the review.
We would urge you to codify what we believe to be your original 1996
Congressional intent when you repealed Section 221(a) by prohibiting the FCC
from using its ministerial license and line operation transfer authority to
replicate what the DOJ does in the merger review process thus resulting in a
lengthy, expensive and second comprehensive merger review. No other industry
that we are aware of is subjected to two such comprehensive reviews.
Second,
we urge you not to leave the time period for FCC action up to the FCC. We
believe that you must specify that the FCC process, from start to finish, should
not exceed 180 days, with a shorter time of 90 days or less for mergers that do
not result in companies providing more than two percent of the nation's access
lines.
END
LOAD-DATE: November 5, 1999
