FCC Authority Questioned In Wake of Verizon Deal Approval

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By Paul Barbagallo  

The Federal Communications Commission's assertion of authority over marketing cooperation agreements between Verizon Wireless and four of the nation's largest cable operators has drawn the ire of Republicans and free-market-oriented groups, who say the agency has once again exceeded its powers during a transaction review.

When the FCC blessed the arrangements as part of its approval of Verizon's $3.9 billion purchase of unused airwaves from the companies, the Department of Justice had already forced concessions from Verizon to ensure that the company's FiOS TV and internet services effectively competed with the cable companies' offerings in the future. And while the FCC did not impose any additional conditions, some believe the agency has set a precedent for broad interpretation of its statutory authority.

In a joint statement, TechFreedom and the International Center for Law and Economics said the FCC's decision to devote 15 pages to the agreements in its final order represents an “unchecked power to stop transactions.”

“There's a common misperception that the FCC somehow gets to review all deals in the communications industry,” said Berin Szoka, president of TechFreedom, in an interview with BNA Aug. 27. “All the Communications Act gives the agency to do is review and approve proposed transfers of licenses.”

He cited section 310(d) of the act, which holds that no “station license” may be transferred to another company without a finding by the FCC that the “public interest, convenience, and necessity will be served.”

To obtain the FCC's final approval here, Verizon had filed the requisite applications seeking permission to acquire--a transfer--spectrum licenses from Comcast Corp., Time Warner Cable, Bright House Networks, and Cox Communications. Though resistant at first, the companies had then filed electronic copies of their agreements to jointly market and sell each others' services, noting that the spectrum transfer would not go forward if the DOJ--or FCC--did not sign off on them.

Ultimately, the FCC focused its public-interest review on Verizon's spectrum purchase, while the DOJ focused its antitrust review on the companies' cooperation agreement. The commission made it clear in its final order, however, that it has the “authority to review the Commercial Agreements and to impose conditions to protect the public interest.”

Had Verizon and the cable companies entered into the agreements without a proposed license transfer, Szoka says the FCC would have no regulatory role.

“The FCC would not get involved at all,” he said. “That hardly could be more clear, based on the act.”

FCC Republicans Concur on Authority Question.

The comments from the agency's two minority-party members reflect a growing concern on Capitol Hill and within the telecommunications industry that the FCC oversteps its bounds during transaction reviews.

Commissioner Robert McDowell, the senior Republican member, said review of the marketing cooperation agreement should have fallen exclusively to the Department of Justice. “A simple reference to, rather than an exhaustive discussion of, the DOJ's conclusions would be more appropriate in the commission's order,” McDowell said in his statement following the agency's vote to approve the deals.

Commissioner Aji Pai, the other GOP member, said the commission's authority does not “automatically expand to encompass” other provisions or aspects of a proposed license transfer--whether it be a land sale, a conveyance of patents, or a commercial marketing agreement.

“Congress limited the scope of our review to the proposed transfer of spectrum licenses, not to other business agreements that may involve the same parties,” Pai said. “And in any case, the assertion is unnecessary.”

Both commissioners concurred on the question of the FCC's authority to review the side agreements.

Their fear is that the FCC's overly broad interpretation of its transaction review authority could lead companies to volunteer commitments that it would not have the power to require under the act's provisions.

For instance, a day before the FCC approved the Comcast-NBC Universal merger, Comcast had voluntarily committed to a “network neutrality” condition. At that point, the FCC's net neutrality rules had not taken effect, and Comcast's commitment only applied to Comcast--not the industry as a whole.

Bill would Bar 'Voluntary' Conditions.

A bill to limit FCC review of mergers, H.R. 3309, passed the House in March, getting 235 of its 247 votes from Republicans. One provision in particular would limit merger conditions to requirements that are “tailored to remedy a harm that arises as a direct result of the specific transfer or specific transaction.” Hence, Comcast's “voluntary” condition would be prohibited.

“While the FCC didn't ask for any additional commitments in this case, beyond what the DOJ asked for, they've laid down the marker, and they can in the future,” Geoffrey Manne, the executive director of the International Center for Law and Economics and lecturer at the Lewis and Clark Law School, told BNA Aug. 27. “Now they could potentially demand concessions or even stop the transaction on the basis of an ancillary commercial agreement. They are asserting that they have more control over the economic value of the deal.”

Ever since Verizon and the cable companies announced the cooperation agreements, Democratic lawmakers and public interest groups have raised concern about their possible effects on competition.

As part of those deals, Comcast, Time Warner, Cox, and Bright House cable services would all be sold through Verizon Wireless stores in those companies' service territories, while the cable providers will cross-promote Verizon Wireless services through their call centers and websites. Cable carriers will also have the option of selling Verizon Wireless service under their own corporate names, creating a “quadruple play” of wireless, cable TV, landline phone, and home internet services.

The FCC, noting these concerns, said it must “balance the potential for innovation against the potential for exclusive or anticompetitive conduct.”

Said Gigi Sohn, president and CEO of Public Knowledge: the FCC “rightly asserted jurisdiction” over the agreements, but should have protected competition by blocking them altogether.

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