NEWSReport No. CC 97-12 COMMON CARRIER ACTION March 25, 1997 FCC DENIES AICC'S MOTION FOR ORDERS TO SHOW CAUSE AND TO CEASE AND DESIST AGAINST AMERITECH (CCBPol 96-17) The Commission today released an Order denying Alarm Industry Communications Committee's (AICC) request that the FCC issue orders to show cause and to cease and desist against Ameritech Corporation (Ameritech). The Order finds that Ameritech may retain the alarm monitoring assets that it purchased from Circuit City Stores, Inc. (Circuit City). AICC filed with the FCC a motion contesting Ameritech's purchase of the alarm monitoring assets of Circuit City, claiming that the purchase is a violation of section 275(a)(2) of the Communications Act of 1934, as amended. Under section 275(a)(2), a grandfathered Bell Operating Company (BOC), such as Ameritech, "may not acquire any equity interest in, or obtain financial control of, any unaffiliated alarm monitoring service entity" between November 30, 1995, and February 8, 2001. Specifically, AICC asked the Commission to: (1) direct Ameritech to show cause why it should not be required to rescind its purchase of the alarm monitoring assets dedicated to Circuit City's Home Security Division; and (2) issue a cease and desist order, requiring Ameritech to rescind its purchase of Circuit City's alarm monitoring assets and to refrain from attempting to acquire the assets of additional alarm monitoring service providers until February 8, 2001. The Order finds that Circuit City's Home Security Division is not an "alarm monitoring service entity" as that term is used in section 275(a)(2) and concludes that Ameritech may retain the alarm monitoring assets that it purchased from Circuit City. In light of this conclusion, the Order also denies AICC's request for a general prohibition against Ameritech's acquisition of other alarm monitoring assets. Action by the Commission March 21, 1997 by Memorandum Opinion and Order (FCC 97-102). Chairman Hundt, Commissioners Quello, and Chong, with Commissioner Ness dissenting and issuing a separate statement. -FCC- News media contact: Rochelle Cohen at (202) 418-0253. Common Carrier Bureau contact: Brent Olson at (202) 418-1580. March 25, 1997 Dissenting Statement of Commissioner Susan Ness Re: Enforcement of Section 275(a)(2) of the Communications Act of 1934, as amended by the Telecommunications Act of 1996, Against Ameritech Corporation I respectfully dissent from the Commission's construction of Section 275(a)(2). Despite clear congressional intent to limit the acquisition activities of a grandfathered Bell Operating Company (BOC), the majority reads the provision to limit only the form, but not the substance, of any such acquisitions. The illogical result is that a grandfathered BOC may not purchase the stock of a company that is engaged in the alarm monitoring service business, but it may achieve the same result by "acquiring the assets" of an alarm monitoring service company or division -- so long as it does not acquire control of a previously independent legal entity. I cannot endorse such an interpretation, especially given an alternative that better comports with the text and context of Section 275(a) as a whole. At issue here is a limitation on an exception to a general rule:  The general rule is stated in Section 275(a)(1), which prohibits the BOCs and their affiliates from "engag[ing] in the provision of alarm monitoring services" for a five-year period.  The exception is in the first sentence of Section 275(a)(2), which exempts from Section 275(a)(1) any BOC that "was engaged in providing alarm monitoring services as of November 30, 1995."  The limitation on the exception is in the second sentence of Section 275(a)(2), which specifies that a grandfathered BOC "may not acquire any equity interest in, or obtain financial control of, any unaffiliated alarm monitoring service entity [for five years], except that this sentence shall not prohibit an exchange of customers for the customers of an unaffiliated alarm monitoring service entity." The Commission finds this limitation to be unambiguous. I do not. In my view, the plain language allows for two different, but both plausible, interpretations (putting aside, for the moment, the final clause of the sentence, which yields considerable guidance). Faced with two possible interpretations, I believe our duty is to ascertain which one best effectuates legislative intent. The statutory language is ambiguous. One reading -- and the only one accepted as possible by the majority -- is that the term "entity" applies solely to an organization that has "an independent legal existence." Under this interpretation, a grandfathered BOC may not purchase stock in (or acquire financial control over) an unaffiliated alarm monitoring service corporation or partnership, but it is otherwise free to acquire alarm monitoring service assets and operations at will. Thus, a grandfathered BOC may acquire a corporate division that provides alarm monitoring services because such a transaction occurs through a purchase of assets, and no "entity" passes to the acquiring BOC's control. The other reading -- which is at least equally supported by the statutory language -- is that the term "entity" encompasses any discrete administrative or organizational structure. The ordinary definition of the term "entity" is anything having a distinct being or existence, with or without independent legal status. Under this construction, a grandfathered BOC may not acquire financial control of previously unaffiliated alarm monitoring service operations, whether those operations were formerly conducted by a corporation, a division of a corporation, or any other organizational unit. On this reading, if the effect of a transaction is to transfer control of what previously existed as an entity, the fact that the transactional vehicle may convey a division's assets rather than a corporation's equity is immaterial. Clearly Circuit City's Home Security Division was a "particular and discrete unit," since it was the business operations conducted by this division -- and not any elements of the larger Circuit City enterprise -- that were targeted by the Ameritech acquisition. The legislative history is not illuminating. Faced with a choice between two plausible readings of the statute, it is appropriate to resort to legislative history for guidance. In this instance, the exercise is futile. The grandfathering provisions were rewritten by the House-Senate Conference Committee. The House and Senate Commerce Committee reports predate the formulation that was ultimately enacted and do not purport to explain the meaning of language that was crafted at a later date. The Conference Report describes the grandfathering provision by using essentially the same words found in the provision itself; no additional guidance is added. Only the floor debates provide specific guidance on the provision at issue, but the net result is to leave the matter unsettled. Specifically, on the day the House of Representatives and the Senate approved the Telecommunications Act of 1996, directly contradictory statements appeared in the Congressional Record on the precise question of whether the statute prohibited a grandfathered BOC from acquiring the assets of unaffiliated alarm monitoring service entities. As a result, the conflicting views of individual legislators, and the apparent good faith reliance thereon by the alarm industry and by Ameritech, lend no strength to either of the competing arguments here. Only one reading of the statute makes sense. Despite the ambiguous language and legislative history, I find one interpretation of the provision to be far more persuasive than the other. The answer lies in an effort to discern the logic of the underlying congressional policy. All parties agree that Congress intended to prevent a grandfathered BOC from obtaining control of an alarm monitoring service provider through a stock (equity) transaction. The obvious question is whether it would have made sense for Congress to prohibit that step, but simultaneously to permit a grandfathered BOC to achieve effectively the same result by structuring the transaction as an asset acquisition. Why would Congress want to distinguish between these two situations, and thus concern itself only with the structure of the transaction and not its substance? Ameritech has not tendered any logical answer to this question, the Commission has not provided one, and I have been unable to think of one. Without such a logical explanation, reading the statute to create a distinction between these two situations makes no sense. Fortunately, a more logical reading is available: Congress meant to authorize grandfathered BOCs to continue in the alarm business and to grow that business only through competition, not acquisitions. This interpretation is strengthened by the final clause of the disputed sentence. This interpretation of the statute is bolstered by the presence of the clause at the conclusion of Section 275(a)(2). This clause states that the prohibition regarding equity interests and financial control does not "prohibit an exchange of customers [of the grandfathered BOC] for the customers of an unaffiliated alarm monitoring service entity." The majority's interpretation of "entity" would render this clause superfluous. If a grandfathered BOC can obtain any or all of a company's assets, including customer accounts, so long as it does not acquire a legal entity, then there would have been no reason for Congress to add a clause saying that one particular kind of asset -- customer accounts -- can be obtained through an exchange. Yet statutes must be "construed where possible, so that no provision is rendered inoperative or superfluous, void or insignificant." The better reading is that this phrase establishes a minor, but carefully delimited, exception to the logical policy I have identified: reliance on self-generated growth is required except in the sole case of "an exchange of customers" between a grandfathered BOC and an alarm monitoring service entity. This reading gives meaning to each part of the statute, and it simply makes more logical sense. I cannot believe that Congress would have bothered to create this narrow exception if it had also intended to allow a grandfathered BOC to buy up all the customer contracts it desired, so long it structured the transactions as purchases of "assets" rather than of stock. The correct interpretation must also comport with the overall thrust of Section 275(a). My interpretation of the statute fits better than the majority's with the legislative intent of Section 275(a) as a whole. Section 275(a)(1) reflects a policy decision, made by Congress, that BOC involvement in the alarm monitoring service business is, in the short run, a bad thing. While the conflicting floor statements may cancel each other out as to the precise question of whether asset acquisition by a grandfathered BOC is permitted, read in their entirety both the House and Senate Committee reports suggest that Congress viewed its restrictions on BOC participation in the alarm business as pro-competitive. In light of this broad policy determination, it makes the most sense to interpret the exception for Ameritech narrowly. This is consistent with a reading of the statute which would allow Ameritech to stay in the industry and grow through competition, but not through acquisition. Conversely, the majority seems to believe that Congress was perfectly willing, subject only to the antitrust laws, to have Ameritech buy up all the alarm monitoring service customer contracts in the country, so long as the sellers either reconfigure any separate affiliates into divisions before the transaction or maintain shell corporations after selling all or substantially all of the alarm monitoring assets. This cannot be. There is absolutely no evidence that Congress had any reason to care about the structure of such transactions -- whether they were equity or asset deals, or whether they were hostile or friendly. Indeed the structure of the deal is wholly irrelevant to the impact such a combination would have on competition in the industry, or on fairness to Ameritech, or on any other conceivably relevant factor. Equitable considerations provide the final proof. Finally, my construction of Section 275(a)(2) is also the one that best serves considerations of equity. Grandfathered BOCs may avail themselves of whatever latitude is afforded by Section 275(a)(2). Meanwhile, for a period of five years, the other BOCs are prevented from entering this market at all. A logical explanation for this disparity is that Congress did not want to force a BOC that was already in the alarm business to exit the business; such a company should not be prevented from taking care of its existing customers and from expanding its business through competition. Acquisitions, however, are a different matter, whether cast in terms of assets, stock, or any other mechanisms. I cannot believe that Congress intended to prevent six BOCs from entering the alarm business altogether, but to allow one BOC to acquire as much of the existing alarm industry as it wished, through asset purchases. I find it much more likely that Congress intended to allow the grandfathered BOC to compete, but not to acquire (with the limited exception for "exchange[s] of customers"). This is the interpretation that I believe to be most consistent with the structure and language of the statute as well as the policy considerations that appear to have guided Congress's hand. Conclusion. Because the majority has chosen an interpretation of Section 275(a)(2) that I do not believe is required by the statutory language or supported by any logical policy explanation, I respectfully dissent.