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Issues Memorandum for March 1, 2000 Transactions Team Public Forum on Streamlining FCC Review of Applications Relating to Mergers


In the years since the Telecommunications Act of 1996, companies holding licenses or authorizations from the Federal Communications Commission have combined with one another or with other companies at an unprecedented pace. Such combinations require Commission review under Sections 310(d) and/or 214(a) of the Communications Act, as well as implementing regulations, related statutory provisions, and Executive Orders and Treaties. In an era of rapid technological change that creates both great opportunities and great uncertainties, and in a regulatory environment committed to substantial reliance on market mechanisms, this wave of consolidation has generated intense public interest, and, at times, controversy. The FCC has now had several years of experience dealing with the dramatic increase in the transfer of licenses and authorizations related to mergers and acquisitions—small, large, and enormous. The Commission has developed and applied its public interest standard in the contexts of these merger-related applications on a case-by-case basis. Chairman Kennard has recently committed additional resources to meet the substantial demands placed by this flood of applications on the Commission and its Bureaus and to make the process for reviewing applications relating to these transactions efficient, transparent, and predictable. A Transactions Team in the Office of the General Counsel is assisting the various Bureaus in their review of transaction-related license transfers and changes in authorizations. This memorandum highlights the issues being addressed and the steps being taken by the Team and the Bureaus in a coordinated effort to achieve these goals.

Creating and Publishing Timeline:

The accompanying Timeline outlines the general stages of FCC review in the most difficult and complex cases and the time required to perform them. It makes the process more transparent by giving the public a general roadmap of the process, together with time limits. The Timeline also provides a yardstick for measuring how the FCC is doing in particular cases, and, when applied to a particular pending case, would allow the parties and the public to see what has been done, predict what is coming, and identify the reasons for any departure from the announced path. The Timeline at this point is, of course, general, and not specific to particular types of licenses or authorizations or to the circumstances of particular cases. It is not intended as an inflexible deadline. But it does reflect the agency’s experience with a number of recent transactions, its estimates of what can be accomplished, and a commitment to either meet the announced schedules or explain promptly how and why they are being adjusted in a particular case.

Establishing Web Site:

By March 1, the Transactions Team expects to have up and running a site on the World Wide Web, accessible by a link from the FCC Home Page. The site is intended to become a central location for the public to access information relating to the FCC’s review of applications relating to mergers and similar transactions. Initially, the site will provide copies of the Proposed Timeline, this Memorandum, relevant public notices, several links to related FCC resources, and an e-mail address for comments and suggestions. In the near future, it will contain instructions for filing applications with the various Bureaus and offices, procedures for filing public comments or petitions to deny in pending proceedings, and instructions and links to obtain public record information on pending transactions, including specific links to the dockets containing the filings relating to major transactions.

Examining and Experimenting with Procedures:

There are a variety of different procedural requirements in the statutes and rules applicable to various kinds of licenses and authorizations, but there remains substantial flexibility to design the mix of procedures that will best further the goals of efficient, transparent, and predictable review while reaching sound substantive results and allowing adequate and fair opportunities for participation by the applicants and other members of the public. The proposed timeline suggests the types of procedures that the FCC has generally used in reviewing applications. Examples of areas for improvement include the following:
  • Focus on the formal pleadings process. The review process will operate most efficiently if the parties file the relevant material as soon as possible in the course of the formal pleadings process (i.e., with the initial application, petitions to deny, and reply). For example, if applicants wait until the reply stage to put the bulk of their supporting material on key issues into the record, an additional round of filings might be necessary to allow the other parties a fair chance to comment on this material. To reduce this inefficiency, the FCC may require more than minimalist presentations on key issues before issuing a Public Notice. Substantial submissions entirely outside the formal pleadings may require the establishment of additional pleadings cycles, or if the delay in submitting the material is not reasonably justified, the submission may be ignored.
  • Limit the ex parte process. The Commission’s ex parte rules allow a proceeding to be designated "permit-but-disclose," which generally permits meetings between one of the parties and a Commissioner or the staff without the other parties being present, as long as any new substance communicated is disclosed on the public record. This process can at times be useful, particularly where limiting communications to written filings would be inefficient and in proceedings involving large numbers of parties where providing an opportunity for all parties to participate in every meeting would be impractical. But there are dangers of abuse, especially if the parties treat ex parte presentations as the preferred, rather than the exceptional, means of communicating their positions. Our proposal to address this issue is to take steps, initially in individual proceedings (perhaps outlined in the public notices that establish procedures) that are calculated to preserve the ex parte process where it is useful, but discourage its abuse. (e.g., limit the types of communication that may take place; limit the length of written ex partes).
  • Use of public fora and en bancs. During its review of applications associated with complex transactions, the Commission has at times met en banc to consider the issues and at other times has scheduled public fora at which interested parties can express their views orally and respond to questions. A public forum has proven a useful process in complex cases to allow a fuller public discussion of the issues. It provides an opportunity for give and take among the Commission, the applicants, and other interested parties that in some cases cannot be efficiently duplicated in the written pleadings or ex parte processes.

    The proposed timeline contemplates that the Commission may hold an en banc hearing on applications associated with a complex transaction, after the pleadings are closed and the submission of information (including any proposed revisions) is complete, to focus on the case and determine whether the appropriate course is to prepare a decision either granting the applications (with or without conditions) or designating them for a hearing.

  • The Treatment of Revisions. In response to issues raised by the FCC or by the other parties, an applicant may offer to revise the application in one or more respects. This is a predictable result of the pleadings process and can lead to sound results. But revisions during the review period inevitably cause delays and create a "moving target" problem for the opponents, and extended ex parte negotiations and piecemeal revisions are inefficient and undermine the formal pleadings process. The proposed time line allows applicants to propose revisions, but would stop or reset the clock as necessary to allow public comment on revisions that occur as a result of other agencies’ action or otherwise.
  • Filing and Public Records. The speed and transparency of the agency’s review process depends in part on the somewhat mechanical details of how documents are filed and how what has been filed is made available to interested members of the public. One task we are undertaking is to provide instructions on how to file applications (with references to applicable laws and rules) on the Web Page, and work on drafting these instructions is currently under way. Different Bureaus currently have different filing systems, electronic and non-electronic, and larger mergers often involve more than one.

    We are also examining how to speed up the process of getting the filings into the public record and into the hands of relevant staff at the Commission by, for example, providing more copies of certain types of filings or providing copies in some electronic format. Applications relating to most of the largest and most complex transactions are currently given docket numbers in the Electronic Comment Filing System (ECFS), and a copy of the record is maintained electronically and made available through the internet in graphic format. This process can be further improved by speeding up the time to enter documents into the system.

  • Varying levels of review. The Commission’s review process has sometimes been characterized as imposing different levels or even different "standards" of review. For example, in many cases "routine" applications may be granted fairly rapidly; others require more detailed and lengthy consideration; and still others are subject to intensive analysis of competition and other public interest issues on the basis of an extensive record. These differences in procedure do not result from a difference in the applicable standards for Commission review under the Communications Act and the implementing regulations. That Act applies a similar "public interest" test to transfers, assignments, or authorizations relating to mergers. The circumstances of a particular case, however, may present issues that require a more thorough analysis to determine whether the public interest standard is met. For example, (1) the transaction to which the application relates may create a level of horizontal concentration in a market for communications services where the FCC under the 1996 Act is relying on vigorous competition to meet the goals of the Communications Act, (2) granting the application may arguably result in a violation of either the Act or the Commission’s rules, (3) the applicant may be seeking a waiver of the Commission’s rules, or (4) the transaction may result in a substantial degree of vertical integration that may have a substantial impact on the health of competition with respect to one or more communications services. There may be substantial public comments filed in the review process addressing these or other issues for which the FCC is given responsibility under the public interest standard in the Communications Act. Cases involving circumstances such as these require more attention than those that can be processed easily under established rules and precedents.

    We recognize that there is some uncertainty among applicants as to what level of detail and discussion of various issues will be required in an application, and several parties have requested that the Commission establish thresholds or screens identifying criteria that can give applicants guidance. This issue will be addressed in more detail and the results will be posted on the Transactions Team Web site. In the meantime, questions as to the appropriate level of detail can be addressed to staff at the various Bureaus or to the Transaction Team.

    Coordinating with Other Agencies

    Antitrust Review--Department of Justice and Federal Trade Commission. The Department of Justice or the Federal Trade Commission reviews the competitive impacts of a number of the transactions that require changes in FCC licenses or authorizations under the antitrust laws. Those reviews differ from the FCC review in substance and procedure. They involve narrower issues than the public interest standard established by the Communications Act. In addition, the process of review by these agencies (either under the Hart Scott Rodino Act’s special pre-merger review provisions or other antitrust investigative authority where that Act does not apply) is an investigation largely hidden from public view that most often results in either no action (with no explanation), a consent decree that is presented to a court after negotiations with the government have been completed, or (rarely) a full trial of a law suit in federal court. The agencies have prosecutorial discretion and no obligation to explain the basis of their decision if they take no enforcement action. In contrast, the FCC review process is a public adjudication, with full opportunity for public participation, which results in a decision that must be agreed to by at least a majority of a five member Commission (or be made on delegated authority), that must explain its basis and address the arguments made by the parties, and that is subject to judicial review.

    Despite the substantive differences, the issues addressed in antitrust review and the FCC’s public interest review overlap to some degree. Similarly, despite the procedural differences, the reviews must take place roughly simultaneously. With the increase in these transactions over the last several years, the federal agencies have gained experience in coordinating their efforts to avoid duplication, increase efficient use of the limited government resources, and avoid reaching results that would impose inconsistent requirements on the applicants. Thus, the agencies have found it useful to request waivers from the applicants and other parties to permit FCC review of documents and discussions among the personnel involved in reviewing the transactions in the respective agencies. Discussions and efforts to improve this coordination continue.

    Law Enforcement and National Security. The Department of Justice (DOJ) and Federal Bureau of Investigation (FBI) have raised law enforcement and national security issues in several FCC licensing proceedings. These issues generally relate to wiretapping and foreign ownership concerns. The proceedings involve both initial authorizations and mergers or transactions. In several cases in the last year, the DOJ and the FBI have negotiated agreements with telecommunications companies and upon completion, have requested that the FCC condition authorization on compliance with the agreements.

    Although the FCC has generally deferred to its sister agencies on these recommendations under its public interest standard, industry and others have expressed concerns about delays caused in final FCC action, the appropriateness of conditioning FCC licenses on the agreements, the role of the FCC in enforcing them, the scope of some of the substantive provisions of the agreements, the costs to industry to comply with the agreements as well as the international implications, particularly for regional and global telecommunications systems. The Commission currently is exploring ways to address these expressed concerns, including timeframes for action within those included in the attached Proposed Timeline.

    Increasing Personnel Resources

    One obvious impact of the substantial increase in the number of transactions involving large firms with multiple FCC licenses and authorizations has been increased burdens on the agency staff with responsibilities for processing and analyzing these applications. The creation of the Transactions Team in the Office of General Counsel responds to this increased demand by providing additional personnel (five attorneys, an economist, and two support staff). These persons will assist in the review process by providing relevant expertise and support to handle the types of issues that tend to come up repeatedly in these cases (e.g., procedural issues such as HSR waivers, information requests, confidentiality agreements and coordination with other federal agencies), reviewing issues and decisions for consistency, and assisting in the drafting of proposed orders.

    Schedule for Comment and Implementation

    The Transactions Team will receive public comment on these proposals at the Public Forum on March 1, and written comments after the forum either by mail, Transactions Team, Office of General Counsel, FCC, 445 12th St., S.W., Washington, D.C. 20554 or e-mail: tranteam@fcc.gov. The Team expects to adopt improvements as soon as they can be adequately considered and receive any necessary approvals, and to apply them as far as possible to pending cases.
Saturday, November 15, 2008