The Deal: Republicans Again Seek Limits on FCC Merger Powers

NEW YORK ( The Deal) -- Oregon Republican Greg Walden, a former broadcaster, is again pushing reform legislation on the Federal Communications Commission that would limit its ability to impose conditions on media and telecom mergers.

Republicans on the committee have tried similar versions of the bill before and this time Walden's bill stands a good chance of passing the House. However, Senate passage of similar legislation won't happen as long as Democrats control that chamber.

Walden's bill, the subject of a hearing by House Energy and Commerce's Communications and Technology Subcommittee, also would require the FCC to conduct cost-benefit analyses, including examinations of the state of technology and the marketplace, before issuing new regulations, as well as publish the actual text of proposed rules and seek public comment on the specific proposal before voting them into effect. The FCC would have to abide by "shot clocks" limiting the time spent considering a transaction or other action. Walden chairs the subcomittee.

The merger provisions would prohibit the FCC from imposing conditions on deal approvals beyond those that directly address specific harms to the market and consumers caused by a transaction.

Although most at the FCC have generally resisted those changes, the bill also would include a provision long sought by commissioners -- a revision of the "Sunshine Act" open meetings law to allow three or more commissioners to gather on a bipartisan basis. Commissioners have complained that the statute forbidding a majority of commissioners from meeting in private complicates their efforts to reach consensus on many proceedings. Among the most controversial provisions is the one stripping the FCC of its power to impose merger conditions that don't directly address the harms to the market or to the public interest caused by a deal. Support for the idea took hold in 2011 when many Republicans were angered over net-neutrality conditions included among the conditions imposed on the FCC's approval of Comcast Corp.'s ( CMCSA) acquisition of NBC Universal Inc.

Republicans saw the condition, which Comcast agreed to, as an end run around the FCC's failure to win support for industry-wide net neutrality rules that would have restricted broadband providers' ability to favor their own Internet content over rivals' offerings.

"This is precisely what the transaction review process should not be used for -- backdoor rulemaking," Walden said. He dismissed complaints that the bill is a disguised attempt to take the FCC out of the merger review process entirely by eliminating its unique obligation to review telecom and media mergers for harm to the public interest. Eliminating the public interest authority would leave FCC merger reviews as needless duplicates of the antitrust reviews conducted by the Federal Trade Commission and the Department of Justice. "Despite what you might hear, the bill does not dictate the outcome of a merger review nor alter the public interest standard," Walden said.

However, California's Anna Eschoo, the subcommittee's senior Democrat, said the bill would harm the FCC's merger authority. Fortunately, in her view, the chances of enactment right now are nil.

"The proposed FCC process reform in my view is a backdoor way of gutting some of the FCC's very important authorities," she said. "Congress created the FCC to safeguard the public interest. Consumers need advocates, and competitors and innovators need a referee to level the playing field."

After debating FCC reform to no avail for three straight years, Eschoo said it should be clear the legislation isn't going anywhere. "Instead of working on legislation that creates billable hours for Washington telecom lawyers, we need to work together to craft policies that are actually going to move." Those could include streamlining the FCC's obligations to send reports to Congress and allowing more than two FCC commissioners to meet in private, she said.

Inside the FCC, Walden's bill appears to have some sympathy among its two Republicans. Only last week Republican Commissioner Ajit Pai renewed his call for the commission to codify its largely disregarded 180-day "shot clock" for deciding whether or not to approval a deal. Pai was unhappy the FCC missed its self-appointed deadline for completing its review of Softbank's takeover of Sprint Nextel ( S). The FCC approved the companies' revised merger agreement July 5 -- 217 days after their initial application was submitted.

Witnesses called to testify were split over the wisdom of the FCC reform legislation. Larry Downes, an Internet industry analyst and author of several books on the information economy, innovation and the impact of regulation, supported the proposed reforms and said the FCC too often makes unfounded predictions about the direction of technology markets and hinders their natural development. "The FCC must be cured of its addiction to micromanaging markets that are evolving even as the commission's deliberations meander along."

Downes contrasted the approaches of the Department of Justice Antitrust Division and the FCC when they approved the 20008 merger of XM Satellite Radio and Sirius Satellite Radio.

The DOJ issued a four-page closing statement that "sensibly found new forms of competition will be more than enough to discipline the combined entity, and DOJ has been found abundantly correct," Downes said. "By contrast, the FCC took 17 months and a 100-plus page order laden with conditions to reach the same conclusion."

Former FCC Commissioner Robert McDowell, now a visiting fellow at the Hudson Institute, also supported the legislation. He said lawmakers might want to consider a statutory requirement forcing the FCC when using its public interest authority to justify every transaction condition first and then tailor any condition narrowly. "Put another way, the commission may set a condition to cure a harm only after a meaningful economic analysis demonstrates that the merger will cause harm to consumers," he said. "Conditions impose costs on transactions that are ultimately borne by consumers. Keeping conditions streamlined to address merger specific problems would reduce costs to consumers and help spur market activity."

Witnesses against the legislation included Richard J. Pierce Jr., an expert in federal administrative procedures at the George Washington University Law School, who said legislation would impose too many burdens on the FCC to justify its rules. The end result would be to drag out FCC rulemakings even more, he said .

Stuart Minor Benjamin, a telecommunications law and First Amendment expert at Duke University's law school, said that the new FCC standards would "lack either agency or judicial precedents" and would be subject to judicial review. "This will likely open the door to years of litigation and uncertainty," he said.

Written by Bill McConnell