Pai Signals Shift In Merger Reviews

Could cut down on rent-seeking and regulation by proxy

Why This Matters

Chairman Pai’s stake in the ground on merger reviews could mean less rent-seeking by competitors to consolidating companies.

FCC chairman Ajit Pai has signaled that the agency’s definition of the public interest will not include what he sees as regulating by condition.

That signal came in a couple of ownership transfers, including the highly anticipated approval of the CenturyLink-Level 3 Communications merger, the first major media meld under Pai’s watch.

As a minority commissioner during the Obama administration, Pai regularly accused the Democratic majority of trying to regulate the marketplace by merger conditions on specific deals. He even went so far as to dissent from last year’s Charter-Time Warner Cable merger not because he didn’t think it was in the public interest, but because he thought the conditions weren’t, calling them “a vehicle for advancing its ambitious agenda to micromanage the internet economy” because it prevented usage-based pricing.

As chairman, he has the power to set a new tone and he did so with his recent decisions, much to the chagrin of FCC Democrats.

Pai did point out that the FCC imposed a condition on the CenturyLink-Level 3 deal, but it essentially illustrated the sort of narrow, targeted, transition-specific fix that will be the standard going forward.

“In those building locations where the data analysis shows the transaction would harm competition in the absence of a condition, we apply a price freeze to protect customers,” Pai said.

Pai billed it as clearing up a regulatory haze that he suggested covered a multitude of potential rent-seeking opportunities.

“This clarity will help the public to see that transactional review is an occasion to carefully consider how the transaction itself impacts the public interest, not an opportunity to extract a range of concessions, tangentially related at best, from parties with applications in front of the Commission,” he wrote regarding the merger reviews.

Dissent Votes

Democrats saw the action as trying to write the public interest standard out of merger reviews, and weren’t shy about making the point.

Commissioners Jessica Rosenworcel and Mignon Clyburn took the unusual step of issuing a joint statement in their dissent on a different recent decision — a $1.6 billion deal involving prison phone service company Securus’ purchase by Platinum Equity LLC.

The majority voted to approve the deal along with a $1.7 million fine for misleading the agency in information about its transfer of control to Platinum Equity LLC.

The dissenting Democrats saw it as being somewhat criminal in a different way.

“Until now, the FCC has never granted a transfer of control when a company has made misrepresentations during the review process,” they wrote. “We could have adopted conditions on the transaction to mitigate public interest harms. Indeed, we suggested several, but the chairman respectfully declined to act on any of them, including a condition to ensure that the company could not decline to serve incarcerated people with disabilities.”

Said public interest lawyer Andrew Schwartzman: “Instead of blocking the transaction or imposing conditions, it slapped Securus’ wrist.” The Democrats saw it more like a pat on the back for bad behavior.

Pai said none of those conditions were transaction-specific and reiterated his guidance in CenturyLink-Level 3. “As the standard of review in this document makes clear, a transaction is not an opportunity to apply extraneous conditions upon a licensee,” he said.

“One problem with the FCC’s public-interest test for transaction review is it is a [more] redundant and conflicting governmental review standard for acquisitions or mergers than antitrust authorities use,” said Scott Cleland, chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. “Another is that it mirrors the 2015 FCC Open Internet Order’s internet conduct enforcement standard, when both are unfair, and enable arbitrary and capricious implementation, because both are ill-defined, unlimited and not constrained by normal due process, the rule of reason and economic and cost-benefit analyses.

“The worst problem with the public interest test is that the truism is that the public interest is whatever an FCC majority says it is at any given time,” he added. “That’s why chairman Pai’s regulatory humility; respect for the rule of law, the rule of reason, and due process; and his unprecedented commitment to transparency; are so welcome in the context of the FCC’s application of the public interest test.”

Said Business in the Public Interest chairman Adonis Hoffman: “With each mega-merger under review, the demands have grown bolder, including cash payments, high-level jobs and consultancies, board seats, sweetheart sales, preferential programming, vanity productions and hiring quotas, to name a few. To avoid the appearance of paying ransom, companies deftly structure the concessions as ‘voluntary commitments’ to reflect their corporate responsibility, citizenship and contribution to societal goals.” Hoffman added that would clearly change on Pai’s watch.