Story: Panel Debates Meaning of FCC's Public Interest Standard, 11/12/98.

Furchtgott-Roth Criticizes FCC's Inconsistent Application of "Public Interest" Standard to Telecom Mergers

(November 12, 1998) FCC Commissioner Harold Furchtgott-Roth criticized the FCC's "discriminatory" application of its "public interest" standard in big telecom company mergers during a panel discussion in Washington DC sponsored by the Federalist Society.

The Federal Communications Commission (FCC) recently scrutinized, but approved, the Bell Atlantic-Nynex and MCI-WorldCom deals. It now has pending before it applications regarding the mergers of SBC-Ameritech, Bell Atlantic-GTE, and AT&T-TCI. The outcomes could have tremendous implications for the future of phone, cable, and Internet service.

The FCC has no general authority under antitrust law to approve or reject mergers and acquisitions. The Department of Justice has this authority.. However, the FCC does have authority to approve transfers of FCC licenses, including transfers incidental to mergers and acquisitions. The only statutory standard for the FCC is that such transfers must be in the "public interest".

The Federalist Society sponsored a panel discussion on Thursday, November 12, entitled "What is the FCC's "Public Interest" Mandate?" In addition to Furchtgott-Roth, the panel included current and former FCC attorneys, Senate Commerce Committee staff, and representatives of think tank groups.

FCC Commissioner
Harold Furchtgott-Roth

Furchtgott-Roth stated that: "I did a word search for the "public interest." I was astonished at how much of the Act is permeated with the concept. It appears in many, if not most sections. Make no mistake. It is there, not by accident, and not merely as an historical artifact. It is used time and time again because Congress put it there. It must have some meaning. What it means, however, is far from clear."

Furchtgott-Roth said that the FCC receives many requests for transfers of licenses under Section 309. However, the Commission gives greater scrutiny to transfer applications that are associated with mergers in the telecommunications industry.

He stated that "The Commission ... appears to have settled on a discriminatory application of the "public interest" standard. Specifically, under section 309, we hold licensees in certain industries, those which we happen to regulate heavily, to one "public interest" standard, while others who hold different licenses in other industries, to a more flexible and lower standard."

Extended Excerpt from Furchtgott-Roth's Address

"I have reluctantly come to the conclusion that the concept of "public interest" may be applied in different ways across different sections of the Act. But I have not, and can not conclude that it can mean different things in the same sentence and the same section of the Act. Specifically, it cannot be applied in one section in one way to one licensee or applicant, and a different way in the same section for a different licensee.

"Consider, for example, the granting of the transfer of public licenses under the public interest standard in Section 309. The Commission receives many requests for the transfer of licenses. The degree of scrutiny which these requests receive varies substantially. Many are dispensed by the relevant Bureaus. And only a few are considered directly by the Commission itself. The degree of attention that these license transfers receive appears to depend on whether a merger or acquisition is involved, and whether the licensees are inside or outside of the industries otherwise regulated by the Commission."

"These distinctions upon the extent of review, however, are not to be found in the statute. Indeed, they are not even to be found in Commission rules. Many license transfers do not involve mergers and acquisitions, and these transfers appear to receive less scrutiny than those involving mergers and acquisitions. Moreover, transfers of licenses associated with large mergers of telecommunications companies appear to receive the closest scrutiny. The Commission has interpreted its authority to approve license transfers in the "public interest" as equivalent to an implicit authority to approve or disapprove of mergers generally in the "public interest." Yet license transfers associated with mergers in other industries, for example, railroads, do not receive the same scrutiny. The Commission has not asserted authority to approve or disapprove of mergers in the rail industry, the electric utility industry, the airline industry, or any of the many industries that routinely have FCC issued licenses. The Commission in this instance, and in others, appears to have settled on a discriminatory application of the "public interest" standard. Specifically, under section 309, we hold licensees in certain industries, those which we happen to regulate heavily, to one "public interest" standard, while others who hold different licenses in other industries to a more flexible and lower standard."

"The Federalists had it right, the central federal government can and ought to be of great value to people of the United States. It is today. But it could be even more so if the "public interest" standard were applied in a consistent manner, one that respects statutory language, one that honors separation of power, and one that leads to predictability of legal process."

"The Federalist Society can help contribute to the proper application of the "public interest" standard through vigilance of the FCC. Thank you very much."

He concluded that "the central federal government can and ought to be of great value to people of the United States. It is today. But it could be even more so if the "public interest" standard were applied in a consistent manner, one that respects statutory language, one that honors separation of power, and one that leads to predictability of legal process."

Other members of the panel also had criticisms of the FCC. Kalpak Gude spoke about the point of view of his boss, Sen. John McCain. McCain is the Chairman of the Senate Commerce Committee, which has jurisdiction over telecommunications legislation, and which oversees the FCC.

"It really does give, or can be used to give, broad discretion to the FCC to do different things at different times. And there is real harm in that. The public, whether it be individuals, whether it be carriers, or corporations, deserve some level of certainty from the process." Gude continuted that "the FCC needs to elaborate what exactly is meant by the public interest standard. The public interest standard being a weapon that can be used by the FCC differently in different contexts, causes more problems than I think it solves, because ... it does create a certain amount of uncertainty in the marketplace that inhibits the development of competition, that inhibits action by companies ... because of the very uncertainty about how the FCC will interpret the public interest in a given context."

Gude also explained what Sen. McCain thinks about the public interest standard. "I think he would say that the FCC should be interpreting the public interest standard as narrowly as possible. Congress did elaborate in, I think, his opinion, far too much detail in the 96 Act how competition would emerge, and how competition should emerge. And to after all of that elaboration now turn around and have the FCC reinterpret the other standards in the Act, or add to those standards in the Act, I think he would view as being dangerous. 271 was mentioned once before, and I think Sen. McCain's view on the public interest requirement in 271 would be it clearly cannot be an additional checklist requirement. It cannot broaden the checklist."

Sen. McCain has said in recent Commerce Committee hearing that he is is interested in passing legislation in the 106th Congress which reforms the FCC.

Lawrence Gasman of the Cato Institute argued that the FCC should not follow a "public interest" standard. Rather, it should have a "consumer interest" standard. And, according to Gasman, competition in a free market is in the "consumer interest."

"Let these mergers go ahead. I can see nothing wrong with them," he said.

In contrast, Andrew Schwartzman, of the Media Access Project, was more supportive of the FCC. The public interest standard is a "very useful model." And, the public interest standard "means that the agency should have some latitude to figure out what is right, and do it." He also criticized the Congress for trying to "micro-manage" and "beat on" the FCC, and the "federal judges out there who do not understand this stuff."

The panel was made up of the following:

Harold Furchtgott-Roth. Commissioner, Federal Communications Commission.
Kalpak Gude. Attorney, and staff assistant to Sen. John McCain on the Senate Commerce Committee.
Lawrence Gasman. Senior Fellow, Cato Institute, and leading proponent of ending the current regulatory structure in telecommunications.
Andrew Schwartzman. President and CEO of the Media Access Project, a non profit public interest telecommunications law firm concerned with First Amendment free speech rights.
John Windhausen. General Counsel of the Competitive Policy Institute, former FCC attorney, and former staff assistant to Sen. Fritz Hollings, the ranking Democrat on Senate Commerce Committee.
Kevin Martin (moderator). Attorney, and legal assistant to Harold Furchtgott-Roth.

Furchtgott-Roth's address was written with the assistance of Kevin Martin and Helgi Walker. Most members of the audience were attorneys with telecommunications practices.