No one could mistake last week’s twists and turns in the proposed AT&T/BellSouth merger for the excitement, titilation and hijinks of the Foley Follies. But by the staid standards of telecom policy, last week’s swirl of activity constituted a veritable Telanovella of intrigue and power politics. Duelling Congressional Committees! Kevin Martin pushes for a showdown, but Dems Michael Copps and Jonathon Adelstein hang tough! Martin stages a “strategic withdrawal,” but schedules a new vote for November 3 after he returns from his long-planned trip to Asia. AT&T offers new concessions, kicking off a fresh round of public comment and criticism of the merger. And what will happen to the Notice of Inquiry on network neutrality that Martin offered the Dems as an incentive to approve the merger? Is it still on the table?
I’m all aflutter, I tells ya. For my continued speculation, as well as my thoughts on the proposed AT&T conditions and how you can still make a difference, see below….
For those just tuning in, AT&T announced back at the beginning of the year that they were buying BellSouth. BellSouth and AT&T already jointly own Cingular Wireless, and dominate the phone market in their respective regions. At the moment, parties value the merger at close to $80 Billion.
So here’s how last week played out . . .
Wed. Oct 11
To the surprise of many, the Department of Justice approved the proposed merger without conditions. This triggered some strong words from Democrats Michael Copps and Jonathon Adelstein. Meanwhile, the Chair and Ranking member of the House Judiciary Committee, Sensenbrenner and Conyers, urged the FCC to carefully scrutinize the merger and consider necessary conditions. The Judiciary Committee has jurisdiction over anti-trust matters, and this bi-partisan expression of concern over the impact of the merger on telco and broadband competition further strengthened the hands of Copps and Adelstein to demand significant conditions in exchange for a yes vote on the merger.
Despite these roadblocks, Martin continued to press the Dems to agree to vote to approve the merger. Martin moved the Merger (and Network Neutrality NOI) off the Thursday agenda and scheduled a new meeting on Friday morning to vote on the merger. Martin needs to get at least one of the Dems to vote for the merger, because the third Republican on the Commission, Robert McDowell, recused himself (he used to work for CompTel, one of the merger opponents). In addition, Chairman Martin had a long scheduled trip to Asia beginning Saturday and lasting 10 days. So if Martin could not get a vote on Friday, it would be at least two weeks before he could get a new vote — possibly longer if he could not reach a deal with the Dems or convince one of the two Dems to break ranks.
But, unlike some Dems in some previous Commissions, Copps and Adelstein have developed a strong working relationship and do not sell each other out. The two have not always agreed. For example, Adelstein voted to approve the Adelphia merger (although dissented from the failure to impose net neutrality) while Copps voted entirely against it. But Martin could not hope to easily convince one to vote for the merger at the expense of the other in exchange for, say, some bit of horse-trading on an unrelated issue.
So, as the merger rolled over from Wed. 10/11 to Thurs. 10/12, everyone knew that Martin and AT&T had a tough sell to get the Democrats to agree to approve the merger by the time Martin left for Asia.
Thrs. Oct. 12
To understand what happened next, however, I need to get a bit into the minutia of something called the Government In The Sunshine Act. Passed in 1976 as part of the broader effort to keep the federal government accountable to us ordinary folks, The Sunshine Act requires that (with some exceptions) agencies need to vote on matters in meetings open to the public. Of critical importance, an agency must announce the time, place and agenda of the meeting one week before the meeting. Once this “Sunshine Notice” goes out, the agency may not receive new submissions relevant to an item on the agenda for the open meeting. The idea being to avoid last minute negotiations behind the scenes by interested parties.
But there is a loophole here. While parties may not make presentations, members of the agency may initiate a contact with an interested party to seek their input to help clarify things for a vote. So AT&T cannot call up Copps or Adelstein or Martin and negotiate conditions directly. But Copps could propose a possible condition “X” to Martin, and Martin could then call AT&T and say “Is ‘X’ a deal breaker for you guys?” At which point AT&T could reply “We could not accept a condition like that, but we could accept a modification like ‘Y.’” Then Martin goes back to Copps and says “No, but what about”Y“ instead of ”X.“
As with so many things, this exception is a two edged sword. On the one hand, this certainly gives the insiders and big boys a lift. On the other hand, it cuts the other way as well. If, say, one of the Dems thinks a condition is good enough to protect competition, he might call CompTel and say ”can you explain why you need “X” rather than “Y”? At which point the folks in the competing telco industry can explain why they think. Given the enormous complexity of the issues, it is not altogether a bad thing for Commissioners to be able to ask parties for clarifications during the “Sunshine period.”
Also critically, the Sunshine Act prevents more than two Commissioners from meeting together at the same time. So the Commissioners must negotiate either seriatim or through their staff. Needless to say, this is extremely cumbersome and consumes much time. And, like any game of telephone, it introduces new levels of uncertainty into the system.
Finally, whenever anyone talks to an FCC Commissioner or staffer about a Commission proceeding (such as a pending merger), the party making the oral presentation must file a summary of the conversation by the end of the next business day. We call this a “notice of oral ex parte presentation” or just ex parte for short. The FCC makes it possible to file these online and you can retrieve them online as well. But the FCC also accepts mailed hardcopy, in which case it will take a few days to get through the FCC’s anti-anthrax screening process then a few more days to get scanned and posted to the Electronic Comment Filing System.
With this necessary background, we resume our story. On Thursday 10/12, AT&T made it clear in the press that they would accept conditions as a concession to the Democrats. More to the point, an AT&T spokescritter said that AT&T had “put a full set of conditions on the table to protect consumers.” Much speculation about the nature of this “full set of conditions” ensues. Many of us have a hard time believing that Martin can get a deal and go forward with a vote on Friday morning, but everyone stays up all night negotiating.
Fri. Oct 13
Ah, Friday the 13th! Being Jewish, I am under no obligation to consider this lucky or unlucky per se. The morning dawned with the air crackling with anticipation, and a small crowd gathered at the FCC. Except, of course, for those of us betting there would be no meeting. We stayed home.
The 9:30 a.m. meeting time rolled around, and no Commission meeting. Still, a meeting might yet occur. After all, the last minute negotiations over the Adelphia Transaction last July delayed things from 9:30 a.m. to 2 p.m. So folks continued to mill around the FCC meeting room (or, for us at home, occasionally check to see if the link for live streaming of the meeting went live).
Meanwhile, several new things happened over the course of a few hours to keep everyone guessing on what would happen next.
The Emergency Petition
Nuvox and XO Communication, opponents of the merger, filed an emergency petition alleging that AT&T had violated the Sunshine Act rules and demanding to see the “full set of conditions” AT&T described in the press. Nuvox and XO Communications observed that there was nothing in the record summarizing this “full set of conditions,” and that even if AT&T had merely leveraged loopholes and submitted its ex parte notice by mail to keep things out of the record until after the Commission voted, allowing AT&T to offer last minute concessions without giving merger opponents a chance to reply violated the Sunshine Act (or, at least, the intent of the Sunshine Act).
Members of Congress Weigh In
At the same time, more members of Congress decided to get in on the Act. Senator Ted Stevens (R-AK) and Rep. Joe Barton (R-TX), the chairs of the Senate and House Commerce Committees respectively, released a statement urging the FCC to vote and approve the merger immediately. Meanwhile, Senator Inouye (D-HI), the Ranking member of the Senate Commerce Committee, Rep. Dingell (D-MI), ranking member of the House Commerce Committee, and Rep. Markey (D-MA), ranking member of the Telecom Subcommittee of the House Commerce Committee, issued statements criticizing the Department of Justice for its failure to impose merger conditions and urging the FCC to protect the public by providing a searching review and imposing conditions to protect competition.
Quite a political stew! On the one hand, the majority and ranking members of the House Judiciary Committee urge the FCC to impose conditions. That’s bipartisan from the Committee with oversight over antitrust. At the same time, the Chairs of the two Commerce Committees say “approve now with no conditions.” The Commerce Committees exercise direct oversight over the FCC. So in sense, this is the equivalent of the FCC’s Congressional bosses saying “approve the merger now with no conditions.” On the other hand, all the ranking Democrats on the relevant Committees are all saying “do searching review and impose conditions.” If either the Senate or the House changes control following the November 7 election, then these “ranking members” are very likely to become “Chairmen.” So while the current Congressional supervisors of the FCC are saying “decide now without conditions,” the potential future supervisors of the FCC are saying “take your time and impose conditions.” Fun, fun, fun! (At least for the “C-Span junkie” crowd.)
The Dems Provide A Way Out of the Stalemate
Meanwhile, back at the FCC, Commissioner Copps and Commissioner Adelstein sent a letter to Chairman Martin with a suggested way to move forward out of the 2-2 deadlock without unrecusing McDowell.
The Dems started by thanking the Commissioner for engaging in productive discussions. They assured the Chairman that, despite serious misgivings about deciding this merger before the district court considering the Tunney Act challenge to last year’s Bell mergers finishes its review, both Democrats were willing to consider conditions and vote on the merger. With that in mind, they noted that new conditions had been put forward in the last 48 hours. Unfortunately, the Sunshine Act prevented the Commissioners from getting broad comment on the new proposals. Copps and Adelstein went on to suggest that public comment would be particularly useful because the merger is extremely complex and of huge public importance, and because the relevant antitrust authority (DoJ) had not provided any substantial guidance for consideration (read: wussed out and issued a bunch of nonsense masquerading as a justification for no action). Accordingly, the Dems respectfully asked the Chairman to take the merger “off Sunshine” (i.e. not decide it today) and put AT&T’s recent proposals out for public comment.
To translate from the diplomatic Washingtonese — The Dems agreed to vote at a later date, but only if they had a chance to really study the proposed new conditions and get public comment on them.
This letter effectively forced Martin to call of the vote and put the AT&T proposals out for public comment. The only way he could get a vote right away would be if FCC General Counsel Sam Fedder ordered McDowell to vote as the only means to break the deadlock. But, as the Democrats promised to vote if they got their delay to consider the new proposals and get public comment, it would have stunk to high Heaven. While AT&T would no doubt like this resolved as quickly as possible, what real difference does it make to wait a few weeks? And no one would believe that McDowell could suddenly come up to speed and vote on such a complex merger in an hour.
Nor was the request of the Democrats unreasonable. AT&T itself had said that its people had put a whole slew of new conditions on the table. How could Martin deny the very reasonable request of the Dems to study these new proposals, and solicit public comment on so important a merger, without looking like a total industry patsy? In the lessons from history department, Martin is well aware that back in 2003, Michael Powell created a political firestorm by denying the Democrats their request for more public input during the ownership proceeding.
Finally, the proposal provided a way out of the stalemate for everyone to save face and keep negotiating in good faith.
Martin’s Reply
Martin, however, is no slouch in the hard ball political department himself. He replied two hours later with a letter of his own. Martin thanked Copps and Adelstein for their suggestion on how to proceed and acknowledged their concerns. Martin then went on to observe that these proposals had, for the most part, already been made in various filings over the course of the merger and thus already subject to considerable public debate. Nevertheless, to ensure that the Democrats were comfortable moving forward, Martin agreed to take the proceeding “off Sunshine.” The Commission would issue a public notice containing AT&T’s ex parte summarizing their proposed conditions and provide ten days for public comment. Martin also thanked the Dems for sharing his “desire to proceed on an expedited basis” and that he expect the Dems would “extend us the courtesy” of raising any further concerns as soon as possible. Martin noted he had scheduled a new Public Meeting for a vote on November 3, if they could not resolve the matter sooner.
Translation: I don’t think there was any violation of the Sunshine Act, but you guys can take public comment while I’m touring Asia. But I expect you are serious about voting on this and not just yanking my chain as a delaying tactic. If you can’t see anyway you can vote yes on the merger, have the courtesy to let me know when I get back and I’ll look into getting McDowell unrecused and up to speed. I’m setting a date certain so that this doesn’t just slip indefinitely.
A little later, the FCC issued this public notice and set a deadline to reply of October 24.
So What Happens Now?
The Bell proposals pretty much amount to an extension of the conditions that the FCC imposed on last summer’s SBC/AT&T merger for another two years. The rest of the merger conditions sound annoying like some late night TV ad for promotional packages: AT&T promises to make sure everyone in the service territory can get DSL by the end of 2007. Heck, they say, approve our merger and we even promise to throw in a free DSL modem to every customer that switches from dial up to DSL in calendar year 2007.
But wait, there’s more! Approve our merger now and we also promise to offer customers in our build out area an introductory ADSL rate of only $10/month! That’s right, ONLY $10/month for the first year. How’s that for consumer protection, FCC? [Promotional offer — I mean, merger condition — does not include shipping and handling charges or any applicable state or federal taxes. To be eligible for introductory rate and free modem, customers must not already subscribe to broadband services and must agree to service contract of 1 yr or more.]
But that’s not all FCC! Because we know you Dems love public safety, we’re offering to donate $1 million to a public safety charity. That right, a whopping ONE MILLION DOLLARS! How’s that for serving the public interest? Huh?
Need more conditions? Well, O.K., but only because it’s a 2-2 Commission, we agree to abide by the FCC’s Four Principles of Network Neutrality (you know, the one’s we’re always saying already apply so there is no need to pass additional net neutrality regulation).
Finally, AT&T promises that, if the FCC approves the merger on the basis of these conditions, AT&T will not try to undermine or end run these conditions through other FCC proceedings, state proceedings, or by appealing to the DC Circuit to do its judicial activist thing and substitute its ideas about telecom policy for the actual law.
You can file comments on these proposed conditions by following this link to the FCC’s electronic Comment upload page. In the field marked “Docket No.” type: 06-74. Anyone can file comments, and I strongly urge you to do so. You have until October 24, 2006.
So what happens after October 24? Good question. I expect the Democrats will negotiate in good faith, and if they can’t find a way to go along with the merger, will make that clear to Martin. Since Martin took over, the Democrats and the Republicans on the Commission have made a point of trying to actually work together rather than just engaging in the partisan crap that passes for the political process these days. If other Republicans took lessons from Martin, Congress wouldn’t be nearly as dysfunctional — and the Republicans would not be looking to lose.
On the other hand, Martin has strong incentive not to force McDowell to vote. For one thing, it would put McDowell in a very awkward place. For another, Martin can’t be sure that McDowell will go along with Martin. While McDowell has certainly been echoing Martin’s line on network neutrality and media ownership (as seen by his following Martin’s lead and voting against net neutrality in the Adelphia transaction), McDowell has also shown an independent streak (when he refused to go along with Martin on multicast must carry). Forced to vote, McDowell may want conditions that would make the Bells very unhappy.
On the other hand, the fact that Martin can force McDowell to vote gives the Democrats an incentive to cut a deal where they can hope to exact stronger conditions. They can’t delay indefinitely. If McDowell is forced to vote, they lose considerable leverage, particularly with McDowell apparently willing to follow Martin’s lead on network neutrality. That gives them incentive to find a compromise they can live with.
Which raises the speculation on the proposed Notice of Inquiry on network neutrality. Unsurprisingly, that got dropped from the agenda when the FCC dropped the merger from the agenda. Will Martin go forward, perhaps threatening the Democrats with a really awfull notice if they don’t agree to vote on the merger? Is it still a possible vehicle for compromise? Or will it get cast aside as Martin and the Democrats focus on the new AT&T proposals?
Finally what role, if any, will politics play in this? Can merger opponents and activists make this a campaign issue as they have with network neutrality legislation? Will other members of Congress weigh in for or against the merger?
All these questions can be summed up in one, big $80 Billion question. Will the FCC vote on the AT&T/Bellsouth merger on November 3, or not? At this point, my only answer is —
Stay tuned . . . .