Release 4.5 February 2008
by W. Kenneth Ferree*
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The gentle reader will recall the fictional case of Jarndyce v. Jarndyce, involving the probate of a will, from Dickens' Bleak House. Although the court proceedings serve only as narrative backdrop, each of the principle characters, one way or another, is awaiting "judgment day" in Jarndyce, when final distribution of the estate will occur. Much of the dramatic tension (and dark humor) in the story results from the fact that Jarndyce lingers in the notoriously slothful 19th century English Chancery courts for so long that generations of litigants are born into, and die out of, their claims on the estate. Of course, when judgment day finally arrives near the end of the novel, and those entitled to take under the will are at last identified, the corpus of the estate has been consumed in legal fees and nothing is left for the legatees.
Unfortunately, this fictional case must sound all too familiar to those who recently have had to endure federal antitrust and FCC regulatory review of proposed mergers. For reasons that remain buried deep in the machinery of the federal government, merger review has, of late, slowed nearly to a standstill. But just as allowing anti-competitive combinations harms the economy and consumers, needlessly delaying pro-competitive combinations deprives consumers of the benefits that flow from free and full competition. The FCC and antitrust agencies should, therefore, expeditiously complete their review of pending proposed mergers and endeavor to stay within their respective merger review time frames in the future.
The basic waiting period for Hart-Scott-Rodino pre-merger review by the antitrust authorities is 30 days. Although extended in some cases to allow for the collection of information relevant to the proposed transaction, it is implicitly presumed that, once all relevant information has been gathered, it should take no more than 30 days for antitrust authorities to decide whether or not they should sue to block a proposed transaction.
The FCC, too, has a merger review window, though it is self-imposed and somewhat less formal. By tradition the agency has sought to complete regulatory review of transactions involving FCC licensees within 180 days. Again, although the FCC merger review clock is sometimes stopped due to interruptions in the review process over which the agency has no control, the theory of the 180 window for action is that the FCC's entire public process, including information collection, public comment, and Commission-level voting on a proposed transaction should be accomplished within six months. In practice, for FCC licensees, it is this regulatory time frame that determines how long the federal review process actually will take because, even if the HSR review period has expired, FCC approval is required prior to closing the deal.
The prescribed time frames are not unrealistic. Indeed, merger review of some large, complex, and controversial mergers has been accomplished within, or very close to, the established time limits. When AT&T and Comcast proposed to combine in February of 2002, the parties could reasonably expect a decision before year-end. In fact, final FCC approval came in early November, 188 days later on FCC's merger review clock. When News Corporation agreed to acquire DIRECTV, it filed its FCC application on May 2, 2003. Barely two weeks later, a public notice was released seeking comment on the transaction and, just about six months later, conditional approval was given.
Even when approval has not been granted, the merger review process has typically consumed only about six months. The leading example, of course, is EchoStar's failed attempt to acquire DIRECTV. In that case, the hearing designation order was issued by the FCC on day 156 of its merger review clock.
Most recently, however, sand appears to have infiltrated the gears of the merger review process. Based on recent experience, parties filing pre-merger review with the regulatory and antitrust authorities can expect to devote at least a year to the process and sometimes considerably longer. The bankruptcy-driven acquisition of Adelphia's cable systems by Time Warner and Comcast took 404 days before a decision was rendered, and 400 days elapsed before approval was granted for the transfer of control of Clear Channel. There is no sign that these cases were anomalies. Liberty Media just "celebrated" the one-year anniversary of the filing of its application to acquire DIRECTV, and Sirius/XM anniversary is fast approaching.
In an information economy, merger review should be getting speedier, not slower. Today, technological advances are upending traditional business models and requiring even new organizational structures to be re-evaluated regularly. This is particularly true among communications companies. The competitive landscape for most FCC-regulated entities can change in a matter of months, and competitive responses most be almost immediate if they are to be effective.
For example, in the year that the Liberty/DIRECTV and Sirius/XM deals have been pending, both markets have seen radically increased competition from old and new entrants alike. In multichannel video, major wireline carriers have made substantial investments in their video platforms and they are beginning to capture significant segments of the market. To his credit, it seems that the FCC Chairman has this week asked the full Commission to take action on the Liberty/DIRECTV transaction. One can only hope the other Commissioners comply.
The competition for our ears also has intensified. Personal digital music devices have become more functional and more sophisticated, cellular phones have become hand-held entertainment devices, terrestrial digital radios have begun to hit the consumer market, and in-car audio entertainment options now allow the full integration of portable audio devices in automobiles. In short, the array of options available to consumers for audio programming continues to grow, and grow rapidly.
Meanwhile, firms trying to restructure so as to meet this new competition and succeed in these markets await their own "judgment day," perennially deferred, hopeless and forlorn. Dickens warns of the Chancery courts, "suffer any wrong that can be done you rather than come here!" The same soon may be said of the agencies involved in federal merger review.