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Charter office on San Fernando Road in Glendale, California, on May 26, 2015. (Brian van der Brug / Los Angeles Times)

Memo to Charter and Time Warner: Beware The FCC Bearing Gifts

Harold Furchtgott-Roth

Charter Communications recently announced the acquisition of Time Warner Cable. The Department of Justice and the Federal Communications Commission will review the proposed merger. The DoJ has remained professionally and appropriately silent about the matter. The FCC has not.

On May 21, the Wall Street Journal reported that Tom Wheeler, chairman of the FCC, “individually called” Rob Marcus, CEO of Time Warner, and Tom Rutledge, CEO of Charter. Although purportedly to let the companies know that “the agency is [not] against any and all future cable deals,” the calls were ill-advised and grossly inappropriate.

The FCC stands in an adjudicatory role in reviewing license transfers in the proposed Charter-Time Warner deal. From Biblical times to the present, the consistent admonition is that judges must be disinterested in the outcome of matters brought before them. The chairman of the FCC calling the parties before a merger is even announced no doubt gave the parties the heebie-jeebies. That someone, likely the FCC itself, leaked the story of the calls to newspapers gives everyone a reason to doubt the judgment, if not the impartiality, of the FCC.

Writing in the 19th century, Mary Howitt perhaps dramatized the situation in The Spider and the Fly, “Will you walk into my parlour?’ said the Spider to the Fly, 
’Tis the prettiest little parlour that ever you did spy.’” Whether the FCC has ill-intentions or not in inviting parties to come before it, the appearance is disturbing.

If the Chief Justice of the Supreme Court were to make private calls to parties to invite them to bring their disputes before his court, the parties would be wary. If a Supreme Court clerk were then to leak the existence of the calls to the press, the Chief Justice would face a public fury and quite possibly calls for impeachment. But the reaction to the chairman of the FCC making similar calls is ho hum. The underlying ethical issues may be the same, but the public’s perception of what the chairman of the FCC may do is quite different and permissive.

The Charter-Time Warner deal was announced on May 26. That afternoon, Chairman Wheeler released a statement saying: “The FCC reviews every merger on its merits and determines whether it would be in the public interest. In applying the public interest test, an absence of harm is not sufficient. The Commission will look to see how American consumers would benefit if the deal were to be approved.”

Aside from the faulty sentence structure, the statement is flawed in many ways. The FCC has no specific legal authority to review mergers; its legal authority is to review transfer of control of licenses, a far narrower task, much as the Department of Motor Vehicles processes new tags for the new owner of a car.

Moreover, the FCC does not review many mergers, much less all mergers. For example, the Federal Trade Commission recently conditionally approved the merger of Reynolds and Lorillard. There was no FCC review much less approval of the merger, even though the companies quite likely have some FCC licenses. Each year in the United States are countless mergers and acquisitions. Several dozen receive close antitrust scrutiny. Of those, no more than two dozen—usually far fewer—receive close FCC review.

Chairman Wheeler likely had Section 310(b) in mind when he claims that the FCC “determines” whether a license transfer would be in the public interest. That is not the statutory language. Instead, Section 310(b) speaks of a “finding by” the FCC. A single letter in support of a license transfer can be an unambiguous “finding by” the FCC of the public interest. But the FCC may, and does, view a “determination” as more ambiguous and judgmental leading to months-long reviews.

Chairman Wheeler asserts that “an absence of harm is not sufficient.” That is not the standard the FCC usually applies. License transfers are routinely put on public notice. If no objections are filed, as is the case the vast majority of the thousands of license transfers the FCC reviews each year, the transfer is usually approved. The default situation at the FCC is effectively that an absence of harm is sufficient.

The final sentence is a puzzle: “The Commission will look to see how American consumers would benefit if the deal were to be approved.” Antitrust law under the Clayton Act and Sherman Act is framed as avoiding increases in market power, not “see[ing] how American consumers would benefit.” The Communications Act refers to consumers frequently, but never in this context. In a nation with more than 315 million consumers, one transaction may benefit some consumers, potentially harm a few, and leave the vast majority largely unaffected. There is no single American consumer. To attempt to “see … benefits” from a merger for such a hypothetical consumer or even groups of consumers, even if there were a lawful construct, is a heroic task. Chairman Wheeler’s words are more inspirational than lawful.

The FCC has reviewed scores of mergers over the past 20 years. FCC chairmen rarely comment on mergers pending or likely to be pending before the Commission. Chairman Wheeler would be well advised to return to those historical norms.

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