FCC’s Perverted Merger Process Harms Jobs, the Economy

by Mike Wendy on November 24, 2011

On Tuesday, the FCC dropped a bombshell on the proposed AT&T / T-Mobile merger, declaring:

“The record clearly shows that — in no uncertain terms — this merger [between AT&T and T-Mobile] would result in a massive loss of US jobs and investment.”

According to reports, FCC officials do not believe AT&T’s claims that the merger would help the company rollout new 4G services any faster absent the merger, or boost job creation. Consequently, the agency planned to take the extraordinary step of putting the merger before an administrative law judge, who was to hear evidence in a trial-like setting from both sides, and then subsequently make a recommendation for the Commissioners to approve.

Planned is the key verb here.

Late yesterday, another bombshell dropped.  This time, by the merging parties themselves.  According to this report:

Deutsche Telekom and AT&T have withdrawn the license transfer applications they filed with the U.S. Federal Communications Commission, and will instead concentrate on defending against a lawsuit filed by the U.S. Department of Justice in August to block the deal, AT&T said.

The exact details of what this may mean are still being figured out.  Clearly, however, AT&T and T-Mobile have a new timetable in front of them.  The merger, if it goes through – and it could still – won’t likely occur as quickly as they initially thought (I guess that’s pretty obvious).

I think this is a lost opportunity for the government to help the private sector grow jobs – the latter becoming a sticking point, illustrating the perversity of the “public interest” merger process.

As the accident of timing would have it, earlier this week the FCC unveiled plans to wire America with broadband via a new $4.5 billion fund which the agency claims will create 500,000 jobs over the next six years.  It’s weird, though.  This plan is built on the same basic math as the AT&T merger – that is, new broadband infrastructure = GDP growth = more jobs.

Seizing on this irony, AT&T SVP, Jim Cicconi, exclaimed after the FCC’s announcement:

“…[S]omehow in our merger, the FCC staff concluded that a far greater investment in broadband — $8 billion — plus firm commitments on job preservation and enhancement, will instead result in ‘massive loss of US jobs and investment’…”

Added Cicconi:

“This notion, that when government spends money on broadband it creates jobs, but when a private company spends money it doesn’t, is clearly wrong on its face, and raises questions about the credibility of anyone at the FCC who would make such a claim.”

Now, I support the basic math of both the FCC and AT&T as it pertains to new infrastructure and job growth.  That said, I think the FCC does great disservice to itself and its broadband goals by implicitly stating that these economics apply only (and positively) to the agency.  All others need not apply (unless your name is John Maynard Keynes).

Nonsense.  And Cicconi’s right for calling them out on this.

But the FCC can get away with its kookiness, laundering its intellectual grass stains through the spin cycle that is the merger process.

If jobs were to be reduced through the advance of technology, related productivity gains, and normal marketplace dynamics – as they are throughout the entire information and communications technology industry (just ask Sprint) – the FCC would be out of school to use its authority to address jobs for jobs-sake.  But in the other-world context of the merger process, it’s OK that the FCC acts like the DoL or NLRB to “protect jobs.”

This is simply preposterous.

Stated differently, if AT&T determined that it could provide all the services it had and keep customers connected, happy and safe – with just a single person manning the switch – then it should be allowed to do so.  That’s their prerogative and for the marketplace to judge.  The merger process shouldn’t change this one iota.

But it does.  It allows the FCC to micromanage the fine details of companies where it does not have the authority to do so.  Moreover, it’s a recipe for legal extortion and macroeconomic distortion that does not serve the “public interest.”  It serves mainly politicians and special interests instead.

Companies trot out jobs because that’s part of the script imposed on them by the agency.  Sadly, it usually gets held against them.  Instead of the positive story of new infrastructure = GDP growth = more U.S. jobs, FCC regulators go, “Hey, that’s all well-and-good, but your workforce is likely to change.  And for that – even though job gains across the economy from your new endeavors will dwarf anything the company does with its workers – you must give us something in return.”

In other words, it presents a below-the-belt opportunity to expropriate unrelated concessions (numerous ones), leveraged through the oblique “public interest” merger process.

As former FCC Commissioner Meredith Baker has noted, this must stop:

“…[W]e should retire the notion that these conditions or Kathleen Abernathy was correct that conditions ‘are the quid pro quo that merger applicants must accept in order to get timely approval.’ Using the leverage of a merger denial or merger delay to extract concessions from the applicants cannot fairly be characterized as a voluntary process.  They should simply be called conditions.

“To provide a common sense check on the breadth and scope of merger conditions, we should also craft a general framework with built-in rebuttable presumptions as to the types of enforceable conditions that will be sought going forward and the factual showing necessary to justify those conditions.

“I believe a more defined framework focused on merger-harm-specific conditions would provide a more predictable review process, and help put an end to regulation-by-condition.  It would also limit the debate to those issues that are truly merger-specific, and weed out parties seeking regulatory delay for their own competitive advantage…”

These sensible ideas would focus merger reviews so that they do not become vehicles for policy that could not otherwise be achieved through open and participatory processes.  It would end other gaming of the system, too.

Ultimately, that’s what my main concern is.  The merger process as it plays out here and elsewhere seems inimical to democracy.  It’s wielded like a Star Chamber, designed mainly to benefit and protect the well-connected, not the Average Joe.

How long before America makes it a jobs issue – as in, the voters’ job to change the whole corrupt system?

Hopefully as soon as next November.

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