In two orders released on October 30, 2017, the Federal Communications Commission (Commission) described its standard of review for transactions involving the assignment or transfer of FCC licenses or other authorizations in a manner that immediately generated controversy. Depending on whom you ask, the Commission either “clarif[ied]” and “improve[d] how [it] articulate[s]” its “public interest” standard of review for mergers, or “radically alter[ed]” that standard of review, thereby planting a time bomb set to go off with the “next billion-dollar [merger].” This controversy arose around the following statements: (1) that allowing applicants to transfer their licenses freely is itself a public interest benefit; (2) that conditions may be imposed only to remedy transaction-specific(rather than transaction-related) harms; and (3) that despite past statements that the Commission may employ a “balancing test,” the Commission does not actually balance all harms against all benefits but instead requires competitive harms to be remedied and/or offset by “benefits that . . . naturally arise from the transaction at issue.” The Commission also reiterated that for transactions that involve only Title II authorizations (e.g., interstate telephone operating certifications) and thus do not involve Title III authorizations (e.g., spectrum licenses), the Commission can reject them outright where the public interest test is not met rather than designate them for hearing before an administrative law judge, thus potentially allowing for meaningful judicial review. Whether or not these statements represent a departure from past practice, they do signal a significant shift in tone.
By way of background, the Commission reviews transfers of control and assignments of Commission licenses and authorizations under Sections 214 and 310 of the Communications Act of 1934, as amended. In order to approve an assignment or transfer, the Commission must find that the transaction will serve the public interest. In broad strokes, the two orders do not change this standard. But the Commission’s discussion of how the standard operates in the two orders is noteworthy in four respects.
First, in both orders, the Commission stated that it “has long recognized the clear public interest benefits in a license or authorization holding being able to assign or transfer control of its license or authorization freely.” This statement seems designed to create distance from recent precedent, where the Commission has required that, to count as public interest benefits, “benefits must flow through to consumers, and not inure solely to the benefit of the company.” Notably, unlike other benefits, the free transferability of licenses and authorizations is inherent to any transaction, and thus need not be proved by a preponderance of the evidence.
Second, the Commission emphasized the limited nature of its authority to adopt conditions—i.e., “only to remedy harms that arise from the transaction (i.e., transaction-specific harms)” and never “to remedy pre-existing harms or harms that are unrelated to the transaction.” In the Securus Order, Chairman Pai further explained: “[N]one of the conditions that it’s been suggested we impose here are transactionspecific—that is, they have nothing to do with remedying a transaction-specific harm. And as the standard of review in this document makes clear, a transaction is not an opportunity to apply extraneous conditions upon a license.” And in the Level 3 Order, the Commission rejected numerous proposed conditions as being unrelated to transaction-specific harms. This stands in contrast to merger orders issued during the prior administration where, for example, the Commission described its authority to impose “transaction-related” (as opposed to “transaction-specific”) conditions; invoked authority to adopt conditions “to ensure that the transaction will yield net public interest benefits” without regard to remedying underlying harms; and adopted conditions that were attenuated at best from transactionspecific harms.
Third, both orders note that the Commission previously has referred to its standard of review as a “balancing test” or a “sliding scale,” but state that “in practice, the Commission has not allowed potential competitive harms to go unremedied nor allowed them to be offset by benefits that are not transactionspecific, i.e., benefits that do not naturally arise from the transaction at issue.” In other words, the Commission suggests that applicant commitments to do positive things that do not arise directly from the transaction cannot offset harms caused by the transaction. Commissioner Clyburn disagreed that this statement accurately characterizes past practice and was critical of this formulation: “It was because of the now-former public interest balancing test that we saw the launch of the Internet Essentials program [from the Comcast-NBCU merger]” and it was likewise “because of the former public interest balancing test that we have witnessed one wireless provider emerge as a maverick competitor in the mobile wireless market [from the failed AT&T-T-Mobile merger].”
Finally, the Commission explained an important distinction between transactions involving the transfer of radio licenses and those involving the transfer of other FCC authorizations such as interstate telephone operating certificates. The Commission cannot deny an application to transfer a radio license outright because it is not in the public interest, but instead must designate any application not found to be in the public interest for a hearing before an administrative law judge. In contrast, the Commission can deny applications for the latter without the need to designate it for hearing. In drawing this distinction, the new Commission may be signaling its recognition that a hearing designation order effectively allows the Commission to kill mergers without appellate review.
While it is sometimes said that, in litigation, the standard of review “more often than not determines the outcome” of a proceeding, the concepts employed by the FCC are sufficiently broad to allow for a range of possible outcomes regardless of how the standard of review is characterized. But the tone of the orders suggests a desire to narrow the Commission’s transaction review to focus on competitive analysis and perhaps avoid broader policymaking that has sometimes taken place in such proceedings.