Does Political “Kabuki Theater” Help or Hurt the Regulatory Review Process?

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Recently, The Hill reported that Representatives Henry Waxman and Anna Eshoo—the ranking members of the House Energy and Commerce Committee and its Subcommittee on Communications and Technology, respectively—wrote a letter to Committee Chairman Fred Upton calling for a hearing to examine the proposed sale of wireless spectrum to Verizon by a consortium of cable companies.  Without question, Congress has the authority to hold a hearing on anything they deem relevant at any time they want.  That said, and with all due respect to the powers of the legislative branch, it is unclear what a politically-charged hearing would contribute at this late stage of the review process.  Indeed, the analyses by the reviewing agencies are well underway, and there is no evidence to indicate that either the Federal Communications Commission or the Department of Justice is conducting their review of the transaction in an incompetent or otherwise improper fashion.  In fact, holding a hearing at this stage of the review process may actually do more harm than good.

Most notably, holding a hearing at this stage of the review process sends a chilling message to the staff at both the FCC and DOJ that Congress does not trust them to do their jobs.  As a former senior staffer myself, I can tell you that while the daunting task of conducting an honest and rigorous review of complex transactions is hard enough, living with the constant specter that anything I may do might incur the immediate wrath of some powerful Congressmen makes your job outright impossible.  Similarly, if the political appointees who actually run the reviewing agencies are convinced that politics and not substance will govern the process, then why should they expect substantive comments from stakeholders?

Moreover, in order to conduct a serious analysis of a transaction of this sort, you need the cooperation of the industry as part of this process.  For this reason, the U.S. government has set up elaborate legal safeguards to ensure that any proprietary information submitted as part of the review process will be kept confidential.  As Capitol Hill tends to leak like a sieve, this proprietary material, by design, typically is not shared with Congress.  So, unless Congress would like to subpoena and analyze the same information—thus wasting taxpayer dollars by rendering the DOJ/FCC review process redundant and moot—it is unclear what politicians with imperfect information can substantively add to the discussion.  After all, isn’t the whole point of establishing the DOJ and FCC to bring some subject matter expertise to the review process?

To his credit, Connecticut Senator (and, prior to that, long-time Connecticut Attorney General) Richard Blumenthal recently echoed many of these very points at an oversight hearing of the Verizon/Spectrum Co. transaction in an interesting colloquy with former Reagan Administration Antitrust Chief Charles “Rick” Rule:

Senator Blumenthal:  But a full evaluation of this deal would really depend on an examination of those kinds of material, that kind of information, testimony, interviews, documents, all of the stuff that you review as an antitrust enforcer, that the FCC could review in evaluating motive, purpose, effect, and so forth, even though many of these documents and those materials are not available to this subcommittee.

Mr. Rule:  That is correct. And, again, my experience both being somebody who has represented companies that had to spend a lot of money to sort of respond to that, but, also, being at the government, is that they are very thorough and I trust that they will be very thorough here.

And I think it’s pretty clear the kinds of things they’ll want to look at. I think they’ll also get their economists involved, because as I mentioned in my testimony, two of the more interesting filings are the competing declarations of the economists, Judith Chevalier, I guess, for the opponents and Michael Katz for the companies. And the government will engage in that and probably look at a lot of data.

But, again, I have a lot of confidence that they’ll do a thorough job.

Senator Blumenthal:  And the reasons that those documents are not available to the committee would be the proprietary information that they include or—as now a private antitrust lawyer, maybe you could explain that.

Mr. Rule:  Sure. A lot of the documents that the government gets are highly confidential. The Hart-Scott-Rodino Act, in the wisdom of Congress, limits significantly the use to which the government can put the information and to whom they can disclose it.

Senator Blumenthal:  And part of the reasons excuse me for interrupting is, very simple, Hart-Scott-Rodino review occurs before the transaction actually goes forward so that it can be stopped before the eggs have to be unscrambled, so to speak.

Mr. Rule:  Correct. And the thought was in the 1970s when the Act was passed, because it has turned out to be very common to all of us, at the time, it was kind of a radical idea, but the notion was that if businesses were going to be subjected to those kinds of investigations, that really has to go to the most sensitive, competitively sensitive confidential information in order to answer the questions that you’ve raised, that the government had to guarantee the confidentiality of that material.

And that’s why it’s so limited in terms of who the government can disclose it to. I’m sure they’d love to disclose it to this committee and others.  That sometimes would make their lives easier.  But the fact is the law prevents them from doing that.

Senator Blumenthal:  Thank you very much.  Thank you, Mr. Chairman.

So where does this leave us?  As noted above, Congress can hold a hearing on anything they deem relevant at any time they want.  Certainly, Congress has that power.  The question, like everything else in Washington, is timing, tone and topic—that is, how is power exercised responsibly?  For example, having Congress review and, if necessary clarify, the FCC’s public interest authority to review license transfers is completely appropriate and welcome.   This is precisely the point of Chairman Greg Walden’s recent FCC reform bill.  However, absent evidence of malfeasance on behalf of the FCC or DOJ, Representative Waxman’s and Eshoo’s call for a hearing while a fact-specific investigation is ongoing is nothing more than political kabuki theater.

Right now, we have two expert agencies evaluating the Verizon/Spectrum Co. transaction, directing their trained and credentialed experts in the law and economics of acquisitions and communications to pour over the massive amounts of detailed, confidential and often technical information related to the deal.  As we have demonstrated in prior research and blog posts, evaluating the competitive effects of such transactions is particularly complex given spectrum exhaust.  Given the simple fact that Congress set up the transaction review system firms currently operate under in the first instance, we should let that process play out without adding political fat to the fire.  Pressuring the referees in the middle of the game to affect the outcome is simply not good government.