Do State Reviews of Communications Mergers Serve the Public Interest?

By Eisenach, Jeffrey A.; Kulick, Robert | Federal Communications Law Journal, May 2019 | Go to article overview

Do State Reviews of Communications Mergers Serve the Public Interest?


Eisenach, Jeffrey A., Kulick, Robert, Federal Communications Law Journal


Table of Contents    I   Introduction                                               126  II.  The Law and Economics of State Merger Enforcement          127       A. Merger Enforcement, Consumer Welfare,       and the Public Interest    128       B. State Interventions in Merger Enforcement               132 III.  PUC Interventions in Communications Mergers                138       A. Extent of State Intervention in Communications Mergers  138       B. Procedural Costs, Incremental Delays, and Extraneous       Conditions                                                 141  IV.  SUMMARY AND CONCLUSIONS                                    153 

I. INTRODUCTION

This study presents an empirical analysis of the effects of public utility commission ("PUC") oversight of mergers involving communications carriers. The analysis is based on a data set covering major communications sector transactions from January 1, 2010 through June 30, 2017. Specifically, we gathered and analyzed data on all 40 major transactions approved by the Federal Communications Commission ("FCC") during this period to: (a) determine the extent of PUC involvement in these transactions; and (b) for the transactions in which PUCs were actively engaged, to assess both the procedural and substantive effects of their interventions. (1)

The appropriate role of state governments in the merger review process has been the subject of vigorous debate among academics and policymakers. Supporters of state involvement argue that states may have unique local knowledge of competitive conditions or other comparative advantages that allow them to add value to the enforcement efforts of federal antitrust watchdogs at the Department of Justice ("DOJ") and the Federal Trade Commission ("FTC"). (2) Critics question the benefits of state intervention and also point to the costs, arguing that state reviews are duplicative, costly, and involve unnecessary delays. (3) Critics also note that state enforcers face incentives to place parochial political interests ahead of overall consumer welfare or the broader public interest and thus to impose merger conditions that benefit narrower constituencies to the detriment of the public at large. (4) As we explain below, our data suggest that these concerns are especially apposite to PUC reviews of communications mergers.

In particular, we explain that PUCs typically operate--like the FCC--under a broad and nebulous "public interest" standard, where the burden of proof is with the merging parties, unlike in antitrust review, where the burden is on the government. (5) Also like the FCC, PUCs' decisions not to approve mergers are, for procedural reasons, almost impossible to challenge in court. (6) Thus, PUCs have a high degree of hold-up power over transactions, which allows them to extract "voluntary" concessions with little oversight. (7) Further, unlike the FCC--which assesses the public interest from a national perspective--PUC interventions under the public interest mantle are often motivated by parochial concerns and local political interest. (8) Thus, perversely, the merger conditions imposed by PUCs frequently come at the direct expense of other states and undermine the achievement of national merger efficiencies. (9)

Our analysis of the frequency and characteristics of PUC interventions in communications mergers provides new evidence that states impose significant and unnecessary costs in the form of procedural burdens and delays and that the concessions they extract tend to serve narrow interests rather than the overall public interest. Because mergers are a key mechanism for reallocating resources to their highest valued economic uses, the costs and delays imposed by PUCs ultimately harm overall consumer welfare and economic performance. Accordingly, policymakers at both the federal and state level should consider reforms that would significantly constrain the ability of PUCs to intervene in communications mergers. …

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