Congress to light a fire under the FCC

As the nation's telephone companies wait impatiently to complete some of the biggest mergers in history, Congress launches a campaign to speed approval of such multibillion-dollar deals.

John Borland Staff Writer, CNET News.com
John Borland
covers the intersection of digital entertainment and broadband.
John Borland
3 min read
As the nation's telephone companies wait impatiently to close some of the biggest mergers in history, Congress has launched a campaign to speed approval of such multibillion-dollar deals.

Legislators are concerned that the Federal Communications Commission has taken too long to review mergers such as AT&T's megamerger with Tele-Communications Incorporated, as well as SBC Communications' pending pact with Ameritech. The agency, after taking nearly a year to review previous telecommunications mergers, seems to be repeating its slow progress with the pending Baby Bell deals.

That's too long, says Senator Mike Dewine (R-Ohio), who introduced a bill yesterday that would cap the FCC's merger review timeframe at 6 months.

"Careful scrutiny does not mean endless scrutiny," said Dewine, who chairs a Senate subcommittee on antitrust and competition. "The longer these deals remain under review, the longer the market remains in limbo, and the longer it will be before we see vigorous competition."

The congressional scrutiny comes as part of a larger critical campaign aimed at the FCC. Many lawmakers say these merger delays have stymied competition that was supposed to be facilitated by the passage of the Telecommunications Act of 1996. One of the main stumbling blocks to furthering competition, critics say, has been the commission put in charge to encourage it.

FCC chairman William Kennard, however, defended his agency at a hearing of Dewine's committee yesterday, saying that the scale of the pending mergers simply takes an already overburdened agency more time to examine.

Regulators are committed to ensuring any merger will increase competition, rather than create new monopolies, he said.

"The Commission needs to be particularly careful in evaluating mergers during this time of change and uncertainty, because a merger, once consummated, cannot easily be broken up," he told lawmakers. "You can't unscramble an egg."

The agency approved the AT&T merger last week precisely because it would improve the hope of competition for residential phone users, Kennard said.

But Kennard and others have noted that the aim isn't as clear for the pending mergers between SBC and Ameritech, and Bell Atlantic and GTE. The potential creation of two huge dominant local phone companies--which taken together would control about two-thirds of the nations' phone lines--needs close scrutiny to ensure that competition will not suffer, commissioners have said.

Fallout from the wait?
The companies are impatiently waiting to go ahead with merger plans that are on hold while the commission labors over the fine print.

"It's certainly been a long time," said Selim Bingol, a spokesman for SBC. "There's a lot of uncertainty in the process as far as when we can get started."

SBC has been in this position before. Its merger with Pacific Bell, which was announced in April 1996, didn't close until a year later--and was approved by the FCC only shortly beforehand. The company's merger with Snet, a Connecticut phone company, took nine months to be approved.

Analysts say that the uncertainty of the merger review process does slow some company operations, but in fact has little effect on the financial markets.

Tom Burnett, founder of the New York-based Merger Insight investment firm, noted that most of the telcos' stock has climbed along with the major indexes--even with the review process in limbo.

"The longer you take, the more market risk you have," Burnett said. "But the market could go up in that time, too."

He said that capping the amount of time the FCC can take for mergers would be a boon for investors, however. The move would simply mirror statutory deadlines that the Department of Justice and the Federal Trade Commission already have in reviewing mergers that fall in their jurisdiction.

"You'd have to allow enough time, since some of these mergers are very complicated," he said. "But it would probably be good in terms of the markets, since you'd have more certainty."

Some public interest groups also said a time limit wouldn't be a bad thing.

"Accelerating the process would be good, as long as there is ample time to do the review," said Kevin Taglang, telecommunications analyst for the Benton Foundation. Taglang suggested that regulators should be given more time to scrutinize larger mergers, however.

At the hearing yesterday, the Department of Justice said it would complete its review of the SBC and Bell Atlantic mergers within one or two months. Kennard did not give estimates on how long the FCC would take to finish its own process, but has previously said he wants to wrap up by mid-year.