    [Senate Hearing 106-405]
    [From the U.S. Government Publishing Office]

                                                           S. Hrg. 106-405

      THE ANTITRUST MERGER REVIEW ACT: ACCELERATING FCC REVIEW OF MERGERS

    =======================================================================

                                    HEARING

                                   before the

                           SUBCOMMITTEE ON ANTITRUST,
                        BUSINESS RIGHTS, AND COMPETITION

                                     of the

                           COMMITTEE ON THE JUDICIARY
                              UNITED STATES SENATE

                           ONE HUNDRED SIXTH CONGRESS

                                 FIRST SESSION

                                       on

                                     S. 467

      A BILL TO RESTATE AND IMPROVE SECTION 7A OF THE CLAYTON ACT, WHICH
       WOULD IMPOSE TIME LIMITS ON THE FEDERAL COMMUNICATIONS COMMISSION
                               REVIEW OF MERGERS

                                   __________

                                 APRIL 13, 1999

                                   __________

                              Serial No. J-106-13

                                   __________

             Printed for the use of the Committee on the Judiciary

                        U.S. GOVERNMENT PRINTING OFFICE
    62-593                      WASHINGTON : 2000

                           COMMITTEE ON THE JUDICIARY

                         ORRIN G. HATCH, Utah, Chairman

    STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont
    CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
    ARLEN SPECTER, Pennsylvania          JOSEPH R. BIDEN, Jr., Delaware
    JON KYL, Arizona                     HERBERT KOHL, Wisconsin
    MIKE DeWINE, Ohio                    DIANNE FEINSTEIN, California
    JOHN ASHCROFT, Missouri              RUSSELL D. FEINGOLD, Wisconsin
    SPENCER ABRAHAM, Michigan            ROBERT G. TORRICELLI, New Jersey
    JEFF SESSIONS, Alabama               CHARLES E. SCHUMER, New York
    BOB SMITH, New Hampshire

                 Manus Cooney, Chief Counsel and Staff Director

                     Bruce A. Cohen, Minority Chief Counsel

                                     ______

          Subcommittee on Antitrust, Business Rights, and Competition

                          MIKE DeWINE, Ohio, Chairman

    ORRIN G. HATCH, Utah                 HERBERT KOHL, Wisconsin
    ARLEN SPECTER, Pennsylvania          ROBERT G. TORRICELLI, New Jersey
    STROM THURMOND, South Carolina       PATRICK J. LEAHY, Vermont

                 Louis Dupart, Chief Counsel and Staff Director

            Jon Leibowitz, Minority Chief Counsel and Staff Director

                                      (ii)

                                C O N T E N T S

                                  ----------

                        STATEMENTS OF COMMITTEE MEMBERS

                                                                       Page
    DeWine, Hon. Mike, U.S. Senator from the State of Ohio...........     1
    Kohl, Hon. Herbert, U.S. Senator from the State of Wisconsin.....     2
    Hatch, Hon. Orrin G., U.S. Senator from the State of Utah........ 3, 45
    Leahy, Hon. Patrick J., U.S. Senator from the State of Vermont...    46
    Thurmond, Hon. Strom, U.S. Senator from the State of South
      Carolina.......................................................    47

                        CHRONOLOGICAL LIST OF WITNESSES

    Panel consisting of Roy Neel, president and chief executive
      officer, U.S. Telephone Association, Washington DC; H. Russell
      Frisby, Jr., president, Competitive Telecommunications
      Association, Washington, DC; Richard Weening, executive
      chairman, Cumulus Media, Inc., Milwaukee, WI; and Ronald J.
      Binz, president, Competition Policy Institute, Washington, DC..     5

                    ALPHABETICAL LIST AND MATERIAL SUBMITTED

    Binz, Ronald J.:
        Testimony....................................................    23
        Prepared statement...........................................    24
    Frisby, H. Russell, Jr.:
        Testimony....................................................    12
        Prepared statement...........................................    13
    Kohl, Hon. Herbert:
        Article from the Wall Street Journal: Broadcasters Blast New
          Scrutiny of Radio Deals, dated April 7, 1999...............    37
    Neel, Roy:
        Testimony....................................................     5
        Prepared statement...........................................     7
          Appendix A: USTA Chart--FCC is a Bottleneck to Merger
          Approvals..................................................    11
    Weening, Richard:
        Testimony....................................................    16
        Prepared statement...........................................    18

                                    APPENDIX
                              Proposed Legislation

    S. 467, a bill to restate and improve Section 7A of the Clayton
      Act, which would impose time limits on the Federal
      Communications Commission review of mergers....................    49

                             Questions and Answers

    Questions of Senator Kohl to Hon. William E. Kennard, Chairman,
      Federal Communications Commission..............................    65

                      Additional Submission for the Record

    New York Times Editorial: Mergers That Foster Competition, dated
      April 12, 1999.................................................    85

      THE ANTITRUST MERGER REVIEW ACT: ACCELERATING FCC REVIEW OF MERGERS

                                  ----------                              --
    ----

                            TUESDAY, APRIL 13, 1999

                               U.S. Senate,
    Subcommittee on Antitrust, Business Rights,
                                       and Competition,
                                    Committee on the Judiciary,
                                                        Washington, DC.
        The committee met, pursuant to notice, at 10:03 a.m., in
    room SD-226, Dirksen Senate Office Building, Hon. Mike DeWine
    (chairman of the subcommittee) presiding.
        Also present: Senators Kohl and Hatch (ex officio).

    OPENING STATEMENT OF HON. MIKE DeWINE, A U.S. SENATOR FROM THE
                             STATE OF OHIO

        Senator DeWine. Good morning and welcome to the Antitrust
    Subcommittee hearing on S. 467, the Antitrust Merger Review
    Act, a bill that will impose time lines on Federal
    Communications Commission reviews of mergers.
        The reason that Senator Kohl and I have introduced this
    legislation is quite simple. The FCC is taking too long to
    review telecommunications mergers. Let me just mention one
    example, SBC and Ameritech. SBC and Ameritech announced their
    intention to merge in May of 1998 and formally filed their
    application in July. Two weeks ago, after 8 months of review,
    the FCC offered to start a ``collaborative process'' with the
    parties to examine five major areas of concern. Now, this
    process is supposed to conclude by the end of this June, more
    than a full year after the parties announced their merger.
    Quite frankly, this is just too long.
        Let me be very clear. We want the FCC to conduct thorough
    investigations of these matters. When SBC and Ameritech first
    announced their proposed merger, Senator Kohl and I sent a
    letter to the FCC to request that the FCC give special
    attention to the competitive implications of consolidation in
    the telephone industry and the impact of the proposed SBC-
    Ameritech merger in particular. So we think the FCC has a role
    to play. Furthermore, I like the idea of the ``collaborative
    process''. I think it is a good idea to involve the parties and
    to involve them in an effort to resolve competitive concerns. I
    am hopeful the process will be a success.
        But the FCC simply has to act more rapidly. In an industry
    that has been as active and vibrant as telecommunications, it
    is absolutely essential that the regulatory agencies move
    quickly and efficiently to resolve competitive issues. Merging
    parties and their competitors cannot be asked to wait in
    regulatory limbo month after month after month, not knowing if
    or when a merger will be allowed, not knowing what conditions
    may be attached, and not knowing how the market will be
    structured in the future.
        We are not, let me repeat, not trying to influence how the
    FCC decides the case, but no matter what the FCC decides on a
    particular issue, individual businesses need certainty. More
    generally, the industry needs prompt regulatory decisions so
    they can move more quickly towards full and vigorous
    competition. The FCC has to promote that competition, not stand
    in the way of competition by dragging its feet on review of
    mergers.
        Just as important, as I have mentioned before, we must
    consider the employees of the merging companies. These
    individuals are often thrown into complete turmoil by the
    prospect of a merger. They do not know what is going to happen
    to their company. They do not know if they are going to have to
    move on or if they are going to lose their jobs. We need to be
    sensitive to these very understandable human concerns and do
    everything we can to get these people quick answers so that
    they can plan for their futures and figure out how they are
    going to provide for their families.
        Before I turn to the ranking member of this subcommittee,
    Senator Kohl, let me just mention that most of you have
    probably noticed that S. 467 addresses more than just FCC time
    limits. In fact, much of the bill deals more generally with the
    Hart-Scott-Rodino Act. We are currently evaluating ways to
    amend Hart-Scott. Specifically, we are most focused on the
    possibility of modifying the $15 million filing threshold,
    which has not been changed since the law was first passed way
    back in 1976. Senator Kohl and I are working closely with
    Chairman Hatch and with the Justice Department on that aspect
    of the bill.
        So we may do some more work on the overall framework of
    Hart-Scott, but for today and for today's hearing, we would
    like to focus on the section that specifically deals with FCC
    time limits. I am looking forward to hearing the testimony of
    our panel of four witnesses and I am sure that they will
    provide helpful insights as we prepare for a subcommittee
    markup at the end of this month.
        Senator Kohl.

     STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM THE STATE
                              OF WISCONSIN

        Senator Kohl. Thank you, Mr. Chairman. Our bill, the
    Antitrust Merger Review Act, is simple, effective, and
    straightforward. It sets reasonable time limits for the FCC to
    follow when it is reviewing license transfers. In other words,
    our bill says to the FCC: approve the deal, reject the deal, or
    apply conditions, but do not just sit on it.
        Let me briefly explain why this measure is necessary.
    Companies, their employees, and their customers have all too
    often been at the mercy of a time-consuming merger review
    process in which the two lead agencies, the DOJ and the FCC,
    act in sequence and not in tandem, and that just does not make
    sense. Instead, we ought to place a reasonable limit on
    reviewing these deals.
        The DOJ and the FTC both have deadlines under the Hart-
    Scott-Rodino laws, and the Federal Energy Regulatory Commission
    imposes its own 150-day deadline on most deals, and so there is
    no compelling reason why the FCC should not have a deadline, as
    well. To my mind, there is a very good reason why we should
    place a shot clock on the Commission. They take too long to
    review these mergers, just as they often take too much time to
    review other matters.
        For example, it took the FCC 16 months to rule on Bell
    Atlantic/NYNEX, and even on the smaller deals, the FCC also
    sometimes drags its feet. Take, for example, the attempts of
    Cumulus Media to acquire a handful of radio stations in South
    Carolina. It took more than 1 year--1 year--to complete that
    acquisition, even though the cost was well below the $15
    million Hart-Scott-Rodino threshold and nobody opposed it. That
    is not only wrong, it is unacceptable.
        Two weeks ago, the FCC proposed a collaboration with SBC
    and Ameritech. That is fine, and we agree with the issues the
    Commission has identified. But the FCC waited until 10 months
    after this merger was announced to take this step, hardly a
    self-imposed attempt to act expeditiously.
        To be sure, unlike many in Congress, we do not seek to
    substantively change the FCC's ability to review mergers with a
    public interest test. From both a public interest and antitrust
    perspective, some deals ought to be rejected, and the huge wave
    of telecom and internet mergers clearly creates some concern.
        But one thing is also true. There is across-the-board
    support for bringing more speed and certainty to this process,
    and we look forward to working with our witnesses, including my
    good friend, Richard Weening of Milwaukee, to do just that.
        Mr. Chairman, let me make just a few additional points.
    Clearly, it is not our intention to slow down the review of
    smaller mergers that do not meet the Hart-Scott-Rodino filing
    thresholds by applying a time line only to the larger ones that
    do. So my inclination is to amend our bill to ensure that it
    applies to all FCC mergers, both big and small.
        Finally, it is no secret that Congress is in the process of
    rethinking the Hart-Scott-Rodino thresholds. Senator DeWine and
    I are committed to working with other interested members, like
    Chairman Hatch, but we have not yet decided whether to make our
    measure the vehicle for doing so when we mark it up later this
    month.
        Thank you, Mr. Chairman.
        Senator DeWine. Senator Kohl, thank you very much.
        Let me turn to the chairman of the full Judiciary
    Committee, Senator Hatch.

    STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE
                                OF UTAH

        The Chairman. Thank you, Senator DeWine.
        I would like to begin by extending my appreciation to both
    Senators DeWine and Kohl, the chairman and ranking member of
    the subcommittee, respectively, for their tremendous efforts in
    bringing today's hearing and making it possible and beginning a
    meaningful dialogue on the important issue of FCC review of
    mergers in the communications industry.
        In light of the increasingly numerous mergers in the
    communications industry and the ever-increasing importance of
    telecommunications services throughout our country and our
    society, whether it is telephone or internet services, I am
    pleased that we will have an opportunity to hear today from
    affected parties on some of the regulatory burdens faced by
    this industry.
        As we see more and more mergers in the communications
    industry wait longer and longer to obtain approval from the FCC
    for their mergers, we have to pause and ask what is causing
    this delay. Unnecessary and unwarranted delays in the approval
    process could mean delayed competition in certain markets,
    delayed deployment of new technologies, and delayed delivery of
    services or improved services to consumers, whether they are in
    my home State of Utah or Ohio, Wisconsin, Minnesota, or
    anywhere else. We must determine what is causing this delay and
    whether it is warranted and we have to address it properly.
        I believe that the legislation introduced by Senators
    DeWine and Kohl, S. 467, is an important step in the right
    direction in addressing some of the concerns. This legislation,
    based loosely on the Hart-Scott-Rodino merger review process,
    would impose time limits on the FCC's review of certain
    telecommunications transactions. Namely, it affects those
    transactions required to be reported under the Hart-Scott-
    Rodino Antitrust Improvements Act of 1976.
        The FCC has been increasingly ambitious in interpreting its
    statutory authority under sections 214 and 310 of the
    Telecommunications Act to assert jurisdiction over the
    telecommunications mergers that happen to include transfers of
    licenses. The Telecommunications Act provides the FCC with the
    authority to review applications to transfer licenses to ensure
    that ``the public interest, convenience, and necessity'' will
    be served.
        Now, these are important functions and the FCC's activities
    and expertise in this area is very important. However, the
    Commission's regulatory authority is limited. It does not
    include review of every aspect of a merger and certainly does
    not include the review of the merger for its potentially
    broader competitive impact within the industry. That is a
    review properly performed and reserved to the antitrust
    enforcers in the Department of Justice and the FTC. As
    Commissioner Furchtgott-Roth wrote in his recent concurrence in
    the AT&T/TCI matter, the FCC's work ``often duplicates that of
    the Department of Justice's Antitrust Division.''
        I look forward to working with my colleagues in the Senate,
    the FCC, the Department of Justice, and those in industry to
    ensure a proper procedure for the review of communications
    industry mergers that results in a fair and workable system for
    all Americans. I look forward to working with Senators DeWine
    and Kohl in addressing some of these issues by imposing certain
    time limits in the FCC review of the telecommunications mergers
    as proposed in this bill.
        So I am proud of our two Senators in this area and the good
    work that they do on this subcommittee and the fine way that
    they work together in the best interest of the country and I
    look forward to hearing and reviewing the comments of those who
    are concerned here today, and I welcome all of you to the
    committee.
        Senator DeWine. Senator Hatch, thank you very much.
        Let me now turn to our panel. Roy Neel joined the U.S.
    Telephone Association as President in January 1994. He is
    responsible for managing all the association's legal,
    regulatory, legislative, and technical activity. Prior to
    joining USTA, Mr. Neel served as President Clinton's Deputy
    Chief of Staff.
        Russell Frisby, Junior, is the President of Competitive
    Telecommunications Association, CompTel. Immediately prior to
    joining CompTel, he was Chairman of the Maryland Public Service
    Commission, which exercises jurisdiction over all utilities,
    including telecommunications, within the State. Mr. Frisby
    previously practiced telecommunications law for 20 years.
        Richard Weening is the co-founder and Executive Chairman of
    Cumulus Media, Incorporated. He has founded several other firms
    involved in publishing, broadcasting, online services, and
    electronic commerce.
        Ronald Binz is the President and Policy Director of CPI, a
    consumer interest group and think tank he co-founded in March
    1996. For 11 years before that, he directed the Colorado Office
    of Consumer Counsel.
        We welcome all of you. Mr. Neel, we will start with you.
    Let me just state for the record that all the written
    statements that you have submitted will be made a part of the
    record and that you can proceed as you wish. Mr. Neel.

      PANEL CONSISTING OF ROY NEEL, PRESIDENT AND CHIEF EXECUTIVE
    OFFICER, U.S. TELEPHONE ASSOCIATION, WASHINGTON, DC; H. RUSSELL
        FRISBY, JR., PRESIDENT, COMPETITIVE TELECOMMUNICATIONS
        ASSOCIATION, WASHINGTON, DC; RICHARD WEENING, EXECUTIVE
      CHAIRMAN, CUMULUS MEDIA, INC., MILWAUKEE, WI; AND RONALD J.
     BINZ, PRESIDENT, COMPETITION POLICY INSTITUTE, WASHINGTON, DC

                         STATEMENT OF ROY NEEL

        Mr. Neel. Thank you, Mr. Chairman, and thank you and
    Senator Kohl for introducing this legislation that is much
    needed and to Chairman Hatch for his strong supporting remarks.
        I represent more than 1,000 local telephone companies of
    all sizes, everything from very large companies like Bell
    Atlantic, SBC, and GTE down to some very small mom-and-pop
    operations. This legislation is needed for a variety of reasons
    and you have hit many of the topics here.
        We certainly favor limiting the FCC review period to 180
    days or less, and frankly, I think you could make an argument
    for completely eliminating FCC jurisdiction in this area except
    for management of spectrum. Basically, what happens is the
    Commission uses their interpretation of their very narrow
    mandate in reviewing mergers to extract concessions from these
    companies in a number of areas, frankly, far exceeding their
    mandate. It is clear that for smaller companies, this review
    should even be less time. We think it should be applicable to
    pending mergers, as well, and that this time line kick in once
    the applications are filed. So we think you are on the right
    track there.
        Clearly, these delays are harmful. They are harmful both to
    the companies that are trying to join forces and compete. They
    hamper the roll-out of new services because you basically have
    to put your business on hold until the FCC takes some action.
    It diminishes product innovation. It creates massive
    instability in the financial markets associated around these
    companies. It basically affects their fundamental
    competitiveness, not only here at home, allowing, say, a
    company like SBC/Ameritech to compete with a monster company
    like AT&T and TCI or even MCI WorldCom. It restricts their
    ability to create jobs. It is simply not fair to the employees
    who have to put their lives on hold.
        A number of these mergers are beneficial, perhaps not all,
    but clearly the ones that relate to my companies, the Bell
    companies, the SBC/Ameritech and others, have clearly given
    additional resources, rolled out new services, and helped
    consumers, as well. Particularly, residential consumers are
    helped by this, consumers that are generally ignored by these
    new so-called competitors, as well as the AT&T/TCI, MCI
    WorldCom companies. They are simply left out in the cold here.
    It is these companies, the local telephone companies that
    continue to serve those customers, roll out new products and
    services. They keep rates low. They do not raise them
    capriciously. AT&T just slapped a $3 a month charge on its
    smallest consumers, probably to help pay for this mega-merger
    with TCI.
        So residential companies are helped by these mergers that
    we are referring to. They provide one-stop shopping and they
    basically give them the resources they need to compete
    globally, as well, and create new jobs.
        Let us just look quickly at a couple that have occurred.
    The Bell Atlantic/NYNEX merger added more than 4,000 service-
    related jobs, increased capital spending by $600 million, and
    will up to $6 billion. They invested more than $1 billion to
    open their local markets, this new joint company. They launched
    new social programs and improved customer care. The SBC/Pacific
    merger created 4,000 jobs, as well. Service installation times
    have improved significantly. Services such as new digital DSL
    services have been introduced, as well as other major community
    services.
        Let us look at one of the mergers in question here, SBC/
    Ameritech. It is expected that 8,000 jobs will be created in
    this merger, new efficiencies. Thirty new out-of-region markets
    are planned to be entered. That means that this new combined
    company is going to go into 30 markets outside its area to
    compete with other Bell phone companies, as well as some of the
    mega-companies like AT&T, TCI, and so on. They expect to lay
    2,900 miles of new fiber and 140 massive new switches and spend
    $25 billion in capital and operating expenses. The consumer
    ultimately wins.
        Let me quote from a letter, just to really sum up the
    benefits in these mergers. This is from Morty Bahr, who you all
    know is the President of the Communication Workers, who
    certainly is no spokesperson for the Bell companies per se. He
    is writing to Chairman Kennard and he says,

        It appears that the ``good guys,'' the companies that are
    creating thousands of jobs, are victims of the FCC's
    overzealous scrutiny while companies like MCI WorldCom, that
    are squeezing profits out of laid-off workers, are treated in a
    more favorable fashion. I fully understand your concern about
    the public interest, but where is the concern for the 200,000
    employees of SBC, Ameritech, Bell Atlantic, and GTE who would
    like to get on with their lives in a much more secure
    environment?

        So, clearly, we encourage you to move on this legislation,
    get it into the law. In the FCC's arbitrary use of this very
    narrow definition, that, by the way, in the 1996 Telecom Act,
    you took away from the FCC, and they are drawing on a very
    narrow loophole, a vague interpretation to essentially use this
    to squeeze concessions out of the very companies that will
    create jobs, innovate, and introduce new services to your
    constituents and throughout the country. This is good
    legislation that you have. We ask you to make some minor
    changes and we will support you in every way we can. Thank you.
        Senator DeWine. Mr. Neel, thank you very much.
        [The prepared statement of Mr. Neel follows:]

                         Prepared Statement of Roy Neel

        Mr. Chairman, Senator Kohl, and Members of the Subcommittee, thank
    you for having this hearing on this important topic and for the
    opportunity to be here today. I am President and CEO of the United
    States Telephone Association, which has for 102 years represented the
    local exchange telephone carriers. Today, USTA has over 1100 members
    who are extremely interested in the subject matter of this hearing and
    your merger legislation--S. 467. Mr. Chairman, we believe enactment of
    S. 467, with some slight modifications, will significantly improve the
    merger process at the FCC.
                                  introduction
        The Federal Communications Commission (FCC) merger review process
    takes far too long, and the roles of the FCC and the Department of
    Justice (DOJ) continue to be overlapping and duplicative despite the
    attempted legislative reform on this very point by the authors of
    Section 601(b) of the Telecommunications Act of 1996 (1996 Act). Mr.
    Chairman, as you said on the day you introduced your merger bill which
    calls for an ``Expedited Schedule for Review'' by the FCC: ``These
    mergers must be evaluated in a timely fashion so that the merging
    parties move forward. The longer these deals remain under review the
    longer the market remains in limbo and the longer it will be before we
    see the vigorous competition that we all want.''
        USTA believes the FCC merger review process ought to be statutorily
    shortened dramatically or even quite possibly eliminated altogether,
    except for spectrum management issues. The review by the FCC has become
    truly duplicative of the review by the DOJ. In an era of no barriers to
    entry and competition, FCC review of telecommunications mergers is an
    anachronism more consistent with the legislation from which the
    Communications Act was derived--the Interstate Commerce Act written for
    railroads in 1887--than the 1996 Act.
        Moreover, the FCC's tendency to delay reviewing merger applications
    is shown by some examples from the chart attached to my testimony (see
    attached Appendix A). The chart catalogs the elapsed time periods
    associated with the review of several recent major telecommunications
    mergers. Look, for example, at a couple of the merger review periods
    for the FCC: the Bell Atlantic/NYNEX merger, for example, is the worst
    case at 16 months; the SBC/PacTel merger at 12 months; followed by the
    WorldCom/MCI merger at 10 months.
        These delays greatly hamper the competitive rollout of new
    services, product innovation, and, ultimately, lower prices for
    consumers. Moreover, as you had mentioned, Mr. Chairman, markets remain
    in limbo as they wait for the determination of regulators.
    Unfortunately, fast paced, technologically savvy, and truly global
    markets--such as those in the telecommunications industry--cannot wait.
    Quite simply, if companies cannot quickly reorganize in a manner that
    enhances competition, delays in approval ultimately thwart the American
    consumer's ability to compete successfully with the world.
        S. 467's legislative goal of limiting the time taken by the FCC in
    reviewing these mergers at a minimum is thus not only warranted, it is
    desperately needed. USTA favors limiting the FCC's review of
    telecommunications company mergers to 180 days or less from the time of
    filing with the FCC to the time of approval--this would include those
    mergers currently pending. If the FCC does not Act within 180 days of
    filing with the FCC, the merger should be deemed approved. For smaller
    telephone companies, USTA believes that the FCC should have an even
    more limited role with respect to these mergers.
        consumer and competitive benefits of telecommunications mergers
        Mergers benefit both residential and business consumers because the
    combined resources of the merged companies allow for the development of
    a whole new range of products and services that are delivered to the
    consumers more quickly and packaged or bundled to fit their needs.
    Further, with the increased scale and scope of a merged company, the
    company is in a better position to compete. This increased competition
    brings down prices and givers consumers better service.
        For business customers, mergers provide new suppliers of voice and
    data services that they demand. For instance, the merger of Bell
    Atlantic and GTE combines Bell Atlantic's market presence and GTE's
    long distance voice and data networking capabilities which provides
    customers with more choice and competition. Residential customers will
    also benefit from these mergers because as the scale and scope of the
    company increases, costs go down, thus allowing the more rapid
    deployment of such innovative services as broadband local-loop
    technologies like Digital Subscriber Line (DSL).
        When Bell Atlantic merged with NYNEX, the merging parties said that
    there would be more jobs, more infrastructure investment, better
    service and open markets. I believe the track record of Bell Atlantic
    after the merger confirms that commitment. Since the completion of the
    merger, Bell Atlantic has added more than 4,000 service related jobs;
    increased capital spending by $600 million to $6 billion; invested $1
    billion to open local markets; launched new social programs; and
    improved customer care.
        I also believe that the same can be said for the SBC/PacTel merger.
    The President of the Communications Workers of America, Morton Bahr, in
    writing to President Clinton said ``in the short time that SBC has had
    ownership of PacTel, we have seen jobs grow in California, good high
    tech union jobs * * *'' Since the PacTel merger, SBC has added 4,000
    new jobs; service installation and repair times have improved
    significantly; new services such as high-speed Internet access have
    been introduced; and charitable and community contributions have
    increased dramatically.
        With respect to the SBC/Ameritech merger, I believe that you can
    expect similar results. SBC estimates that the merged company's entry
    into out of region markets will alone produce more than 8,000 new jobs.
    Further, SBC believes that the efficiencies gained through the merger
    will allow for quicker rollout of new products and services such as
    DSL. After the merger, they intend to enter the 30 largest markets
    outside of their combined territory; add an additional 2,900 miles of
    fiber and 140 new switches; and invest more than $25 billion in capital
    and operating expenses over the next ten years. Ultimately, the
    consumer was in this scenario.
        The mergers will also spark competition by creating formidable
    domestic competitors for AT&T/Teleport/TCI and MCI/WorldCom. I might
    point out that Bell Atlantic, GTE, SBC, and Ameritech will continue to
    have business plans that include an active effort to serve residential
    customers with a full panopoly of services. Once merger approval is
    granted to these companies, and the FCC more fully opens the door for
    them to offer in-region, long-distance service, including advanced
    services such as high speed Internet access and data services, these
    companies will be local, interstate and international providers of
    services. Such an occurrence will only further compel the competitive
    zeal of all telecommunications providers, primarily inuring to the
    benefit of the consumer.
                        telecommunications globalization
        The major telecommunications merges that the federal government is
    currently reviewing, as well as those they have considered over the
    past two years, are the inevitable consequence of the globalization of
    telecommunications. There is now a trend towards the formation of a
    half-dozen or so nationwide and worldwide telecommunications companies
    that can give customers the telecommunications and information services
    that they want. This explains the creation of large telecommunications
    providers like AT&T/Teleport/TCI/British Telecom, Sprint/Deutsche
    Telekon/France Telecom, WorldCom/MFS/UUNET/MCI, SBC/PacTel/SNET/
    Ameritech, and Bell Atlantic/NYNEX/GTE.
        This globalization of telecommunications has been well publicized
    and has changed telecommunications markets throughout the world. The
    United States was one of the leaders in bringing this trend about
    through the passage of the 1996 Act, which opened the
    telecommunications service markets to competition. This U.S. action was
    followed quickly by the World Trade Organization Agreement on Basic
    Telecommunications Services which committed most of the world to open
    market concept embodied in the 1996 Act. The telecommunications
    equipment market in the U.S. had been opened to competition for decades
    due to the FCC's telephone equipment registration program. To play on
    this global level requires a massive capital base--SBC/Ameritech will
    have annual revenues of $40 billion, but AT&T has $51 billion and
    Nippon Telephone has $71 billion. If American companies are to maintain
    world leadership in telecommunications, merges are an important
    ingredient.
                  mergers to not re-create the old bell system
        I have heard it claimed that these mergers will just put the old
    Bell system back together, or at least have an old Bell system West and
    an Old Bell system East. This, of course, is not true. Predivestiture
    AT&T (the old Bell system) had a monopoly in three areas: long
    distance, local telephone service, and equipment manufacturing. None of
    these current companies (e.g., GTE, SBC, etc.) engage in manufacturing,
    nor do any of the Bell operating companies provide in-region interLATA
    wirelines long distance service. Also, predivestiture (1984) AT&T had
    the protection of markets legally to competitors. The 1996 Act swept
    away all of those legal barriers to entry. Markets are open--
    competition is thriving and will continue to do so in the future.
    Consumers will only benefit from merged companies that are better able
    to meet competition both domestically and internationally.
                       the telecommunications act of 1996
        Section 601(b) of the 1996 Act was entitled ``Antitrust Laws'' and
    provided as follows:

        (b) Antitrust Law._
              (1) Savings Clause.--Except as provided in paragraphs (2) and
            (3), nothing in this Act or the amendments made by this Act
            shall be construed to modify, impair, or supersede the
            applicability of any of the antitrust laws.
              (2) Repeal._Subsection (a) of section 221 (47 U.S.C. 221(a))
            is repealed.\1\
    ---------------------------------------------------------------------------
        \1\ Old Section 221(a), reading in pertinent part: ``* * * If the
    Commission finds that the proposed consolidation, acquisition, or
    control will be of advantage to the persons to whom service is to be
    rendered and in the public interest, it shall certify to that effect;
    and thereupon any Act or Acts of Congress making the proposed
    transaction unlawful shall not apply * * *''
    ---------------------------------------------------------------------------
              (3) Clayton Act._Section 7 of the Claytong Act (15 U.S.C. 18)
            is amended in the last paragraph by striking ``Federal
            Communications Commission.''

        Please take particular note of paragraphs ``(2) Repeal'' and ``(3)
    Clayton Act.'' The 1996 Actspecifically sought to limit the antitrust
    review and immunity of the FCC. So, the FCC's continuing uninterrupted
    and unchanged, but possibly an even more aggressive, role in the merger
    review process--even after the passage of these two cited paragraphs--
    comes as somewhat of a surprise to us. If the FCC's review of mergers
    was not intended to be in any way altered or diminished, why were these
    two paragraphs enacted? Just to eliminate the FCC's ability to grant
    antitrust immunity? We did not think so at the time of passage. Page
    201 of the Conference Report for the 1996 Act, H.R. Conf. Rep. 104-458
    at 201), reveals that the purpose of these changes was as follows:

              The new language contains a conforming change to clarify that
            these mergers will now be subject to Hart-Scott-Rodino review.
            By returning review of mergers in a competitive industry to the
            DOJ, this repeal would be consistent with one of the underlying
            themes of the bill--to get both agencies back to their proper
            roles and to end government by consent decree. The Commission
            should be carrying out the policies of the Communications Act
            and the DOJ should be carrying out the policies of the
            antitrust laws. The repeal would not affect the Commission's
            ability to conduct any review of a merger for Communications
            Act purposes, e.g., transfer of licenses. Rather, it would
            simply end the Commission's ability to confer antitrust
            immunity. [Emphasis added]

        Doesn't it seem clear what congressional intent was here? Section
    221(a), which was being repealed by Section 601(b)(2) of the 1996 Act,
    had authorized the FCC to determine whether any * * * proposed
    consolidation, acquisition or control will be of advantage to the
    person whose service is to be rendered and in the public interest * *
    *'' In other words from 1934 to 1996, the FCC had a clearly specified
    statutory role in reviewing mergers of telephone companies, but the
    1996 Act repealed that authority. Section 221(a) was, in other words,
    the FCC's merger authority. As the Conference Report indicates,
    Congress intended to return ``* * * review of mergers in a * * *
    competitive industry in the DOJ * * *''.
        The FCC's role after the repeal of Section 221(a) and the Clayton
    Act repeal was intended--as we understood it at the time of passage and
    as the Conference Report seems to indicate--to reduce the FCC merger
    review role to a review of ``the transfer of licenses.'' The FCC's
    review, to which any of the companies on my attached chart can attest,
    surely goes well beyond the review of the ``transfer of radio
    licenses.'' The merger review conducted by the FCC today are not
    materially different than they were before the passage of the 1996 Act,
    with the only real substantive difference being that today the FCC does
    not have the authority to confer antitrust immunity as that was also an
    aspect of Section 221(a). Despite congressional intent to return merger
    review authority to the DOJ, the FCC still reviews these mergers,
    asserting they have jurisdiction under Section 214(a) with respect to
    the acquisition and operation of lines; Section 310(d) regarding the
    transfer of radio licenses; and Section 4(i) authorizing the FCC to
    ``perform any and all acts * * * as may be necessary in the exercise of
    its functions.'' In accord with congressional intent as witnessed in
    the 1996 Act, the FCC's authority to review mergers must be
    substantially reduced or eliminated altogether.
                                   conclusion
        In speeding up and consolidating the merger review process,
    companies, markets and consumers benefit. American industries can
    better respond to and meet both domestic and international competition
    through more efficient, innovative and cost-conscious companies.
    Importantly, markets are properly served, with consumers receiving the
    competitive benefits of increased service quality, new choices, and
    lower prices.
        Mr. Chairman, Senators, thank you for the opportunity to be here
    today. Should you have any questions, I'd be willing to entertain them
    at this point.

    [GRAPHIC] [TIFF OMITTED] T2593A.001

        Senator DeWine. Mr. Frisby.

                  STATEMENT OF H. RUSSELL FRISBY, JR.

        Mr. Frisby. Thank you very much, members of the committee.
    As was mentioned, I am President of the Competitive
    Telecommunications Association, which is also known as CompTel.
    CompTel is the principal national industry association
    representing over 330 competitive telecommunications providers
    and their suppliers, including large nationwide carriers, as
    well as scores of smaller regional carriers. Our members
    include competitive local exchange companies, long distance
    carriers, resellers, fixed wireless, information service, ISP
    providers, equipment manufacturers, and vendors. We serve all
    sizes and kinds and types of customers throughout the country
    and throughout the world.
        Thank you for giving me the opportunity to appear here
    today. Your longstanding commitment to examining the
    ramifications of mergers in this area is very much appreciated.
        I would like to say a few words about telecommunications
    legislation in general and then give CompTel's perspective on
    S. 467. At the outset, CompTel strongly supports the
    Telecommunications Act of 1996 and just as strongly opposes any
    efforts to reopen the Act. The Act has made the development of
    local exchange competition possible by breaking monopoly
    barriers and permitting competitive entry through a variety of
    business strategies.
        Thanks to the Act's market-opening provisions, entry by
    competitive local exchange carriers is increasing every day.
    These carriers are successfully winning new local customers and
    building new local exchange facilities. Unfortunately,
    competition has not grown as rapidly as anticipated in those
    areas where monopolies have failed to meet their obligations
    under the Act, but competition has, in fact, taken root. Given
    the opportunity, it will flourish.
        CompTel is particularly concerned about certain kinds of
    assaults on the Act: First, efforts to legislate a date certain
    for RBOC entry into long distance; second, attempts to provide
    premature LATA boundary relief for RBOC's for inter-LATA data
    services, for example; and third, proposals to carve out any
    aspect of the incumbent's networks from the Act's market
    opening provisions.
        It is my understanding that Chairman DeWine and Ranking
    Member Kohl also oppose efforts to reopen the Act and that S.
    467 is intended only to provide some speed and certainty to the
    merger review process. Given this limited goal, which we
    support, great care should be taken to prevent the bill from
    being amended or expanded in any way that would alter the
    substance of the Telecom Act.
        With that said, I would like to share CompTel's perspective
    on S. 467. We understand and endorse the policy behind the
    legislation, to speed the FCC process for approving mergers and
    acquisitions. In fact, CompTel would like to see the FCC move
    faster in many other areas, as well.
        It is a fact of life in our rapidly growing and technology-
    driven industry that companies will merge and acquire. In the
    vast majority of cases, new combinations are not only pro-
    competitive, they are also critical to bringing the best
    technology and greatest efficiencies to the consumers. A few
    examples of competition-enhancing mergers are those of AT&T and
    TCI, MCI and WorldCom, Airtouch and Vodaphone, WorldCom and
    Brooks Fiber, Excel and Teleglobe. These mergers represent the
    combination of complimentary non-duplicative operations of
    companies to create facilities-based carriers that will compete
    effectively in many sectors of the economy.
        Given the rapid changes we are experiencing in these
    markets, it is critical that policy makers permit such pro-
    competitive industry restructuring to move forward with ease
    and speed. For that reason, CompTel commends your efforts and
    endorses the goals of S. 467.
        Furthermore, S. 467 properly recognizes that the FCC's
    merger review process is a critical safeguard of the public
    interest. In addition to determining whether a merger should
    move forward, the FCC's public interest analysis also provides
    an opportunity to create a more competitive environment by
    conditioning merger approval on market-opening actions.
        In the vast majority of cases, the FCC's public interest
    review can and should take place within the time frame set
    forth by your legislation. It is important, however, to
    recognize that the telecommunications industry is still in
    transition from a monopoly model to a competitive model. As a
    result, some mergers involving the largest monopoly providers
    may require more time than your bill provides. Even these
    mergers, however, must be reviewed with speed. Nonetheless,
    under certain circumstances, forcing an untimely decision could
    have an adverse effect.
        To that end, CompTel proposes a modification to S. 467 that
    would promote efficiency while ensuring the FCC has adequate
    time to evaluate new market combinations. We propose adding a
    mechanism whereby the FCC on a majority vote could extend the
    bill's 180-day time limit by 90 days. This provision would only
    be triggered in the rare number of circumstances where a
    combination is so important and raises such competitive
    concerns that the FCC cannot fairly consider the issues within
    180 days.
        In closing, let me reiterate our appreciation for your
    efforts to stimulate competition in the telecommunications
    market. We are encouraged to hear that Chairman DeWine and
    Ranking Member Kohl are developing legislation to ensure that
    all telecommunications providers have equal and
    nondiscriminatory access to buildings. Your commitment to
    ensuring that new entrants have a fair shot at winning
    customers and buildings is much appreciated.
        Again, thank you for the opportunity to appear here today.
        Senator DeWine. Thank you very much.
        [The prepared statement of Mr. Frisby follows:]

                  Prepared Statement of H. Russell Frisby, Jr.

        Good morning. My name is H. Russell Frisby, Jr., and I am President
    of the Competitive Telecommunications Association (CompTel). Thank you
    for giving me this opportunity to speak to you about how changes in
    merger review policies would affect competition in telecommunications.
    Your longstanding commitment to examining the ramifications of mergers
    in this area is much appreciated. CompTel is the principal national
    industry association representing over 330 competitive
    telecommunications providers and their suppliers, including large
    nationwide carriers as well as scores of smaller regional carriers. Our
    members include competitive local exchange carriers (CLEC's), long
    distance carriers and resellers, fixed wireless, information service
    and Internet providers, equipment manufacturers and vendors.
                i. outlook on prospect of legislation generally
        I'll say a few words about telecommunications legislation in
    general, then give CompTel's perspective on S. 467. At the outset,
    CompTel strongly supports the Telecommunications Act of 1996, and just
    as strongly opposes any efforts to reopen the Act.
        The Act has made the development of local exchange competition
    possible by breaking monopoly barriers and permitting competitive entry
    through a variety of business strategies. Thanks to the Act's market-
    opening provisions, entry by competitive local exchange carriers is
    increasing every day,and these carriers continue to be successful in
    winning new local customers and in building new local exchange
    facilities. Although competition has not grown as rapidly as
    anticipated in those areas where the monopolies are not living up to
    their obligations under the Act, competition has, in fact, taken root.
    Given the opportunity, it will flourish.
        This hearing is timely because we are at a critical juncture on the
    road to competition. One path leads to competition via the roadmap
    drawn out in the Telecom Act. The other path is an anticompetitive
    detour that is marked by proposals to circumvent the market-opening
    provisions of the Act. CompTel is pleased that the Supreme Court has
    upheld the FCC's local competition rules. We are hopeful that the
    Regional Bell Operating Companies (RBOC's) will finally commit
    themselves to complying with the Act and opening their local markets to
    competition, instead of circumventing Congress' intent through
    litigation and lobbying for legislation that would overturn the Act.
    The Act is working and it should be allowed to continue to do so. Any
    attempt to weaken the Act will leave local markets bottled up,
    destabilize competitive carriers, and deprive consumers of the benefits
    of local competition.
        CompTel is particularly concerned, for example, about any efforts
    to legislate a date certain for RBOC entry into long distance, to
    provide premature LATA boundary relief for RBOC's (e.g., for interLATA
    data services), or to alter the law by carving out any aspect of the
    incumbent networks from the Telecom Act's market-opening provisions. It
    is my understanding that Chairman DeWine and Ranking Member Kohl also
    oppose efforts to reopen the Act, and that S. 467 is only intended to
    provide some speed and certainty to the merger review process. Given
    this limited goal, great care should be taken to prevent the bill from
    being amended or expanded in any way that would alter the substance of
    the Telecom Act.
                             ii. outlook on s. 467
        With that said, I'd like to share CompTel's perspective on S. 467.
    We understand and endorse the policy behind this legislation--to speed
    the FCC process for approving mergers and acquisitions. In fact,
    CompTel would like to see the FCC move faster in many other areas as
    well. S. 467's goal is laudable: to get competitive combinations to
    market as soon as possible. It is a fact of life in our rapidly-growing
    and technology-driven industry that companies will merge and acquire.
    In the vast majority of cases, new combinations are not only pro-
    competitive but critical to bringing the best technology and greatest
    efficiencies to consumers. Many recent mergers have benefited consumers
    by bringing new services to the market, increasing the number of
    consumers who can access competitive services, creating new market
    capital, stimulating the development of new technologies, and
    increasing competition. Examples of such mergers include AT&T/TCI, MCI/
    WorldCom, Airtouch/Vodaphone, WorldCom/Brooks Fiber, and Excel/
    Teleglobe, just to name a few. Soon, the FCC will consider another pro-
    competitive merger, that of Frontier and Global Crossing. The
    combination of the complementary, non-duplicative operations of these
    two companies will create a facilities-based carrier that will compete
    effectively in many sectors of the U.S. and global telecommunications
    market.
        Given the rapid changes we are experiencing in the
    telecommunications market, it is critical that policy makers permit
    such pro-competitive industry restructuring to move forward with ease
    and speed. An efficient merger review process helps stabilize the
    market, and it allows consumers, shareholders and even employees to
    make adjustments and move forward with new plans. For that reason,
    CompTel commends your effort and endorses the goals of S. 467.
        Furthermore, S. 467 properly recognizes that the FCC's merger
    review process is a critical safeguard of the public interest. CompTel
    shares this view. In addition to determining whether a merger should or
    should not proceed, the FCC's public interest analysis provides an
    opportunity to create a more competitive environment by conditioning
    merger approval on market-opening actions.
        In the vast majority of cases, the FCC's public interest review can
    and should take place within the time frames set forth in your proposed
    legislation. It is important, however, to recognize that the
    telecommunications industry is still in transition from a monopoly
    model to a competitive model. As a result, some mergers involving the
    largest monopoly providers may require more time than is provided in
    your bill. Even these must be reviewed with speed and be fairly
    resolved. Nonetheless, under certain circumstances, forcing an untimely
    decision could deny the FCC the proper opportunity to weigh all
    relevant factors, and to tailor a decision based on the individual
    merits of the merger request.
        To that end, CompTel proposes a modification to S. 467 that would
    promote efficiency while ensuring that the FCC has the time it
    legitimately needs to evaluate the ramifications of approving a new
    market combination. We propose adding to the bill a mechanism whereby
    the FCC, on a majority vote, could extend the bill's 180-day time limit
    by 90 days. This provision would be triggered in the rare number of
    circumstances where a combination is so important and raises such
    competitive concerns that the FCC cannot fairly air the issues within
    the proposed 180-day limit. Creating such a release valve would
    accomplish the administrative efficiency goals of the bill, while still
    protecting the public interest.
        Let me give you a few examples that demonstrate why such an
    amendment may be necessary. The proposed Bell Atlantic/GTE merger is
    one that presents serious, complex issues for the FCC to resolve
    through its public interest analysis. This merger almost certainly
    would impede, and potentially even eliminate, competition in the
    markets for local exchange, exchange access, long distance and Internet
    access services, for many reasons. First, by proposing to merge, Bell
    Atlantic and GTE have effectively agreed not to compete against each
    other and, as a result, their merger will severely diminish the
    potential for local competition in their respective territories.
    Second, the merger raises serious issues of compliance with section
    271, the market-opening provision of the Telecom Act, because GTE
    provides interLATA services in Bell Atlantic's region. Bell Atlantic
    does not have section 271 approval to provide in-region, interLATA
    services in any state, and combining with GTE should not serve to
    relieve Bell Atlantic of any of its market-opening obligations. Third,
    even assuming that Bell Atlantic receives section 271 authority in even
    part of its region, the danger that the new entity would increase the
    cost of access in order to disadvantageits competitors is significant.
    Finally, CompTel has argued that the Bell Atlantic/GTE merger should be
    denied because of Bell Atlantic's lack of compliance with the
    conditions imposed in the Bell Atlantic/NYNEX Order.
        Another example of a large RBOC that may raise public interest
    issues requiring more than 180 days to resolve is the proposed SBC/
    Ameritech merger. In this case, merger conditions can be a critical
    tool for precipitating competition--particularly local competition in
    those RBOCs' territories. RBOC's in general have been reticent to
    comply with the market-opening conditions of the Telecom Act--some more
    so than others. Where a more cooperative RBOC, such as Ameritech,
    attempts to merge with a less cooperative RBOC, such as SBC, much can
    be gained through conditions that prevent obstructionist behavior from
    contaminating the entire new enterprise.
        SBC has been particularly slow to appreciate the need to open its
    local market to competition. An SBC/Ameritech merger could have an
    anticompetitive effect by spreading SBC's litigious corporate culture
    to Ameritech. Instead of working to comply with the market-opening
    elements of the Telecom Act in order to gain entry into the long
    distance market, SBC has challenged the very constitutionality of those
    provisions and others in court. SBC's antagonism toward the Act has
    been well noted. Last year, in response to an SBC request regarding its
    entry into long distance, a Texas PUC commissioner remarked that
    evidence demonstrated numerous instances of SBC's ``lack of cooperation
    with [CLEC] customers and evidence of behavior which obstructs
    competitive entry.'' A second commissioner said that SBC needed to
    ``change its attitude'' and suggested that it drop some of its numerous
    lawsuits challenging its interconnection with competitors. Furthermore,
    when SBC took over PacTel, PacTel's competitive record changed for the
    worse. The prospect of SBC's management dominating the combined
    company, and bringing with it a hardened attitude toward competition in
    the region, is daunting.
        In such a case, the FCC should be able to use its public interest
    authority to seek greater compliance with the Telecom Act in order to
    provide some assurance that competition--not concentration--is the
    result of the combination. If this can be worked out within the time
    frames of S. 467, all the better. But given the complexity and what is
    at stake, we would like to see the FCC given the flexibility of our
    proposal.
        It has been suggested that the FCC needs little time to consider
    mergers because the bulk of the work is done at the Department of
    Justice. DOJ's analysis and its role in approving mergers, however,
    differs from the FCC's and thus one cannot substitute for the other.
    DOJ's role is primarily one of assessing antitrust concerns, while the
    FCC should make a broader public interest determination, generally
    considering the pro-competitive and deregulatory goals of the Telecom
    Act. Among other things, the FCC must consider whether a proposed
    transaction will open all telecommunications markets to competition and
    enhance access to advanced telecommunications and information services
    in all regions of the nation. Also, the FCC must consider whether the
    merger will affect the quality of telecommunications services provided
    to consumers or will result in the provision of new or additional
    services to consumers. The legislation you are considering today
    correctly gives weight to the FCC's important and legitimate role to
    conduct merger reviews under the public interest standard. It is also
    important, however, to recognize that this mandate is broad and
    complex, and the FCC's ability to fulfill it should not be short-
    circuited.
        In closing, let me reiterate our appreciation for your efforts to
    stimulate competition in telecommunications markets. We are encouraged
    to hear that Chairman DeWine and Ranking Member Kohl are developing
    legislation to ensure that all telecommunications providers have equal
    and non-discriminatory access to buildings. it goes without saying that
    competition cannot exist where only one market player can reach the
    consumer. In most cases, only the incumbent telephone companies are
    allowed access to consumers in apartment and office buildings at no
    charge. Building owners often demand steep fees from competitors for
    the same access. While we are committed to preserving building owners'
    rights to protect the integrity of their structures, granting
    preferential access to incumbents seriously impedes the ability of new
    market entrants to win customers. Negotiating access in a building-by-
    building fashion is costly and time consuming, and at best it leaves
    the new entrant at a competitive disadvantage vis-a-vis the incumbent.
    Thus, a national solution is needed to speed competition to these
    market segments. Your commitment to ensuring that new entrants have a
    ``fair shot'' at winning customers in buildings is much appreciated.
        Again, thank you for the opportunity to appear here today.

        Senator DeWine. Mr. Weening.

                      STATEMENT OF RICHARD WEENING

        Mr. Weening. Good morning. Mr. Chairman, my own Senator
    Kohl, thanks very much for inviting me. I am here this morning
    to represent the views of Cumulus Media, upon which my
    testimony is based, and also the views of the National
    Association of Broadcasters. If I may, I would like to take the
    committee into the world of broadcasting and out of the world
    of telecom for just a moment because it is a little different
    for reasons that we will discuss.
        First of all, let me say that Cumulus's mission really is
    to restore live, local, relevant, successful broadcasting in
    mid-size and smaller cities throughout the United States. We
    are, at the moment, the third largest radio broadcasting
    company in terms of number of stations owned. We serve 44
    smaller cities across the country.
        We like to think of ourselves as the poster child for the
    Telecommunications Act and the pro-competitive benefits that
    were promised by it. Our process is to acquire largely
    independent radio stations which in smaller markets have
    historically struggled to be relevant to their community for
    economic reasons. We assemble them into a shared
    infrastructure. We brand them as independent entities and
    develop them into vital parts of their community.
        Over the year and a half to 2 years now that we have been
    acquiring radio stations in these markets, the FCC has
    processed for us over 60 transactions, and by and large, very
    efficiently. So I am not here to criticize the mass media
    bureau.
        The delays started, really, a year ago when a couple of
    commissioners began to develop or express concern over the
    potential impact of consolidation generally, and as a
    consequence began to look for ways that the Commission could
    scrutinize more deeply or delay or possibly suspend approval of
    broadcast license transfers.
        The beginning of the process was simple delay, and Senator
    Kohl has cited one of our more dramatic examples in South
    Carolina. I will give you another. In Grand Junction, CO, over
    a year ago, we filed for the one FM station, one small FM
    station and two AM stations to add to our existing cluster in
    Grand Junction of three radio stations. That application is
    still pending at the FCC and there is a collateral Department
    of Justice investigation going on.
        Senator DeWine. Excuse me. You filed it how long ago?
        Mr. Weening. In February of 1998, over a year ago.
        Radio stations are delicate entities. Once the staff of a
    radio station understands that it is not going to be working
    for the seller, and FCC rules prohibit pre-control, so the
    buyer cannot go in and really control it or change the staff or
    make any determinations that are final with regard to staff,
    their heads turn elsewhere. It must be like the process that
    goes on in a lame duck Senator or Congressman's office. The
    work of that office turns to determining the next step in the
    staff's career, and it happens with radio stations, as well. It
    is very hard on the sellers because the value of their station
    deteriorates over this time and the buyers in these
    transactions often want to go in and renegotiate the
    transaction because the station has lost value during the delay
    period. So it wreaks a terrible hardship.
        The question is, what is the source of the problem, and in
    broadcasting, possibly unlike telecommunications, the Congress
    very specifically laid out in section 202(b) of the
    Telecommunications Act how many radio stations an operator can
    own in a particular market, and it is based upon the number of
    signals that serve that market. The FCC's role under the Act is
    not to diminish it but it is largely ministerial. So we have
    concerns about whether or not the FCC even has the authority to
    do something here.
        We have further concerns over the duplication of effort
    between the Commission and the Department of Justice. The
    Commission, as you know, is an administrative agency, and as
    such, it has unique processes, including the fact that if there
    is an in-market objection to a license transfer, the proceeding
    becomes restricted, meaning that members of theCommission
    cannot speak to the parties involved or to each other without very
    elaborate, difficult to follow notice requirements. So it is really
    impossible for them to investigate a transaction.
        So we would say that if commissioners have a concern over
    the impact of consolidation, the most efficient and effective
    way for that investigation to take place is with the Department
    of Justice, which is staffed with very talented young lawyers
    who are capable of completing this investigation, although that
    really turns me to the third problem.
        You have addressed it in part and have hinted that you may
    address it further with S. 467, and that is the fact that the
    process as I have described it really turns the Hart-Scott-
    Rodino Act on its head because Hart-Scott-Rodino intended to
    take small transactions that did not meet certain thresholds
    and did not really have an antitrust impact of significance and
    let them go through. What happens here is because our
    transactions are smaller than the Hart-Scott-Rodino threshold,
    there is no time deadline for the Department of Justice, and
    yet on the other hand, the FCC will not approve a transaction
    until Justice has cleared it. That is their policy.
        So, in effect, the agencies are interlocked in this effort.
    The bottom line is that in the absence of a clear deadline, the
    well-meaning, sincere staffers at the Department of Justice,
    who all have too much work to do, will continue with their
    process for very long periods of time and the FCC says, well,
    we are not going to act until then.
        We would strongly endorse the spirit behind S. 467. We
    would ask you to amend it or clarify it in two ways. The
    clarification, we believe, should be that section 202(b) of the
    Telecommunications Act makes it very clear that the FCC's role
    here is to count stations and administer the work of the Act.
    In fact, their role in reviewing mergers was specifically
    removed from the conference version of the Telecommunications
    Act, so the clear will of Congress is known here.
        So in making any change, we certainly do not want you to
    signal to the FCC that somehow the Telecommunications Act is
    changed and they now have an opportunity to review mergers in
    radio and television broadcasting. We do not believe that they
    do and we think that the Congress's work is pretty clear on
    that.
        We would also ask you to do what I believe you intend to
    do, and that is to ensure that even small transactions are
    subject to the same time deadlines as the larger Hart-Scott-
    Rodino qualified transactions.
        Thank you very much for hearing me out this morning.
        Senator DeWine. Mr. Weening, thank you very much.
        [The prepared statement of Mr. Weening follows:]

                     Prepared Statement of Richard Weening

        Good Morning, Mr. Chairman and Members of the Subcommittee. I am
    Richard Weening, Executive Chairman of Cumulus Media Inc. of Milwaukee,
    Wisconsin. Thank you for inviting my testimony. In addition to Cumulus
    whose experience forms the basis of my testimony, I am also here to
    represent the views of the National Association of Broadcasters which
    is also interested in the overall matters addressed by S. 467, the
    ``Antitrust Merger Review Act'', and the subject of today's hearing
    concerning the review of acquisitions and the transfer of licenses
    subject to Federal Communications Commission (``FCC'') approval.
        Cumulus Media Inc. is a radio broadcasting company focused on the
    acquisition, operation and development of radio stations in mid-sized
    U.S. cities. Arbitron ranks markets by size from 1 to 275. We generally
    focus on markets ranked 75 or smaller. Including acquisitions somewhere
    in the FCC approval and DOJ review process, we own 232 radio stations
    serving 44 cities across the United States. By number of stations,
    Cumulus is now the third largest radio station owner in the U.S.
        This morning I would like to describe for the Subcommittee the
    experiences of my own Company and how those experiences illustrate the
    need for the type of legislative action you are considering.
               the telecommunications act of 1996 and its results
        In Section 202(b) of the Telecommunications Act of 1996, Congress
    changed the rules as to the number of radio stations that one person or
    company could own or control in a city of a given size. The two-station
    ``duopoly'' limit was replaced with a new rule that allows ownership of
    5 to 8 stations depending on the total number of stations providing
    service to the city. In making the new rules, Congress attempted to
    balance the urgent economic and competitive realities that dictated
    multiple-station ownership with the avoidance of undue concentration of
    control. To achieve this balance, the revised ownership limits were
    designed to help owners create ``clusters'' of multiple radio stations
    that could operate for less while delivering more to listeners and
    advertisers within their service areas and at the same time become or
    remain viable businesses. Subsequent experience has shown that five or
    more stations operated as a cluster is not only critical to achieving
    operating economies of scale but essential to making radio competitive
    with other media. These multiple radio station clusters can afford to
    operate live and local programming on each station while sharing
    facilities and support personnel to reduce operating costs up to 20
    percent. More importantly, multiple radio clusters can offer
    advertisers a range of choice and flexibility in demographic targeting
    which was previously only available from newspaper and television.
        Competing with newspaper and television is a major change for
    radio. Here's why. Radio has always had a disproportionately small, 10
    percent share of the total advertising pie. I say
    ``disproportionately'' because radio actually commands over 40 percent
    of the total time consumers spend with media. The conventional wisdom
    is that this anomaly is due in part to the fact that any single radio
    station format is targeted to reach only a single demographic target,
    while the sections of a newspaper and different television programs
    offer advertisers the choice of many targets. In short, for many
    advertisers television and newspaper offered more flexibility and was
    simply easier to buy. The multiple-station clusters can offer different
    stations like the sections of a newspaper, putting radio on a level
    playing field with entrenched newspaper monopolies and broadcast
    television. And to the extent that these new multiple-station clusters
    can access a share of the relatively much larger budgets historically
    allocated to newspaper and television, the radio business model becomes
    viable and everyone wins. The advertiser gets a real alternative to
    newspaper and TV. The listener gets a better programming product with
    live and local on-air personalities. the community gets a viable
    business.
        In the mid-size markets we serve, the economic problems of radio
    are more severe and the positive impact of the Telecommunications Act
    is even more plainly evident. In the mid-size markets, multiple-station
    ownership is driving a renaissance for local radio giving small
    communities greater choice and diversity in music and sources of
    information. Local advertisers also stand to benefit from the diverse
    formats and broad reach of the stations, and the ability to negotiate
    competitively priced advertising buys.
        I did a little research into whether the members of Congress who
    framed the Telecommunications Act understood the unique economics of
    radio in the mid-size and smaller markets. In fact, they did. They
    appreciated the special challenges facing radio in the smaller markets
    and created tiers in the statutory ownership limits to
    permitconsolidation of station ownership in both smaller and larger
    markets. As Senator Burns observed when considering that legislation,
    radio ownership restrictions in mid-size and smaller markets ``handcuff
    broadcasters and prevent them from providing the best possible service
    to listeners in all of our States.'' 144 Cong. Rec. 92, S7904 (June 7,
    1995). Similarly, Senator Pressler noted that, following earlier FCC
    liberalization of radio ownership restrictions, ``economies of scale
    kicked in, stations gained financial strength in consolidation and
    competition for advertising improved.'' 141 Cong. Rec. 94, S.8076 (June
    9, 1995). The legislation's proponents accurately foresaw an ``immense
    resurgence and burst of energy from new companies'' following the
    further ownership deregulation in the Telecommunications Act. 141 Cong.
    Rec. 95, S.8198 (June 12, 1995) (statement of Senator Pressler).
        The Telecommunications Act has had exactly the effect intended by
    Congress. In all markets, but particularly where help is needed the
    most--the smaller markets--radio is undergoing a renaissance
    characterized by more live and local programming, more advertisers,
    more revenue and more service to the community. This has resulted in
    intense new competition for newspaper and television.
        Our Company, Cumulus Media Inc., is the poster child for the
    procompetitive benefits of the Telecommunications Act. Our rapid
    development of radio station clusters in 44 mid-sized markets over the
    past two years aptly illustrates the ``immense resurgence'' and ``burst
    of energy'' envisioned by that Act.
        The Cumulus strategy is exactly with the Act envisions. We acquire
    independently owned radio stations and combine them into a cluster to
    share infrastructure resources like engineering, accounting, physical
    facilities and the like. This allows us to cut operating costs anywhere
    from 10 percent to 20 percent. We then shift a significant portion of
    the cost savings into improving programming with live on-air talent and
    substantially upgrading and expanding the sales organization. We employ
    sophisticated research techniques to ensure that each station is
    delivering the product the listeners want. We brand each station as a
    separate entity. Each station has its own programming director to
    manage the product and its own sales manager to coordinate the sales
    team. Because of economies of scale, we have the ability to access the
    public capital markets to pay for these improvements. The result is a
    revitalized group of stations capable of increasing market share
    against newspaper, television and other media by delivering more choice
    to advertisers and a better product to listeners.
        We also know that, contrary to the understandable fears and
    expectations expressed by some FCC Commissioners, consolidation in
    radio means more, not less, localism and more, not less, diversity in
    programming. I am pleased to say that we are making this happen every
    day in 44 cities across the nation.
                   the fcc and doj regulatory review process
        In the initial period following passage of the Telecom Act, most
    radio consolidation activity was occurring in the larger markets, and
    the FCC did not play a significant role in reviewing market
    concentration. The Department of Justice (``DOJ'') reviewed many of
    these transactions under the Hart-Scott-Rodino (``HSR'') Act because
    they were generally large mergers involving multiple markets that met
    the HSR size thresholds. The HSR statute required advance notice to the
    DOJ, but also required the DOJ to conduct its review promptly, within
    the specified statutory time periods.
        In a number of these larger merger cases where DOJ had competitive
    concerns, the parties agreed to spin-off several stations in one or
    more cities to satisfy those concerns. At the same time, the FCC would
    generally grant the license transfer applications in a timely manner.
        As the Telecom Act moved into its second and third years (1997 and
    1998), radio consolidation moved to mid-size markets, with Cumulus and
    several other companies leading the way. Cumulus began making its
    acquisitions in mid-1997, and we accelerated our activity rapidly over
    the next year.
        Initially, the DOJ was not active in investigating mid-size market
    transactions, as most were not reportable under the HSR Act. The FCC
    also was acting fairly promptly on license transfer applications. In
    fact, Cumulus alone has completed over 62 radio acquisition
    transactions, and by and large the FCC's Mass Media Bureau staff has
    processed these very efficiently and promptly. I believe the FCC staff
    should be commended for its diligent efforts to keep up with a sharply
    increased workload in this area.
        However, beginning about a year ago, FCC applications for a number
    of transactions, including some filed by Cumulus, began to slow down
    considerably due to some internal debate regarding the proper role of
    the FCC in reviewing these transactions for market concentration
    concerns. The Mass Media Bureau Staff and the FCC Commissioners
    appeared to be considering adoption of policies or processing
    guidelinesbased on levels of radio advertising revenue shares--even
    where the license transfer applications fully complied with the
    numerical station limits set forth in the Telecom Act.
        What eventually developed is the current FCC practice of issuing
    ``special'' public notices regarding license transfer applications. As
    we understand it, these notices invite public comment on market
    concentration issues whenever a license transfer application would
    result in the buyer's acquiring 50 percent or more, or the buyer and
    another radio owner acquiring 70 percent or more, of the radio
    advertising revenues in a local Arbitron Metro (as measured by the
    standard industry revenue estimates compiled by BIA Research, Inc.). To
    date, however, the FCC has not issued any rule or formal policy
    statement on this practice, and the FCC has not articulated exactly
    what policy objective it is trying to achieve.
        At the same time, the DOJ has become much more active in
    investigating radio acquisitions in the mid-size and smaller markets.
    Cumulus alone has pending acquisitions in at least five markets
    currently under review by the DOJ. None of these transactions was
    reportable under the HSR Act, and some of these transactions involve
    purchases as small as $1.5 million in radio advertising markets as
    small as $5 million in total revenues.
        We understand that, in general, it is the FCC's policy not to act
    on license transfer applications while a DOJ investigation is pending.
    The DOJ also files comments in response to some of the FCC's
    ``special'' public notices, while continuing to investigate the same
    transactions. The current administrative process thus effectively
    postpones action on any license transfer application until the DOJ
    completes its review, and the DOJ is able to proceed at its own pace
    since HSR timetables generally do not apply.
                         the problems with the process
        Cumulus has three primary concerns with the way in which our and
    others' applications for transfer of licenses are currently being
    handled by regulatory authorities. First, we and other firms believe
    that the Act already specifies the number of radio stations that could
    be owned in any one market, and thus that the FCC does not have a
    proper role to play in formulating a different policy. When the FCC
    begins to decide, on a case-by-case basis, that particular applications
    will not be approved on the grounds that the number of stations results
    in too much market concentration, the FCC is second guessing the policy
    judgment that Congress has already made. We do not think the FCC's
    authority to implement the ``public interest'' standard allows the
    Commission to substitute its judgment for that of Congress on a subject
    specifically dealt with in the statute. Nor has the Commission offered
    any criteria for deciding how, when or under what circumstances the
    public interest should dictate that approval for a particular
    acquisition should not be granted because of undue market
    concentration, even if it is within the numerical limits specified by
    Congress.
        Second, it is simply not a sensible use of government resources for
    the FCC to review acquisitions based on the same market concentration
    and antitrust concerns that the DOJ already considers. As an
    administrative agency, the FCC has unique procedures which are not
    designed to accommodate the give-and-take nature of the factual
    investigation and discussion which characterize an antitrust
    investigation and which the DOJ typically undertakes. For example, if a
    petition to deny has been filed against a transfer application before
    the FCC, the action becomes a restricted proceeding. No one connected
    with the case can discuss it with the FCC staff or the Commissioners,
    and the Commissioners cannot discuss it with the affected parties or
    among themselves without complying with burdensome notice requirements.
    There is no opportunity, as there is with the DOJ, to provide the FCC
    with pertinent information, to interpret it for the staff and to debate
    with the staff the issues relevant to the acquisition. The only way to
    circumvent these restrictions is either for the Commission to deny the
    petition outright or for the Commission to designate the matter for
    hearing, a costly proceeding which will almost invariably result in a
    scuttling of the transaction to be investigated.
        Third, the unusual combination of the small size of the typical
    Cumulus acquisition and the need to obtain FCC approval for the
    acquisition means that the Hart-Scott-Rodino Act has been turned on its
    head: not only does the government now investigate small radio
    acquisitions, but it faces no time deadline in doing so. Let me explain
    what I mean. The Hart-Scott-Rodino Act suggested that acquisitions
    below the ``radar screen'' of the statute, by virtue of their size,
    were not of sufficient antitrust concern to warrant pre-merger
    notification. The HSR Act imposes time limits for large acquisitions by
    which the DOJ or the FTC must take certain steps or request additional
    information if either agency intends to challenge a merger before it is
    consummated. But no acquisition of a radio station, no matter how
    small, can be consummated without the approval of the FCC. And no time
    limits constrain the DOJ in radio acquisitions that arenot subject to
    the HSR limits. The peculiar arrangement between the FCC and DOJ that I
    outlined above means that either agency can take as long as it chooses
    to investigate whatever it wants regarding a pending transaction. The
    result is that the parties to these relatively small transactions often
    must endure very lengthy and costly regulatory reviews that are not
    applicable to much larger transactions, without clear standards or
    certainty of outcome. Cumulus strongly believes that service to radio
    listeners--which should be the primary concern of the FCC--is adversely
    affected by the blocking or delay of efficient consolidation
    transactions.
                             the cumulus experience
        A few examples of Cumulus transactions that have been caught up in
    this uncertain regulatory process for over a year may help illustrate
    the problem to this Subcommittee.
        One case involved the consolidation of several radio stations in
    Florence, South Carolina and surrounding areas which has not been
    viable on their own. Cumulus filed license transfer applications with
    the FCC beginning in February 1998 to require the stations. None of
    these applications were contested before the FCC by any listener,
    advertiser, or competing station, and the grant of these applications
    did not require a waiver of any rule or published policy of the FCC.
    Nevertheless, the FCC staff informed us that action upon the license
    transfer applications was being deferred due to potential concerns
    relating to the percentage of radio advertising revenues involved, and
    because the DOJ had opened an investigation into the proposed
    acquisitions. Persistent efforts to obtain FCC action on the
    applications were unsuccessful.
        We were not contacted by the DOJ until July 1998. At that time we
    voluntarily provided various requested information to assist the DOJ in
    reviewing the transactions. Several months later in October 1998, the
    DOJ subsequently issued civil investigative demands to Cumulus and the
    various sellers seeking additional information. During this period, in
    response to repeated requests by the applicants and even by a member of
    this Subcommittee, the FCC Staff indicated that it would continue to
    defer action on the license transfer applications pending completion of
    the DOJ's investigation.
        While working hard with the sellers to keep these deals together,
    we continued to cooperate with the DOJ in its review, submitting
    considerable information and documents and meeting with the DOJ Staff.
    After approximately seven months of inquiry, the DOJ closed its
    investigation and informed the FCC that it had done so in February
    1999. Approximately six weeks later, on March 24, 1999, the FCC finally
    granted the license transfer applications. This was over 13 months
    after the first application had been filed (on February 26, 1998), and
    nearly ten months after the last of the three applications had been
    filed (on June 2, 1998).
        In another case, Cumulus is proposing to acquire one small FM
    station and two small AM stations to combine with its existing group of
    three stations in the city. The FCC license transfer application was
    filed in February 1998 and remains pending. The DOJ first asked the
    parties for information about the transaction in September 1998, six
    months after the application was filed. The DOJ investigation remains
    open, while FCC action on the license transfer application is deferred.
    There appears to be no clear end in sight, some 14 months after the
    parties agreed to this transaction.
        More recently, the FCC has flagged the acquisition of a small AM
    station with negligible revenues, merely because the revenue shares (as
    reported by BIA Research Inc.) cross a certain threshold for the entire
    cluster, giving no regard to the fact that the flagged acquisition has
    no impact on the share of the cluster in the market. This station is
    very poorly operated, out of dilapidated facilities and is fought with
    technical problems, including a collapsed tower. By preventing Cumulus
    from using its resources to upgrade, promote and effectively program
    the station, the Commission is going against its objective of enhancing
    service to listeners by leading the station to further deterioration.
        Delays of this sort inevitably disrupt these transactions and cause
    serious financial hardship to the parties, especially to the small
    independent operators who are trying to sell their stations and realize
    a return on their many years of hard work and investment. In addition,
    the delays often end up causing further deterioration of the radio
    stations due to the extended period of uncertainty regarding who will
    own the stations and employ the professionals working in these
    stations, and due to FCC rules prohibiting buyers from prematurely
    acquiring control of the stations.
        Radio stations are delicate businesses that must be very carefully
    managed if they are to be completely viable and provide the services
    that listeners and advertisers demand. This cannot be accomplished
    where ownership changes are accompanied by long and uncertain
    regulatory delays.
                           s. 467 and its objectives
        S. 467 appears to be designed to correct these problems by
    constructing an orderly administrative process and timetable. However,
    as presently written, it does not appear to address Cumulus' particular
    situation since our relatively small transactions fall outside the HSR
    process. Neither the HSR Act nor the Telecom Act requires that the FCC
    or the DOJ act in any particular timeframe in reviewing and approving
    these transactions. Further, the Telecom Act already places limits on
    the number of stations a person or company can own in a particular
    market, yet the FCC continues to adopt an unwritten, informal policy of
    its own of blocking acquisitions for market concentration issues. The
    result is a process that appears to frustrate the overall goal of
    enabling radio broadcasting in mid-size and smaller markets to
    consolidate and become more competitively viable.
        In solving the problem by mandating use of an orderly process with
    a timetable, we hope the Committee will avoid signaling the FCC that it
    has the authority to duplicate the role of the DOJ in conducting
    reviews of market concentration. This would further frustrate the
    intent of the Telecommunications Act by giving to the FCC an authority
    that Congress very specifically decided not to grant. Some FCC
    Commissioners believe that the FCC has an obligation to review
    concentration pursuant to its mandate to ensure license transfers are
    in the public interest. Since the DOJ and not the FCC possesses the
    professional skills, experience and process necessary to conduct a full
    investigation of market concentration, it is only appropriate for the
    DOJ to conduct such reviews.
        I therefore urge the Subcommittee to consider appropriate
    modifications to the bill to include smaller transactions and to write
    the bill to ensure that the FCC does not continue to duplicate the
    proper role of the DOJ. As the process currently operates, it is not
    ``good government'' and threatens to undermine what the Congress wanted
    to achieve in the Telecommunications Act of 1996.
        I thank you again for the opportunity to testify at today's
    hearing.

        Senator DeWine. Mr. Binz.

                      STATEMENT OF RONALD J. BINZ

        Mr. Binz. Thank you, Mr. Chairman. Mr. Chairman, members of
    the committee, my name is Ron Binz. I am President of the
    Competition Policy Institute. We are a nonprofit organization
    that advocates State and Federal regulatory policies to bring
    competition to consumers in energy and telecommunication
    markets. We are funded by grants from a variety of
    telecommunications providers, mainly new entrants, and advised
    by a board of consumer advocates from across the country.
        I would like to begin by thanking the chairman for holding
    this hearing to examine the process by which the FCC considers
    mergers of telecommunications providers. This is a most
    important topic. In my written testimony, I describe how
    significant mergers between telecommunications companies may
    affect the health of local exchange competition. Our conclusion
    is that mergers can either hold great promise for consumers or
    threaten great harm to their interest.
        On the one hand, some mergers can actually assist
    competition by putting together industry players with
    complimentary resources needed to break into markets dominated
    by an incumbent or by a small group of service providers. On
    the other hand, some mergers can hurt consumers by retarding
    the development of competition in telecommunications markets.
    This happens when mergers strengthen the existing fortresses of
    some dominant incumbent providers and remove would-be
    competitors from the field.
        It is no exaggeration to say that the FCC's decisions about
    mergers will determine whether consumers see the promise of the
    Telecommunications Act of 1996. But whether the FCC approves or
    denies a merger, we must agree that both consumers and the
    companies proposing to merge deserve an answer, and hopefully
    the correct answer, in a timely fashion from the FCC.
        State and Federal telecommunications regulations must
    change to accommodate a dynamic marketplace that no longer
    resembles the industry organization that existed when these
    agencies were created. But let me be clear. I am not advocating
    less FCC scrutiny of mergers, only that the agency focus on
    getting the job done quickly and efficiently. The result of
    this legislation should not be that the standards for merger
    review are lowered. Indeed, we are deeply concerned about the
    rapid consolidation of major players in the telecommunications
    marketplace.
        We strongly support the FCC's continued public interest
    review of telecommunications mergers. In cases where a merger
    will hinder the development of competition, we hope passage of
    this legislation will mean that the FCC says no quickly to such
    mergers.
        The FCC's jurisdiction in mergers is distinct from the
    Department of Justice, both in the standards they apply and in
    the authority that they have. There is a rich history of court
    decisions interpreting the public interest test and we believe
    that the FCC properly should continue that review.
        With regard to the legislation, we have made three points
    in the testimony. First, that it is reasonable to apply
    workable time lines on the FCC's review. Second, that the
    legislation should preserve the flexibility needed by the FCC
    to conduct thorough merger reviews. And third, by modifying the
    process by which mergers are reviewed by the FCC, the
    legislation should not have the unintended effect of limiting
    the FCC's ability to obtain information necessary to render its
    public interest determination. In my written testimony, I
    suggest areas in which the bill could be improved to
    accommodate these three points.
        Of course, this discussion about the FCC's merger review
    authority and the appropriateness of time frames does not occur
    in the abstract. In particular, there are pending applications
    before the FCC right now between large incumbent local exchange
    companies that cause us some concerns. We have filed comments
    at the FCC to the effect that the mergers in some cases
    eliminate potential competitors, and in the case of SBC/
    Ameritech, an actual competitor in each of their regions.
        We are concerned that those proposed mergers will
    strengthen the ability and the incentives of the incumbents to
    drag their feet in opening up their markets. They also will
    reduce the number of companies that can be used for benchmarks
    to compare companies against each other.
        To conclude, Mr. Chairman, regulatory delay is a blunt
    instrument. While it might, arguably, sometimes delay the
    effect of bad things, it also delays the implementation of
    beneficial effects and creates uncertainty in markets.
    Ultimately, it is difficult for regulators to be creative by
    using regulatory delay. It is far preferable for consumers and
    telecommunications providers alike if regulators make the hard
    choices and make them expeditiously.
        We appreciate the opportunity to testify today in support
    of S. 467. We believe that it is good regulatory practice and
    good law for regulators to perform their functions as quickly
    and efficiently as possible. While this has always been true,
    it is especially true now as we move from an era of regulated
    industries into one in which market forces will be relied upon
    to constrain prices and provide consumers with choice. We hope
    our suggestions for improving S. 467 are helpful to the
    committee and look forward to working with you and your staff
    as this legislation moves forward.
        [The prepared statement of Mr. Binz follows:]

                      Prepared Statement of Ronald J. Binz

        Mr. Chairman and Members of the Committee, my name is Ronald Binz.
    I am President of the Competition Policy Institute (CPI). CPI is a non-
    profit organization that advocates state and federal policies to bring
    competition to telecommunications and energy markets in ways that
    benefit consumers. CPI was created in 1996 and participates in numerous
    matters before the Federal Communications Commission (FCC), state
    regulatory commissions and the courts. In our first three years, we
    have made nearly one hundred filings at the FCC in sixty different
    cases. For eleven years until 1995, I was the state utility consumer
    advocate in Colorado, representing consumers before state regulators
    and the courts. I have served on the Northwest Reliability Council to
    the FCC and I currently serve as co-chair of the North American
    Numbering Council, which advises the Commission on telephone numbering
    policies. With this background, I am very familiar with regulatory
    processes and how they affect consumers and the competitive
    marketplace. Thank you for the opportunity to testify today on S. 467,
    The Antitrust Merger Review Act.
                                i. introduction
        I wish to begin by congratulating the Committee for holding this
    hearing to examine the process by which the FCC considers mergers of
    telecommunications providers. This is a most important issue. In this
    testimony I describe the state of local telephone competition and
    explain how significant mergers between telecommunications companies
    may affect the health of local competition. Our conclusion is that such
    mergers can either hold great promise for consumers or threaten great
    harm to their interest. On the one hand, some mergers can actually
    assist competition by putting together industry players with the
    complementary resources needed to break into markets dominated by an
    incumbent or small group of service providers. Some mergers can also
    benefit consumers if companies are able to spread fixed costs over more
    unit sales, reducing costs to consumers. Such cost advantages are the
    root of competitive pressure on prices. On the other hand, some mergers
    can hurt consumers by retarding the development of competition in
    telecommunication markets. This happens when mergers strengthen the
    existing fortresses of some dominant incumbent providers and remove
    would-be competitors from the field. It is no exaggeration to say that
    the FCC's decisions about mergers will determine whether consumers see
    the promise of the Telecommunications Act of 1996.
        But whether the FCC approves or denies a merger, we must agree that
    both consumers and the companies proposing to merge deserve an answer
    (and hopefully the correct answer) in a timely fashion from the FCC. As
    I will discuss later, state and federal telecommunications regulation
    must change to accommodate a dynamic marketplace that no longer
    resembles the industry organization that existed when these regulatory
    agencies were created. In short, regulators must put themselves under
    pressure to speed up the decision process so that it assists and does
    not hinder, the progress of competition.
        But let me be clear: I am not advocating less FCC scrutiny of
    mergers, only that the agency focus on getting the job done quickly and
    efficiently. The result of this legislation should not be that the
    standards for merger review are lowered. Indeed, we are deeply
    concerned aboutthe rapid consolidation of major players in the
    telecommunications marketplace and strongly support the FCC's continued
    ``public interest'' review of telecommunications mergers. In cases
    where a merger will hinder the development of competition, we hope
    passage of this legislation will mean that the FCC says ``no'' quickly
    to such mergers.
        With this important caveat, CPI supports the thrust of this
    legislation. It is appropriate to ask the FCC to act on mergers within
    reasonable time frames. Ultimately this will benefit both the industry
    and its consumers.
        In his statement when introducing S. 467, Chairman DeWine
    recognized the importance of the FCC's role in evaluating mergers and
    stated that this bill does not limit the scope of FCC review. He also
    made the point that the FCC's review of mergers should be timely and
    cited the significant effect that mergers can have on competition. In
    his statement at bill introduction, Senator Kohl made the point that
    the FCC's review is distinct from the review of the Department of
    Justice and cited the positive effects on competition that can be
    achieved under the FCC's ``public interest'' review. We agree with
    these sentiments of both of the bill's sponsors.
        My testimony begins with a review of the state of local exchange
    competition and the effect that mergers might have on that progress.
    Next, I will make three points about S. 467:
         It is reasonable to create workable time lines to ensure
    prompt consideration and resolution of merger applications by the FCC.
         This legislation should preserve the flexibility needed by
    the FCC to conduct thorough merger reviews and to adopt conditions that
    serve the public interest.
         By modifying the process through which mergers are
    reviewed by the FCC, the legislation should not have the unintended
    effect of limiting the Commission's ability to request and receive
    information necessary to render its public interest determination.
        Next, I suggest some ways in which the legislation can be improved.
    Finally, I comment on the competitive and consumer issues raised by the
    two pending mergers of large local exchange companies, SBC/Ameritech
    and Bell Atlantic/GTE.
             ii. the status of local telecommunications competition
        Before turning to the legislation, I would like to review the
    status of development of local exchange competition. Our review of the
    marketplace demonstrates that local telephone competition is growing
    steadily, and will continue to expand in the next few years. This means
    that the local competition goals of the Telecommunications Act of 1996
    are beginning to be met, albeit slowly.
         Number of CLEC's: The number of CLEC's entering the market
    has also grown significantly since passage of the 1996 Act. As an
    example, the FCC reports that there are now 146 CLEC's holding
    telephone numbering codes, compared with only 13 at the end of 1995.
         Access Lines Served by CLEC's: Merrill Lynch estimates
    that the number of access lines served by CLEC's has grown from 2.1
    million at the end of 1997 to 4.7 million at the end of 1998. The FCC's
    industry analysis estimates CLEC's serve between 4 and 5 million
    switched access lines, or about 3 percent of nationwide switched access
    lines. A recent report by Solomon Smith Barney Holdings Inc. (New York)
    notes that competitive service providers have surpassed the Bell
    Companies in growth of business access lines. The report notes the Bell
    Companies added 461,000 new lines in the first quarter of 1998, while
    competitors gained 498,000. The competitors' gains were more than
    triple the number of business lines they added in the first quarter of
    1997.
         CLEC Revenues: The CLEC's took in approximately $5.4
    billion (annualized) revenue in the 4th quarter of 1998, compared to
    $2.8 billion in the 4th quarter of 1997.\1\ This information is
    confirmed by a recent report issued by the FCC that estimates the
    revenues of the CLEC's doubled from 1996 to 1997 to about $3 billion.
    ---------------------------------------------------------------------------
        \1\ Merrill Lynch In-Depth Report, Telecom Services--Local, Nov.
    18, 1998.
    ---------------------------------------------------------------------------
         Capital Investment by CLEC's: As reported in a
    telecommunications trade magazine, local competitors attracted more
    than $8 billion in high-yield and equity financing, according to
    brokerage house Bear, Stearns & Co. Inc. (New York) in 1997 alone. That
    is almost a sixfold increase from the CLEC capital raised in 1995 and
    nearly a 30 percent jump from 1996's level.\2\
    ---------------------------------------------------------------------------
        \2\ ``Local Wheels of Fortune: New competitors are winning some
    hefty backing from investors'', Gail Lawyer, Teledotcom Magazine,
    January, 1998.
    ---------------------------------------------------------------------------
        Despite these encouraging statistics, it will be several years
    before the local telephone market can be said to be competitive:
    collectively the CLEC's still serve a small percentage of the local
    telephone market, primarily business customers. Local competition has a
    long way to go. One way to illustrate the pace of its development is to
    consider how many access lines competitors will have to gain in order
    to make significant inroads into the incumbents' market share. CPI
    estimates that CLEC's will need to win 42,000 new customer lines every
    business day for the next five years simply to capture just 30 percent
    of the nation's access lines. This is a tall order. According to
    Merrill Lynch, CLEC's gained an estimated 670,000 lines in the third
    quarter of 1998, or about 10,300 lines per business day. This means the
    CLEC's are far behind the 42,000/day pace needed to secure just 30
    percent of the local market within five years.
               iii. the fcc's role in promoting local competition
        For the most part, the FCC has maintained a pro-consumer and pro-
    competition approach when implementing the Telecommunications Act of
    1996. Although CPI disagrees with some of the agency's decisions, we
    think the Commission has attempted faithfully to implement Congress's
    vision of a competitive telecommunications industry. I would like to
    review the FCC's actions in three areas: local competition rules,
    section 271 compliance and merger consideration.
    Local competition rules
        Of the regulatory initiatives that have stimulated local exchange
    competition, the importance of the FCC's Local Competition Order issued
    on August 8, 1996 cannot be overstated. This landmark decision
    interpreted sections 251 and 252 and established the basic ground rules
    for opening up the local telephone network to competition. Of course,
    the appeals brought by state regulators and incumbent local exchange
    companies and the decision of the Eighth Circuit Court of Appeals
    delayed implementation of the FCC's rules, but the Supreme Court's
    recent decision puts much of that back on track. In the meantime, the
    FCC's decision effectively provided the blueprint that was used by many
    states to implement the local competition provisions of the 1996 Act.
        Of the numerous provisions in the Local Competition Order, here are
    some of most critical elements of the order:

              a. That the incumbent local exchange company must make its
            operations support system available to competitors for
            nondiscriminatory access to its network;
              b. That competitors should be able to purchase and assemble
            network elements without providing their own facilities;
              c. That network elements should be priced at their forward-
            looking economic costs;
              d. That competitors should be able to ``pick and choose''
            among elements of an arbitrated agreement.

        The 1996 Act and the Local Competition Order allows new competitors
    to experiment with a variety of different business models for entering
    the local market. As a result, some new entrants are providing service
    by resale, others by assembling unbundled network elements, and others
    by constructing their own facilities and interconnecting with the ILEC
    network. Some CLEC's are deploying switches and reselling the ILEC
    loop, others are deploying fixed wireless services and interconnecting
    with the ILEC network to terminate calls, while others seek to lease
    the ILEC loop solely to provide competitive data services.
        In other words, the FCC's order has spawned exactly the kind of
    diversity and entrepreneurship as should be found in a competitive
    market. It is not clear at this time which of these various business
    and technological approaches to competitive entry will prove most
    successful in the marketplace. The ultimate victors will be decided by
    the marketplace, not by regulators trying to predetermine winners and
    losers. This diversity and competition among technologies would not
    have been possible without the FCC's Local Competition Order.
    Section 271 compliance
        Another area in which the FCC has served consumers well by
    promoting competition is the agency's commitment to enforcing its
    interconnection and unbundling rules when considering the BOC's
    applications to enter the long distance market under section 271 of the
    Act. In fashioning the 1996 Act, Congress sought to provide the BOC's
    with an incentive to open their local networks fully to competition:
    section 271 allows the Bell Operating Companies to enter the long
    distance market, but only after fully implementing the terms of the 14-
    point checklist and only after the FCC has found that such entry is in
    the public interest. The requirements of section 271 are almost
    identical to the requirements of sections 251 and 252. Thus, if the FCC
    weakens the section 271 requirements and allows the BOC's to enter the
    interLATA market under section 271 prematurely, the BOC's may never
    fully implement the market-opening requirements of section 251 and 252.
        Although the FCC has denied each of the section 271 applications
    filed to date, the agency is on firm grounds for its denial in each
    case. CPI agrees that the applicants have not met the checklist
    requirements, although substantial progress has been made in some
    states. Theefforts of some of the BOC's to work through state
    commission requirements on network-opening requirements, such as non-
    discriminatory access to operating support systems, shows that the
    proper enforcement of section 271 can be effective in promoting full
    compliance with the Act.
        The ability of the BOC's to enter the long distance market in
    competition with companies who do not possess a local exchange monopoly
    is properly conditioned on fully opening local networks to competition.
    It is critical that the FCC maintain this balance by insisting on full
    compliance with the checklist before this important incentive to open
    local markets is relieved.
    Mergers of large ILEC's
        The statistics quoted earlier paint a picture of nascent
    competition in the local telecommunications market. At this early
    stage, competition in the local market is still relatively fragile and
    depends upon the actions of regulators to keep markets open. New
    entrants must grow in order to survive and they must have continued
    non-discriminatory access to many features of the incumbents' network
    in order to attract customers.
        But mergers among large incumbent telecommunications carriers can
    affect the ability and the incentive of merged companies to
    discriminate against their new competitors. Further, mergers affect the
    ability of state and local regulators to effectively enforce market-
    opening conditions. For these reasons, such mergers must be closely
    examined to determine their effect on the growth of telecommunications
    competition. It is entirely appropriate that the FCC and state
    commissions use the occasion of a proposed merger to ensure that the
    competitive conditions are strengthened, and not threatened, by a
    merger of incumbent carriers.
        Since passage of the 1996 Act, the FCC has been presented with four
    major mergers among large incumbent local telecommunications providers:
    SBC/Pacific Telesis, Bell Atlantic/NYNEX, SBC/Ameritech and Bell
    Atlantic/GTE. The last two mergers are now pending; the FCC approved
    the first two mergers with only a few conditions attached. There is now
    considerable controversy whether the merger partners have met the
    conditions attached to their merger approval.
        CPI and others disagreed with the FCC's decision to approve the
    earlier large ILEC mergers without attaching more substantive
    conditions. In particular, CPI asked the Commission to approve the
    mergers only after the merger partners had complied with the market-
    opening requirements of the 1996 Act:

              CPI suggests that imposing conditions to require the opening
            of the companies' local exchange networks as a pre-condition to
            the mergers will act to mitigate, to some extent, the threat to
            competition posed by the increase in scale and scope of these
            companies. In particular, CPI believes that approval of the
            mergers should be conditioned upon, at a minimum, the
            companies' compliance with the ``competitive checklist''
            requirements of Section 271 of the Communications Act of 1934
            in every state in which they are the incumbent provider of
            local exchange service. Requiring the carriers to satisfy the
            unbundling and interconnection requirements of Section 271 in
            every state, requirements that the carriers have already
            indicated they would implement, would give competitors the
            opportunity to compete in much of the region served by the
            RBOC. While this condition does not guarantee that competition
            will develop for local telephone service in every state, it
            does help to reduce the risks posed by the mergers by making it
            less likely that the RBOC's could act to delay competition in
            one market while continuing to take advantage of its monopoly
            status in other markets.\3\
    ---------------------------------------------------------------------------
        \3\ Petition to Impose Conditions, filed by the Competition Policy
    Institute, September 23, 1996, FCC Tracking No. 960221.

        Unfortunately for consumers, the FCC chose not to require this
    suggested pre-condition to approval of the Bell Atlantic/NYNEX and SBC/
    Pacific Telesis mergers. In our view, the Commission missed a
    substantial opportunity to pry open local markets, bringing more
    competitive choices to consumers. In a different context, the efforts
    of the New York Public Service Commission to achieve market-opening
    results with Bell Atlantic in New York illustrates how regulatory
    leverage can be applied. As I discuss later, the two pending mergers
    again offer the FCC the ability to require full compliance with the
    1996 Act.
                      iv. the antitrust merger review act
        As stated earlier, CPI supports the thrust of S. 467. The changing
    telecommunications marketplace argues strongly for regulation that is
    as efficient and effective as possible. Here are three observations
    about the proposed legislation, followed by recommendations for
    amendments to improve the legislation.
    1. It is reasonable to create workable time lines to ensure prompt
            consideration and resolution of merger applications by the FCC
        For the first time, S. 467 creates time lines within which the FCC
    must act to approve or reject the transfer of licenses necessary to
    complete a merger. The legislation sets up a process somewhat similar
    to that required of the Department of Justice and the Federal Trade
    Commission is conducting their merger reviews. Under the bill's scheme,
    the FCC will perform an initial review of a merger application in which
    it decides whether to seek more information from the companies
    proposing to merge. If more information is requested, the clock stops
    until the applicants certify that they have substantially complied with
    the requests for information. At that point the clock restarts, leaving
    the agency 180 days in which to make its decision whether to approve,
    approve with conditions, or reject the merger. If disputes arise about
    the sufficiency of the response to the request for information, the FCC
    or the applicants may appeal to the courts to resolve the dispute.
    Importantly, the clock stops during such appeals.
        State regulatory agencies typically operate under similar time
    lines for cases that approach or exceed the complexity of large
    telecommunications merger cases. Although state commissions now
    consider cost-of-service cases less frequently than before, it is
    common to find requirements that they act in such cases within fixed
    time lines. For example, the Colorado Public Utilities Commission is
    permitted 210 days to conduct investigative hearings on a utility's
    request to change rates. While I have not conducted a recent study, I
    know that similar requirements apply to many state regulatory
    commissions. In multi-party litigation before state PUCs, these time
    lines have the effect of sharply focusing the parties' attention on the
    rate application, shortening discovery timeframes, making hearings very
    efficient and requiring counsel to file briefs on expedited schedules.
    In general, I do not think that such timeframes have prejudiced either
    applicants or respondents. After making any necessary adjustments for
    any special requirements of the FCC, I think the same will be true
    here.
        While many state regulators conduct some of their processes under
    time lines, competition requires state regulators to move even more
    quickly to resolve issues that are central to the development of
    telecommunications competition. In many cases, the old deadlines are
    not sufficient for the realities of the competitive marketplace.
    Competition can be damaged substantially, for example, if new
    competitors must wait extended periods of time for resolution of
    complaints alleging discrimination in access to essential systems.
    Recently the Telecommunications Committee of the National Association
    of Regulatory Utility Commissions solicited recommendations for
    regulatory ``best practices.'' CPI submitted the following
    recommendation:

              The role of telecommunications regulators is changing from an
            arbiter of rates to that of an umpire on the field of
            competition. Because successful inter-carrier transactions are
            so important to competition, regulators should modify their
            practices of handling complaints among telecommunications
            providers. Communications should modify traditional procedures
            to try to limit litigation and produce a decision in such cases
            much more rapidly.
              This suggestion entails several possible elements, including:
            (1) a ``quick look'' process in which a complainant and
            respondent are revised by a settlement judge of the unlikely
            outcome of their case; (2) sharply expedited procedures to
            arrive at a decision; (3) mandatory mediation for complaints;
            (4) the ability of a commission to award litigation costs to a
            prevailing party; and (5) the ability of a commission to
            sanction parties if it determines that a complaint or response
            constitutes harassment.
              The basic suggestion is that commissions ``think different''
            about their process of these complaints. While regulatory lag
            might have provided some correct incentives during cost-of-
            service regulation of a monopoly, it is injurious to
            competition. Incumbents and new entrants alike prefer the
            certainty of a quick decision, since competitive market
            conditions change rapidly.
              The practice would likely unburden state commissions'
            dockets, speed up the resolution of certain carrier-to-carrier
            complaints, reduce legal costs and sharpen the incentives of
            regulated companies to comply with contracts arbitrated
            agreements, and commission rules. Most importantly, it would
            provide competing companies with a timely outcome of a
            complaint, reducing risk and uncertainty for carriers and their
            customers.\4\
    ---------------------------------------------------------------------------
        \4\ Presentation of Ronald Binz to the Telecommunications Committee
    of the National Association of Regulatory Utility Commissioners,
    Washington, D.C., February 23, 1999. (Emphasis supplied.)

        Regulatory delay is a blunt instrument. While it might arguably
    sometimes delay the effect of bad things, it also delays the
    implementation of beneficial effects and creates uncertainty in
    markets. Ultimately, it is difficult for regulators to be creative by
    using regulatory delay. It is far preferable for consumers and
    telecommunications providers alike if regulators make the hard choices
    and make them expeditiously.
    2. This legislation should preserve the flexibility needed by the FCC
            to conduct thorough merger reviews and to adopt conditions that
            serve the public interest
        To protect consumers and competition, time frames on the FCC merger
    review process must not have the theoretic or practical effect of
    lessening the FCC's ability to scrutinize mergers. The sponsors are
    correct to include language reserving the Commission's existing
    authority to review mergers for their effect on the public interest. It
    is also clear from reading the legislation that the sponsors have
    attempted to strike a balance, providing the FCC with leverage to
    compel the applicants to cooperate with the agency's analysis, while
    maintaining time frames that require the FCC to complete its review in
    a reasonable time.
        Even so, no set of timetables can anticipate every eventuality. We
    urge the Committee to continue to examine the legislation for instances
    in which the bill's mechanics might affect substance. In other words,
    we agree with Senator Kohl's statement that the legislation should be
    considered a ``work in progress.''
        FCC Chairman Kennard recently announced his intention to conduct a
    public discussion about the conditions that should be considered for
    the SBC/Ameritech merger to ensure that the merger serves the public
    interest. The Chairman has indicated his intention to complete this
    discussion and negotiation process by late June. If we assume FCC
    action on the merger would follow within a month of the end of
    discussions, it will have taken almost 15 months for the FCC to act on
    this merger. This is considerably longer than the timeframe for FCC
    action envisioned in the legislation.
        It is not clear at this point how productive this new process
    outlined by Chairman Kennard will be and whether it will be applicable
    to other mergers.\5\ Similarly, it is not clear whether this
    ``negotiation'' (together with the FCC's standard merger review
    process) could be completed within the time frames in the legislation.
    However, it is clear that the Committee should factor such questions
    into its analysis. Later in the testimony, we suggest a modification to
    the bill that addresses this issue.
    ---------------------------------------------------------------------------
        \5\ CPI has recommended that the FCC deny the SBC/Ameritech merger
    until the merging companies have opened their networks to competition
    by complying fully with sections 251 and 252 of the Communications Act.
    CPI believes that such a requirement should precede approval and not be
    attached as a post-approval condition.
    ---------------------------------------------------------------------------
    3. By modifying the process through which mergers are reviewed, the
            legislation should not have the unintended effect of limiting
            the Commission's ability to request and receive information
            necessary to render its public interest determination
        We suspect this legislation will be supported by any
    telecommunications company that thinks it may come before the FCC for
    merger approval. Congress must ensure that these companies support the
    legislation for the right reason: the bill should speed up actions on
    mergers, not make approval more likely or give applicants the ability
    to escape careful scrutiny.
        One of the keys to effective merger review is that companies are
    motivated to answer the questions posed by the regulators. This
    legislation takes away the FCC's ability to delay action on the merger
    until the applicant produces requested information. Instead, the
    legislation arms the Commission with the ability to go to court over
    its information requests. In order for this new mechanism to produce
    the right incentives for applicants, they must know that the courts
    will accord the FCC substantial discretion about its need for
    information. The broad authority to request and receive needed
    information should be underscored in the legislation.
    4. Amendments should be considered to improve S. 467 in several areas
        As this legislation progresses, we recommend that the Committee
    consider certain changes to the bill language designed to improve the
    legislation.
        First, the legislation should permit the FCC and the applicants
    jointly to agree to modest extension of the deadline for action on a
    merger to conduct a negotiation process similar to that recently
    announced by Chairman Kennard in the SBC/Ameritech merger. Such a
    provision would provide both the Commission and the applicants with
    desired flexibility without sacrificing the essential structure of the
    legislation.
        Second, the legislation should state explicitly that it does not
    limit the ability of the FCC to request and receive information
    necessary to conduct its analysis of a merger. The process proposed in
    this legislation may alter the relative power of the Commission to
    obtain information and, because of the deadlines, raise the stakes if a
    carrier delays in its response. If the legislation states clearly that
    this amendment does not limit the FCC's access to such information,
    Congress will have sent a message to the courts that the FCC's
    direction is to be considered in case the FCC must apply to the courts
    to obtain requested information.
        Third, CPI recommends an amendment to paragraph (k)(5)(A) of the
    Act. This paragraph provides that, in cases where the Commission has
    not requested additional information from the applicants, it must act
    on an application within 30 days of receiving and application. We
    suggest, instead that the FCC be given a reasonable amount of time of
    act on the merger following its decision not to require additional
    information. Since the Commission has 30 days to decide whether to ask
    for information, our suggestion would mean that the Commission would
    have, for example, a total of sixty days to approve or deny an
    application for which it has not required additional information.
    Without this modification, the legislation may give the Commission the
    wrong incentive: to seek information from the merging companies merely
    to extend the time in which the Commission must act.
                     v. concerns about pending ilec mergers
        Of course, this discussion about the FCC's merger review authority
    and the appropriateness of time frames does not occur in the abstract.
    There are two pending applications before the Commission that propose
    mergers between large incumbent local exchange companies: SBC/Ameritech
    and Bell Atlantic/GTE. For reasons discussed below, CPI believes these
    two mergers will not, on balance, benefit consumers because of the harm
    to the course of competition in local telecommunications markets. CPI
    has asked the FCC to deny these two mergers until the applicants have
    fully complied with the market opening conditions set by Congress in
    sections 251 and 252 of the Telecommunications Act of the 1996.
        Before turning to the evidence specific to these mergers, we should
    recognize that these mergers occur against the backdrop of significant
    legislation and a fundamental shift in the nation's telecommunications
    policy. While Congress did not specifically indicate that mergers such
    as the pending ILEC mergers were contrary to its intent, it is clear
    that the pending mergers upset the careful balance Congress fashioned
    in passing the Act. In particular, Congress assumed that the BOC's
    would remain independent competitors.\6\
    ---------------------------------------------------------------------------
        \6\ See, for example, section 273(a) of the 1996 Act relating to
    Joint ventures among Bell companies for manufacturing
    telecommunications equipment: ``A Bell operating company may
    manufacture and provide telecommunications equipment, * * * except that
    neither a Bell operating company nor any of its affiliates may engage
    in such manufacturing in conjunction with a Bell operating company not
    so affiliated or any of its affiliates.''
    ---------------------------------------------------------------------------
        Unfortunately, the mergers of several key industry players has
    upset this balance to the detriment of competition and consumers. Since
    passage of the Telecommunications Act, the concentration of ownership
    in the communications industry has developed much faster than the
    growth of local exchange competition. If this industry consolidation
    continues unchecked, the pro-competitive goals that Congress endorsed
    in the 1996 Act may be impossible to achieve, with the result that
    consumers end up paying higher rates for lower quality service.
        For this reason alone, the FCC should deny the mergers of large
    incumbent local exchange carriers until competitors have had an
    opportunity to obtain a significant presence in the marketplace. We
    recognize that, at this stage, the Commission cannot ``unring the
    bell'' by undoing its prior merger approvals. It can, however, keep the
    balance from becoming further out of kilter by denying the pending
    applications until such time as these large incumbent local exchange
    companies make significant progress in opening their networks to
    competitors.
        Besides this general concern about the effect of concentration on
    the development of competition, there are several reasons why these two
    mergers are likely to harm the public interest. These factors include:
         The proposed mergers will eliminate significant potential
    competitors and, in the case of the SBC/Ameritech merger, an actual
    competitor in the SBC and Ameritech regions.
         The proposed mergers will strengthen the incumbents'
    ability to thwart the growth of local competition.
         The proposed mergers will reduce the number of companies
    whose performance can be used to benchmark or compare one company
    against another.
         The proposed mergers will increase the opportunity for the
    merged companies to leverage their market power into other markets.
        The applicants claim that these mergers will result in substantial
    efficiency gains. Even if we assume this claim is accurate, the
    important question for policymakers is not whether the mergers will
    benefit the companies, but whether the mergers will benefit consumers.
    In CPI's view, it is doubtful that these efficiency gains will be
    passed through to consumers under current marketplace conditions. The
    applicants face very limited competition today; they have little
    marketplace incentive to reduce rates, improve service quality, or
    otherwise flow the rewards of their merger to consumers. For the most
    part, these companies are regulated under price cap, price freeze, or
    other similar regulatory schemes that will not require them to reduce
    rates as a result of their lower costs. Thus, the applicants may keep
    these efficiency gains for themselves.
        At most, the applicants argue that the mergers will put them in a
    stronger financial position as they face increasing competition. But
    this is actually little comfort to consumers and, in some sense,
    validates the concerns about the effect of these mergers on the
    development of competition. Even if this effect is counted as a benefit
    of the merger, CPI does not believe that this benefit alone can
    compensate for the risks of harm to competition detailed above.
        Although the applicants maintain that they face significant
    competition in their home markets, it is impossible to predict today
    that sufficient competition will develop in the near future to
    counterbalance the influence the merged companies will have over
    telecommunications markets. To date, competition for local telephone
    services has not yet developed anywhere near the levels that can serve
    as a competitive restraint on the dominance of the incumbent local
    exchange carriers. As I described above, the competitive local exchange
    carriers (CLEC's) have captured less than 5 percent of local telephone
    revenues and less than 3 percent of the nation's access lines.
        For these reasons, CPI suggests that the FCC say ``no'' to the
    proposed mergers unless and until the merging companies have complied
    fully with the requirements of the Telecommunications Act of 1996 to
    open their network to competition. Over three years ago, Congress
    directed all large incumbent local exchange carriers to provide
    interconnection on a nondiscriminatory basis to other competing LEC's.
    To our knowledge, none of the merger partners has successfully complied
    with these requirements in a single state. Under these circumstances,
    CPI recommends that the FCC decline to approve the merger with ``post-
    approval'' conditions attached. Instead, we think the FCC should deny
    the mergers with clear language setting out the terms under which
    approval might be considered: i.e., after all necessary market-opening
    steps have been taken.
        Many of the problems associated with the mergers could be
    significantly ameliorated if the applicants complied with the 1996
    Act's requirements to open their networks to competition. There are two
    reasons why the FCC should link the proposed mergers with companies'
    compliance with these market-opening requirements. First, the proposed
    mergers diminish the prospects for vibrant local telephone competition.
    These mergers will strengthen companies with significant market power
    over local exchange service, enhancing their ability to compete
    unfairly against new entrants in the local telephone market. Requiring
    the companies to open their networks before allowing them to merge will
    make it less likely that the merged company could engage in
    discriminatory and anticompetitive behavior against new entrants. These
    market-opening requirements are essential to the prospects that new
    entrants will become viable local competitors. Once the new entrants
    become a fixture in the competitive landscape, their presence in the
    marketplace will go a long way towards mitigating the potential
    economic and political power of a merged company.
        Second, denial of the proposed mergers will give the companies a
    greater incentive toopen their markets to competition. The theory of
    the 1996 Act was that interLATA relief would be the ``carrot'' that
    would induce the RBOC's to open their markets to competition. After
    three years in which the BOC's have made limited progress toward this
    goal, it now appears that the prospect of long distance entry may not
    be a strong enough motive for the BOC's to open their markets. If
    withholding long distance entry is not enough to induce them to open
    their networks, perhaps denying their mergers will be.
        Several parties commenting in the FCC proceeding have alleged that
    the applicants are deliberately slow-rolling the process of opening
    their markets to competition. We do not think the FCC has to decide
    whether these companies are acting in bad faith; the Commission need
    only focus on the actual experience of competitors in the marketplace
    and decide how the mergers will affect the process of opening markets
    fully to competition. Not a single ILEC has implemented a non-
    discriminatory operations support system and demonstrated that its
    network is fully open to competitors.
        Without a doubt, opening the local network to competitors is not
    easy and demonstrably takes a lot of time. But the complexity of this
    task is exactly why the FCC should keep the pressure on the ILEC's to
    comply with the Act's requirements. Policy makers can be certain that
    the BOC's will reduce their level of commitment to this task as soon as
    they receive the regulatory relief that they are seeking. We are also
    convinced that the mergers will increase the incentives and abilities
    of the merged companies to resist the process of opening markets. For
    these reasons, we have asked the FCC to find that the proposed mergers
    of SBC/Ameritech and Bell Atlantic/GTE are contrary to the public
    interest.
                                 vi. conclusion
        CPI appreciates the opportunity to testify in support of S. 467. We
    believe that it is good regulatory practice and good law for regulators
    to perform their functions as quickly and as efficiently as possible.
    While this has always been true, it is especially important now, as we
    move from an era of regulated industries into one in which market
    forces will be relied upon to constrain prices and provide consumers
    with choice. We hope our suggestions for improving S. 467 are helpful
    to the Committee and look forward to working with you and your staff as
    this legislation moves forward.

        Senator DeWine. Let me thank all the members of the panel.
    Your testimony has been very helpful as we move towards a
    markup on this piece of legislation. What we were trying to do
    today with this panel, I think we have already accomplished,
    and that is to get specific suggestions as far as the specific
    piece of legislation that is in front of us.
        I just have a couple questions before I turn to Senator
    Kohl. Mr. Ne