[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\
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    \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