Here’s How The Government Handles A Deal Like Comcast/Time Warner Cable
There has been a wave of commentary, most of it negative, about Comcast’s proposed acquisition of Time Warner Cable. Many of the columns and op-eds call for the Federal Communications Commission (FCC) and the Department of Justice to stop the deal, but few have explained the process by which such transactions are reviewed.
There are two very different, but related, statutory schemes which apply to deals such as this. Even so, the two jurisdictional agencies, the Department of Justice (DOJ) and Federal Communications Commission (FCC), cooperate very closely, often attending each other’s meetings and sharing documents. It is nonetheless possible, but very unlikely, that one will okay the deal, while the other may not.
The Clayton Act - Department of Justice
The Clayton Act, which was enacted exactly one hundred years ago, prohibits one company from purchasing another if “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” The DOJ and the Federal Trade Commission (FTC) share jurisdiction to enforce the Clayton Act; hypothetically, they could each act independently, but to minimize conflict they have a “memorandum of understanding” under which one agency or the other takes the lead in each case. For various historic reasons and because the DOJ handled the Comcast/NBC Universal deal a few years ago, it is virtually certain that the DOJ will administer the Comcast/Time Warner Cable deal. (Thus, references here will be to the DOJ, but would be equally applicable to the FTC. References to “Comcast” include Time Warner Cable where appropriate.)
The Clayton Act is not a regulatory statute, and after a brief waiting period a company does not technically need the DOJ’s permission to consummate a transaction. However, if a party were to proceed, the Department of Justice could ask a Federal District Court to enjoin the transaction or sue to break it up after the fact. Because of the uncertainty created by this scheme, in 1976, Congress passed the Hart-Scott-Rodino (HSR) Act to establish procedures for DOJ review. Under HSR, parties to transactions of a specified size (based on the companies’ assets and sales) must file information about the deal with the DOJ. They may not close on the purchase for 30 days, and for longer when (as will certainly be the case here), the DOJ requests additional information.
The DOJ’s review is not a transparent process. The Department of Justice is a prosecutorial agency, not a regulatory agency, and it conducts its investigations in private. In cases like this one, the DOJ’s Antitrust Division will conduct a thorough investigation, during which it will ask for submission of tens of thousands of pages of documentation, perhaps conduct depositions, and engage in detailed discussion with the parties. It will also consult with competitors and other affected parties. None of these activities are a matter of public record, and the DOJ generally refuses to issue any public statements during its investigation.
The Antitrust Division has a section that has conducted many reviews of telecommunications transactions. In a highly visible case like this one, the Assistant Attorney General is ordinarily actively involved, and the Attorney General will be asked to approve any final decision. There is a special wrinkle in this case because William Baer, the current Assistant Attorney General, represented Comcast in the Comcast/NBC Universal litigation. Presumably, he will be recused, and the Deputy Assistant Attorney General will be in charge. This could also increase the personal involvement of the Attorney General himself.
At the end of the DOJ’s investigation, one of three things will happen. First, it may announce that it will not object to the transaction. Second, and very rarely, the DOJ may file suit in Federal District Court, asking the Court to enjoin the deal from taking place. Third, and most likely here, it may enter into a consent decree with Comcast, requiring that Comcast agree to certain divestitures or modifications of the deal and agreeing to take specific steps designed to minimize anti-competitive harms that might otherwise transpire. The consent decree is enforced by the simultaneous filing in Federal District Court of a complaint and the consent decree settling it. (Under the Tunney Act, the consent decree does not become final until interested parties have a right to file objections to it. In practice, judges rarely modify consent decrees before approving them.)
The DOJ investigation will likely take at least eight months, and possibly even longer.
Communications Act - Federal Communications Commission
While Comcast does not need affirmative approval from the Department of Justice, the Communications Act poses a much higher bar for it. Because cable operators like Comcast hold hundreds or thousands of FCC microwave, satellite and other licenses, it needs FCC approval of its applications to transfer those holdings. This gives the FCC the power to review the entire transaction. The proceeding is conducted under the FCC’s broad public interest standard, and Comcast bears the burden of proving that the deal is in the “public interest, convenience and necessity.”
The public interest standard gives the FCC much more latitude than the DOJ receives under the Clayton Act. The latter is focused entirely on the impact of the transaction on competition, and requires a finding of a strong likelihood, or actual, competitive harm. By contrast, the FCC can base its action on a much more speculative determination that approval of the Comcast application would adversely affect diversity in the marketplace of ideas, impede competition or harm localism. In making these findings, the FCC is afforded considerable deference on the basis that it is an expert agency with the capacity to make predictive judgments about the impact of the proposed transaction.
To obtain the FCC’s blessing, Comcast must file a detailed application listing all of the affected licenses, details about the terms of the transaction and a long narrative statement setting forth why Comcast believes that the transaction is in the public interest. Unlike the DOJ proceeding, which is conducted behind closed doors, most of the application materials are available for public review. (Certain competitively sensitive information is withheld from general public scrutiny, but lawyers for opposing parties can obtain permission to read them, and use their analysis in FCC filings if they agree to sign “protective orders” under which they are barred from revealing what they learned to any unauthorized parties.)
Opponents of the transaction have the right to file “petitions to deny” approval of the application. (Typically, opponents include competitors, customers and members of the public.)
These filings are only the beginning of the process. Over a period of eight or ten months or more, the FCC’s “transaction team” and members of the Commission and their staff will have scores of meetings with interested parties, and there will be dozens of supplemental “ex parte” filings as well. (The transaction team is composed of representatives of several FCC bureaus and the General Counsel’s office. A Bureau Chief or a “special counsel” recruited from outside the FCC is generally put in charge of the team; all the Bureau Chiefs would have to concur in a recommendation.) The process is relatively transparent because all written filings are on the public record, and brief summary descriptions of meetings must be filed within 48 hours.
The FCC staff will ultimately prepare a recommendation, which is developed in coordination with the Chairman’s office and his staff. (Other Commissioners may be consulted, but they largely remain out of the process until the very end.) There likely will be extensive negotiations with Comcast. The staff is unlikely to recommend outright disapproval of the transaction without having first attempted to reach agreement on restrictive conditions. If Comcast is unwilling to accept the proffered conditions, the staff may recommend disapproval, or approval with conditions that it knows Comcast will not accept. It is much more likely that an agreement will be reached, and the deal will be approved with conditions. It is theoretically possible that the staff would recommend a simple approval, but that outcome is extremely unlikely.
Once the staff makes a recommendation, a draft decision will be circulated to all members of the Commission. There will then be a final flurry of lobbying, often involving CEOs and leaders of public interest groups and competitors. There may be modifications to the draft decision, and a majority of three Commissioners must vote to approve it. In that case, the decision will be issued along with Commissioners’ statements concurring or dissenting. Dissatisfied parties can appeal the action to the United States Court of Appeals for the District of Columbia Circuit.
In the unlikely event that the Commission chooses not to approve the application, it triggers yet another proceeding. The process is so onerous and time-consuming that in practice, a party would likely abandon the transaction rather than continue. At least in theory, then, the Commission would issue a decision identifying “substantial and material issues” of fact and law which must be considered. It would then refer the matter to an Administrative Law Judge, who would conduct a hearing and recommend whether to grant the application. That decision could then be appealed to the full Commission, and then to the Court.
Comcast, competitors, customers and the public interest community may disagree about many aspects of the proposed acquisition, but they will travel a long road together before the final outcome.
Andrew Jay Schwartzman is the Benton Senior Counselor at the Public Interest Communications Law Project at Georgetown University Law Center's Institute for Public Representation (IPR).