Foxes in the Henhouse: FCC Regulation through Merger Review

Posted by D. Daniel Sokol

Public choice concerns go hand in hand with issues of regulation.  Though antitrust is not immune from public choice, it is far less likely to be guided in its decision-making by such concerns than sector regulation, where interests are more concentrated and therefore more prone to capture.  In a new paper, Greg Sidak and Hal Singer (both of Criterion Economics) argue to reduce the power of the FCC to condition merger approval based on its public interest rational (which may in fact not be in the public's interest) in their article Foxes in the Henhouse: FCC Regulation through Merger Review.

ABSTRACT: Although the Department of Justice and the Federal Trade Commission (FTC) review proposed mergers, in mergers involving communications businesses the Federal Communications Commission (FCC) decides whether it would serve the public interest for the acquired firm to transfer its operating licenses to the acquiring firm. This public-interest discretion has become problematic because the FCC has repeatedly set conditions for merger approval that satisfy private pressure groups with economic or social agendas, yet are irrelevant to defending consumers from the consequences of increased market power.

A current example of this phenomenon is the proposed merger of XM and Sirius, the only two satellite radio companies holding FCC licenses for radio spectrum. The firms have an incentive to accept costly new regulation-for example, a requirement that the combined systems set aside channels for educational programming or offer programming on an à-la-carte basis-as the price of merger approval. Such concessions, however, are not relevant to the antitrust laws, where the concern is whether the merger will create monopoly power. Redistributing income to influential political constituencies does nothing to answer the question of whether the merger will harm consumers, who form the constituency that should matter most to the FCC.

Congress should remove the FCC's power to impose conduct remedies as a condition of approving a merger. Alternatively, Congress should require that the Tunney Act apply to conduct remedies imposed by the FCC in mergers, such that a federal district court would independently review whether merger conditions adequately addressed the specific harm to competition that the FCC alleged in the merger order.