In a very special Christmas episode of the Telecom worlds favorite Telenovella, Death Star Reborn: The AT&T/BellSouth Merger Commissioner McDowell gives his fellow FCC Commissioners a lesson on ethics, the power of the Christmas spirit to facilitate good will towards all men, faith in negotiations in multibillion dollar mergers, and why it REALLY PISSES HIM OFF when people try to use him as “a pawn.”
You can read McDowell’s written statement (and supporting documentation) here, and watch the archive of the video of McDowell’s press conference here. You can see the statement from my employer, Media Access Project, here.
But for my personal analysis, see below . . .
Man, this just keeps getting better and better! For us telecom folks, this combines the drama of Ugly Betty with the excitement Anime, but without any of the cleavage issues (Hey! It’s the FCC! Indecency issues here!)
As anyone following this knows, the AT&T/BellSouth merger has stood at 2-2 for awhile now, with Dems demanding conditions and Martin and Tate pushing for approval ASAP with no condions or very limited conditions. You can read my previous write ups here and here. The third Republican and tie-breaker vote, Commissioner Robert McDowell, recused himself because he worked for Comptel, a major opponent of the merger. Under government ethics rules, McDowell cannot participate in a matter where Comptel is a significant participant until one year after his departure from Comptel. McDowell left Comptel on May 31, 2006. So he will remain disqualified from working on the merger until June 1, 2007.
But, as everyone following this knows, AT&T has no desire to wait that long. Nor do Chairman Martin and Commisisoner Tate. Nor, even, do Commissioner Copps or Commissioner Adelstien, who have repeatedly maintained that they would be willing to vote to approve the merger given proper conditions to protect the public interest. So the Commissioners have continued to negotiate, but without getting to an agreement.
What happened next, however, has left most of us baffled. For some reason, Martin (presumably at the urging of AT&T/BS) really wanted this merger concluded before the end of the year. And so, after being unable to push the Ds to a compromise he found acceptable (or, if you prefer, after the Ds continued to refuse good faith concessions from the Chairman), Martin decided to trigger The McDowell Option. Under federal rules, a government employee with a conflict can be “unrecused” and required to participate if certain conditions are met. Notably, if an agency cannot carry out mandatory lawful duties without participation of the conflicted employee, the designated agency ethics officer can determine that the public interest demands waiving the ethics restrictions.
Martin, determining that the Ds and Rs were “at an impass,” asked FCC General Counsel Sam Fedder to determine whether McDowell should participate. On December 8, Fedder infromed McDowell that the instant case met the federal requirements for setting aside the usual conflict of interest rules, and that — in his opinion as the relevant ethics officer — McDowell could participate if McDowell so wished.
As Fedder’s letter made clear, however, the matter was hardly a slam dunk. Fedder included a number of lawyerly cautions, indicating that it was a “close call” and that “reasonable minds could differ.” Fedder also noted that the relevant person at the Office of Government Ethics (OGE), an independent government office, had come down against participation. Ultimately, Fedder indicated that the decision lay with McDowell.
Meanwhile, folks on the Hill got in on the act. The incoming Ds, Dingell, Markey and Inouye, urged McDowell to disqualify himself and shaprly citicized Martin’s decision to push McDowell and Fedder’s opinion giving McDowell authorization to participate. The outgoing Rs, Barton and Upton, applauded Martin for taking necessary action to break the “deadlock” and urged McDowell to dive in and resolve the merger swiftly.
For the last ten days, this little drama has played out, while McDowell considered whether or not to participate. McDowell embarked on a journey of self-discovery so intense he skipped the FCC’s public hearing on media ownership in Nashville. Most folks, including myself, thought it likely McDowell would go along with Martin. But McDowell took the time to consult with the Virginia Bar Counsel, read the relevant documents, and genuinely think over his decision. At 4:30 p.m. on Monday the 18th, he called a press conference to announce and explain his decision.
You can watch the press conference here for now, and I will try to update this link when it gets moved to the FCC’s archive. It’s worth a look.
McDowell announced he would disqualify himself. In balancing the public interest in a process free from any suggestion of impropriety versus the absolute need for his participation, McDowell found that Fedder had not made a persuasive case for participation. Instead, McDowell found that Fedder’s analysis was incomplete and was outwieghed by the opinion of the Office of Government Ethics and advice from VA Bar Counsel against participation. McDowell then urged the four remaining Commissioner’s to return to the negotiating table and resolve the issue.
McDowell began by lamenting his inability to persuade “some of my colleagues” to negotiate in good faith and resolve the matter. “Uh-oh,” thinks I. “He’s going to participate and blame it on the Democrats.” But this was mere prelude.
McDowell then provided considerable background, noting that he had signed an ethics agreement that required him to recuse himself from any matter in which Comptel had a substantial interest and that his relationship with Comptel was the subject of considerable discussion at his confirmation hearing. McDowell stressed that these two things — his written contract and his pledged word to the Senate — were independent of the regulations and weighed heavily on him.
McDowell observed that Fedder’s opinion had neglected to address these items. McDowell added that he had expected a decision compelling him to participate, rather than the “close call, it’s up to you Bob” that he received. Or, as McDowell himself said, he expected a suit of armor, and instead got swiss cheese.
So, left to his own devices, McDowell had to make an indpendent evaluation. He talked to Virginia Bar Counsel whose advice he characterized as “not encouraging.” He gave great weight to the fact that OGE came down on the side of not participating, and to his pledged word to the Senate.
McDowell could have stopped there, but he didn’t. He went on to explain that the American people have the right to expect the highest level of ethical behavior from their public officials, and that his every action at the FCC was designed to fulfill that trust.
McDowell then turned to his colleagues, calling upon them “in the holiday spirit of sacrifice” to return to the negotiating table. He closed with some sharp words for all involved:
“Now my four colleagues have exclusive and unambiguous ownership of this important matter. Having only four commissioners should not be an impediment to progress…..Sadly, I fear that my recusal from this matter has been used by some as a pawn in this matter to forgo meaningful and sincere negotiation. Now that I am removing that chess piece from the board, I hope that the twin pillars of sound negotiations are restored: good faith and sacrifice. The shareholders, the employees, and customers of the affected companies deserve speedy resolution of this matter. More importantly, so do the American people.”
(emphasis in original)
As political theater, McDowell was brilliant — all the more so because I believe him sincere. While refusing to compromise his ethical standards, he managed to cast enough blame on everyone involved to keep this from appearing as a lopsided anti-Martin or anti-AT&T move. His speech boils down to – “Shame on you all for putting me out here where I need to make a big deal about following basic ethics rules. Now go back and do your jobs!”
Legally, McDowell also stands on firm footing. As he points out in a footnote, his involvement here would have created a possible cloud over the merger and subjected it to future challenge. And, since the Fedder letter explicitly left the matter to McDowell’s discretion, no one can claim McDowell shirked his duty. He clearly wrestled with a complicated problem and came up with a solution. Then he crowned his glory by executing a brilliant speech that pushes everyone back to the table for more negotiation without holding anyone specifically at fault.
What Happens Next?
Well, everyone goes off for a little holiday break at this point. Negotiations may continue next week, but expect most of the principles to be out of town now that the time pressure is off. OTOH, expect a real push to get this resolved in January.
Because lets face it, no one really wants delay and no one really expects to kill the merger. Even the Dems have not suggested they want to block the merger entirely. Nor have any of the incoming Ds on the Hill urged the FCC to reject the deal. No, this has always been about conditions.
Which, in my opinion, is why Kevin Martin — usually so politically sensitive — made such an incredible political gaffe with this move. The temptation to just ram something through with a 3-2 majority ultimately proved too overpowering. As long as Martin thought he had a trump card, neither he (nor AT&T) appeared to think they needed to make real concessions. Now cured of this distraction, the parties can do what they did last year and work toward a resolution everyone can swallow.
What’s the Fall Out?
Martin has dealt himself a blow to his prestige and hampered himself politically in the short term (although not fatally). His decision to push hard to bring McDowell in rather than continue good faith negotiations with the Ds has injured the relationship he carefully cultivated with the minority Commissioners. He has antagonized the incomming Democratic chairmen of the relevant Committees. And not only does Martin have nothing to show for all his wounds, but the threat that he could bring McDowell in if the Ds don’t cut a deal has now been removed. So it’s back to negotiating as an equal rather than negotiating from strength.
Worse, from Martin’s perspective, he has dealt himself a serious credibility blow. Martin gave every appearance of cutting corners on government ethics just to do a favor for AT&T. This will compromise his efforts to provide other kinds of regulatory relief to the telcos. Martin has positioned himself as championing ILEC entry into video to reduce cable rates and offer consumers more choices. But pushing the limits on the ethics rules to push a merger through quicker and with fewer conditions makes Martin look more like a friend of AT&T than a friend of the people.
On the other hand, I come away from this more convinced that Martin is not an industry stooge, which will no doubt shock some of my friends in media reform. Martin and Fedder could have pushed harder, and written the kind of “body armor” letter compelling McDowell to vote that McDowell said he needed. All it would have taken was a complete disregard for the facts and a willingness to lie through their teeth (like whoever ordered staff to destroy those FCC studies proving media consolidation sucks).
Maybe its the Washington policy wonk version of Stockholm Syndrome, or maybe it’s just a lawyer thing, but I see a big difference between people who play hardball by the rules and people who just flat out lie. Martin got seduced into making a power play and showng the Ds “whose boss” rather than negotiating in good faith. Had Martin succeeded in compelling McDowell to vote, it would have done serious damage to the integrity of the FCC as an institution. I’m glad McDowell made the right decision, and I’m not sorry that Martin will pay a political price for his folly (and thus dissuade him and successors from future efforts to use hardball tactics rather than good faith negotiation). But that’s not the same as acting as a wholly owned subsidiary of industry.
Finally, I can’t help but think of this as an example of Feld’s Hand Grenade Theory of Politics, which states:
Never threaten to throw a hand grenade unless you are ready to pull the pin; and when you pull the pin, the hand grenade better go off.
Martin decided to pull the pin on the McDowell hand grenade but the hand grenade failed to go off. That carries a political price. Martin can certainly recover. But that will mean relying less on high-pressure hardball and more on good faith negotiation and comrpomise. Like the rest of the Bush Administration going into 2007, Kevin Martin will come back in January to a Democratic Congress that will not enable a “my way or the highway” approach. If Martin wants to accomplish anything constructive in 2007, he will need to take the lessons of this week’s episode of Death Star Reborn to heart and, as Commissioner McDowell says, come together with his colleagues in the holiday spirit of sacrifice and good will toward men — even Democrats who disagree with him.
Stay tuned . . . .