There is a style of article I find online occasionally that takes a classic work of film or literature and tries to flip your idea about who are the good guys and who are the bad guys, or vice versa. For example, this piece explaining why Glinda the Good Witch is really the villain of the Wizard of Oz and the Wicked Witch of the West is just an innocent woman wronged.
I thought of that when I saw recent pieces by Randolph May and Geoffrey Manne explaining how the Federal Communications Commission (FCC), by complying with its rules and doing its job soliciting input on the Comcast/Time Warner Cable from stakeholders scared to come forward for fear of reprisals, makes the FCC the bad guy and Comcast the innocent victim. Some of this concern seems to flow from a misunderstanding of the law. The FCC can’t act on anything outside the public record, so the concern that Comcast won’t get to make its case because of some body of secret evidence is groundless.
In addition – and this is why I’m particularly bitter here – Comcast set the precedent more than ten years ago for having the FCC look at stuff outside the public record as part of a merger review, and the D.C. Circuit affirmed it when I challenged it as a due process violation. So even if it did make a practical difference, the D.C. Circuit says it’s totally OK (at least when exclusion of evidence from the record favors Comcast).
Nor is this process so unusual as my Opposite Numbers (as I call my colleagues on the Libertarian side) believe. True, this is the first time the FCC actually listened to me (and others) and publicized the relevant FCC rules (although, as I explain below, I don’t think I actually had much to do with this). But this is also a rather exceptional merger. As for use of the relevant procedures, my experience is rather contrary to that of Randy May. I’ve not only urged the FCC to use (and publicize) the relevant procedures, I’ve invoked them. Nor is it unusual for the FCC to solicit input from stakeholders.
Below, I offer an alternate perspective and deal with the various objections my Opposite Numbers raise for why they think the FCC shouldn’t be telling stakeholders afraid of retaliation to come in and speak off the record.
More below . . .
A recent story in the Wall St. Journal noted that the FCC has reminded parties afraid to talk to the FCC about the Comcast/TWC merger for fear of reprisals from Comcast that FCC rules allow parties afraid of reprisals to meet with FCC staff without filling a meeting notice in the public record. (The technical term for such a notice is “notice of oral ex parte presentation” or just “ex parte.”) The WSJ further noted that the FCC was actively reaching out and “encouraging big media companies” to use these procedures to talk with them about the deal.
Why Comcast has such a reputation for exacting reprisals remains unclear. Perhaps it was the time they cut funding for a film program for teenage girls because they didn’t like one of the girl’s Tweets. Or perhaps it was when they retaliated against Bloomberg News and banished them to outer programming Siberia. Or maybe it was the time they retaliated against the NFL. Or possibly the time they retaliated against Mid-Atlantic Sports Network, or refused to carry the America Channel. Anyway, for whatever reason, most folks in the industry pretty clearly believe if you do something Comcast doesn’t like, Comcast will squish you like a bug. And even the biggest companies believe that Comcast is already big enough to hurt them considerably if it wants to retaliate. So the FCC can’t get a real understanding of the industry, let alone of the impact of the proposed merger, unless it can protect companies that fear reprisal that it is safe to talk to them.
Most of us would agree with Senator Al Franken (D-MN) that “it tells you all you need to know” (and not in a good way) that some of the largest and most powerful companies in the world fear Comcast to such a degree that the FCC must promise them the same sort of protections usually associated with protecting witnesses against Organized Crime Bosses. For myself, I have raised the issue of fear of reprisal in just about every deal involving Comcast, as well as major deals involving other major providers. It takes courage to come to the FCC to complain about companies that can hurt you big time if they don’t like what you say.
So I am glad the FCC is finally stepping up and doing its job. Not so my Opposite Numbers. Mind you, my Opposite Numbers start out with the premise that the FCC should not be doing merger review at all, and if it does do merger review they would like that review to be as narrow as possible and avoid all that public interest stuff. So the sight of the FCC actually conscientiously trying to do its job properly – admittedly an all too rare sight — apparently shocks and alarms them. They also seem somewhat unfamiliar with how the merger process works. Allow me to sooth their distress and address some apparent misconceptions.
How can the FCC even have meetings without an ex parte notice? How awful! How unprecedented!
I’m always amused when people are shocked that the FCC occasionally responds to reality by actually doing something.
As both May and Manne acknowledge, the FCC is acting pursuant to 47 C.F.R. 1.1204(a)(9), which says in pertinent part: “the presentation is made pursuant to an express or implied promise of confidentiality to protect an individual from the possibility of reprisal.” But neither seems to think that ought to apply here, and neither seems aware that the rule has ever been applied.
First, I will note that I have used this rule to set up meetings for folks who feared reprisals, and not just from Comcast. Competitive Carrier Association (CCA) President Steve Berry told FCC Chairman Tom Wheeler last week that carriers fear to file data roaming complaints because they fear retaliation. “You might be right,” said Berry. “But you might not survive.” May and Manne seem either naïve or indifferent to the very real problem for businesses that fear participating in an FCC process against a company that can retaliate against them in the marketplace.
Nor is it uncommon for the FCC to reach out to stakeholders in any proceeding to urge them to come in if they have anything to say about the merger. It is the job of the FCC to conduct a thorough investigation of any proposed transaction. If the FCC thinks it needs information from third parties, it has an obligation to go get it. Yes, the FCC, for the most part, depends on the adversarial process in mergers. But (as I often remind them) the FCC cannot willfully ignore evidence that it needs additional information.
This is especially true when the FCC has good reason to believe that the reason companies have not come forward is because they are scared of retaliation. Contrary to May and Manne, when a company can terrify those with the most at stake into keeping silent from federal investigators charged with understanding the industry and protecting the public interest, that is precisely the time when the FCC needs to get proactive.
By contrast, if the FCC sits on its rear end and willfully ignores the evidence that there are problems and says ‘well, if anybody were unhappy they would come and talk to us,’ and then totally ignore how the companies that do come forward get punished, that sends a strong message to the industry as well. It says: ‘we are either out of touch or in the pocket of industry.’ The people who the FCC most needs to hear from therefore – quite rationally – refuse to talk to the FCC.
Which brings us to . . .
But why is the FCC actually putting notice about the proceeding to request off the record meetings? Shame on them for prejudging the merger! Why on Earth would they then actively ‘encourage’ companies to come in? Shocking! Pre-judgment! Poor little Comcast.
Again, for those of us who think it’s bad when companies intimidate smaller companies from speaking honestly to the FCC, the big deal is that Comcast is so notorious on this that the FCC needed to send such a huge signal by flagging Rule 1.1204(a)(9) in the Comcast/TWC Public Notice reflects poorly on Comcast, not the FCC.
Setting aside the fact of Comcast’s general reputation and the urging of myself (and I expect other consumer advocates) for the FCC to publicize the availability of the opportunity to speak off the record, I draw attention to Senator Al Franken’s remarks in April that he has had “some of the biggest companies in the world” in his office explaining how the Comcast/TWC deal is anticompetitive but that they refuse to say anything publicly because “they think they’ll be committing business suicide . . . that they’ll be retaliated against.”
It is also noteworthy that a few days before Franken’s interview the FCC issued a Public Notice designating the proceeding as permit-but-disclose and not making any reference to Rule 1.1204(a)(9). The FCC did not explicitly flag Rule 1.1204(a)(9) until the second Public Notice setting the application out for public comment three months later in July. So what happened between April and July?
Putting the known facts together, the most reasonable conjecture is that neither my personal pleading nor Comcast’s general reputation played a role here (my personal delusion of importance to the contrary). Rather it seems that the FCC, like Franken, had a number of significant stakeholders come to them before the official proceeding began and the ex parte rules kicked in and explained why this would be anti-competitive. Prior to the FCC issuing the April public notice (so it could issue a protective order and receive the application from Comcast), anyone could come in and talk without worrying about filing an ex parte because there was no actual proceeding. Once the FCC issued the April Public Notice and designated the proceeding as permit-but-disclose, that changed. When the ex parte rules kicked in, the same stakeholders made it abundantly clear that they feared Comcast and would not have any on the record meetings. So the FCC folks said: ‘OK, this isn’t just people bad mouthing Comcast and blowing smoke. We’re not going to get the information and perspectives we need unless we use Rule 1.1204(9)(a).” So the FCC sent a strong signal it would actually honor this confidentiality, and went back to the stakeholders that had come in previously and said “will you come back and talk to us now?”
So yes, it is unprecedented to have the FCC feel it needs to invoke Rule 1.1204(a)(9) in such an extensive way. But the rule is there for precisely this kind of situation and the FCC responded appropriately to the reality on the ground.
You keep saying that use of Rule 1.1204(a)(9) is not unique to this case. Why have we never seen any record of how many times the FCC has used this exception?
You do understand that the whole point of this is for companies that would retaliate to not know who is having these meetings, right? So the entire point is to keep use of this process as secret as possible, to prevent large companies from going all Tony Soprano and retaliating against suspected “squealers.” Given that the companies requesting these meetings are already scared of possible retaliation, keeping (and disclosing) any sort of information on use of Rule 1.1204(a)(9) would utterly undermine the entire point of having the rule.
As Randy May acknowledges, this is how the Department of Justice works — and for similar reasons. May takes this as a sign that we shouldn’t need a ‘redundant’ FCC review. I think it is rather silly to say that because the FCC has decided to take the threat of reprisals seriously and therefore follow the DoJ process that this makes the FCC review redundant.
But Comcast has the burden of proof, unlike at DoJ! How can they make their case if the FCC has secret evidence?
Use of Rule 1.1204(a)(9) does not let the FCC get away from the requirement of the Administrative Procedure Act (APA) to make a decision on a public record. As the D.C. Circuit has held, the penalty for not filing something in the record is that it doesn’t exist as evidence for the FCC. So Comcast still has the opportunity to make its case on any evidence the FCC can use.
In addition, as I noted earlier, I litigated this question about 10 years ago. There, Comcast was acquiring AT&T Broadband (the deal that jumped Comcast up in size to the largest cable company by a huge margin). As related in this FCC Order, Comcast entered into some deals during the merger review that we argued were relevant. Comcast said they weren’t relevant, and asked the FCC to review the documents at DoJ so they wouldn’t go in public record unless the FCC found them relevant. The FCC decided they were not relevant. I wanted an opportunity to explain why they were relevant. My motion to have the document entered in the record was denied. D.C. Circuit said: ‘totally cool for the FCC to get info off the record stuff to determine what is relevant and what isn’t relevant, no due process violation.’
Similarly here, the FCC can get info off the record about what is and isn’t relevant for consideration. The actual basis for the decision must be on the record. But using off the record info is OK. And if my Opposite Numbers think that’s a crock, you can imagine how I felt when I lost. But that is how it goes. This time it bites you in the ass instead of me.
To quote Anatoly France: “The noble law, in its majestic equality, forbids both the rich and the poor from sleeping under bridges.” To which I will add Feld’s corollary: “In that case, when rich people sleep under bridges, they damn well better do time like the poor.” Comcast established the precedent on when the FCC can look on stuff off the record. They (or more accurately, Comcast’s defenders) should not be heard to complain now when the law, ‘in its majestic equality,’ gives the FCC the same discretion to look at information unfavorable to Comcast to determine what questions are relevant to the merger review.
But if the FCC can’t use the evidence given by companies in off the record meetings, what good are they?
First, the FCC needs to hear from people about their concerns. That’s not evidence, that’s where you start. If the FCC is going to diligently go through the record, or even figure out what to ask, that means understanding the industry (include how companies like Comcast could potentially retaliate, and why other companies fear them). Again, this is how the DoJ Antitrust division does it – and for similar reasons.
Second, Comcast in particular has a history of digging in its heels on document production, making broad claims to super confidentiality, objecting to who gets access to super confidential documents on fairly aggressive grounds, while simultaneously demanding the right to violate the confidentiality of other companies and see their programming contracts, business strategy documents, etc. When documents do get produced, Comcast will make them as difficult as possible to sort and search.
To be clear, there is nothing illegal about Comcast using this tactic. But it means that the FCC needs guidance from companies that know the terrain on what to look for and how to find it. If the FCC hears from a bunch of programmers that Comcast uses “most favored nation” clauses in its contracts to exercise market power, then the FCC has some idea of what to look for in the vast record and how to focus it’s inquiry. Comcast still has the same ability to respond and make its case.
CONCLUSION
As I have observed from time to time, nothing gets certain people excited about process until the equal application of the law starts to gore their favorite ox in the ass. We saw something similar when the FCC stopped the ATT/T-Mo merger and ATT/Qualcomm spectrum transaction. Despite a long history of using mergers to expand the spectrum screen that AT&T and others were cool about, they screamed bloody murder when the FCC used a merger to tighten the screen on low-band spectrum. Apparently, there is a “it never violates due process to give corporations goodies” exemption I missed in law school.
Here, the FCC responded to some pretty blatant and astounding facts on the ground by letting stakeholders worried about retaliation from Comcast know that the rules gave them an option to come in and talk off the record, and encouraging them to use that option. From where I sit, that is the FCC actually doing its job. Unsurprisingly, those who don’t like the fact that the FCC has this job in the first place consider the FCC actually doing it diligently an affront and a sign of an agency run amok.
I would suggest, however, that their concern here is misplaced. The FCC has complied with its rules and with the requirements of due process. It is one thing to say you don’t think the FCC should do its job. It is another altogether to demand that because the FCC shouldn’t have the job in the first place, the FCC therefore do its job poorly.
Stay tuned . . .