Verizon/Cable Approvals Show Rise in Use of Behavioral Conditions by Regulators

"The thing that I found interesting is the extent to which the Department of Justice is going to continue to be involved in this industry,” said Ankur Kapoor, a partner and antitrust expert at law firm Constantine Cannon. Kapoor said DOJ has followed a similar strategy in other cases, particularly its April 2011 consent decree approving Google’s buy of airfare search provider ITA Software, in which DOJ imposed a set of requirements that will govern Google’s future operation of the ITA business and require Google to make investments in research and development (WID Oct 7 p6).

"The Department of Justice is going to take an active interest in these markets,” Kapoor said. “You now have a trend of, instead of DOJ blocking a deal altogether, they'll allow it, but subject to some significant oversight in the future.” Behavioral remedies aren’t new, he said, “but the extent to which the DOJ has imposed behavioral remedies has certainly increased with this administration. … The DOJ seems to be getting a little more involved in the day-to-day functioning of these markets."

FCC Commissioner Robert McDowell told us he’s concerned about behavioral conditions imposed on mergers. “I have been concerned by actions of both Republican and Democratic administrations that public policy of general applicability is being made in the context of transaction approvals,” McDowell said. “All too often conditions are not designed with evidence of consumer harm resulting from the merger. Furthermore, enforcement of these nonmerger-specific conditions can extend off into the horizon. We have to start asking what unintended consequences arise as a result."

The move to impose more behavioral conditions raises concerns, said Fred Campbell, director of the Competitive Enterprise Institute’s Communications Liberty and Innovation Project. “When a regulator imposes conditions on a commercial transaction to address a potential market failure, those conditions should be narrowly tailored to the alleged harm,” said Campbell, a former chief of the Wireless Bureau. “The reporting requirements imposed on Verizon go well beyond what would be reasonably necessary to address the government’s concerns. This heavy-handed oversight has the potential to inhibit innovation and investment while doing nothing to protect the public."

"It is always important to strike a proper balance when imposing conditions so that the restrictions are no more intrusive than they need to be,” said Free State Foundation President Randolph May. “And it is important that any conditions be time-limited … because the communications marketplace is so dynamic. [But] I am much more comfortable … with the Justice Department imposing conditions applying antitrust jurisprudence than I am with the FCC imposing conditions under the amorphous public interest standard."

Free Press Policy Director Matt Wood said his group does not have much faith in behavioral conditions “because those promises often go unfulfilled. … Behavioral conditions are tough to design and enforce, and the free market can do a better job -- but only if regulators protect people by blocking harmful deals in the first place and not mistaking monopoly for competition. The bottom line is behavioral remedies are inherently imperfect but may nonetheless prove necessary at times in antitrust enforcement going forward. However, their application is apt to be less emphasized in a Republican administration than in a Democratic one.” Public Knowledge staff attorney John Bergmayer agreed: “I share the skepticism of behavioral remedies as a general matter. Structural remedies make more sense, as does simply blocking anticompetitive transactions. That said, if there are to be such remedies, they should be enforced, and monitoring is a good way to make sure they are."

"I would prefer it if the Department of Justice simply blocked anticompetitive transactions,” said communications lawyer Andrew Schwartzman. “However, the premise of behavioral conditions is that you can craft remedies that mitigate the anticompetitive aspects of the transaction. But that only works if the department is willing to monitor subsequent activities. That is the tradeoff. If the companies don’t like it, their alternative is not to do the deal.”

"There seem to be mixed views in academic and legal circles about the pros and cons of behavioral remedies, such as monitoring, and in particular the Obama Administration’s increased reliance on them as an antitrust tool,” said Jeff Silva, analyst at Medley Global Advisors. “Behavioral remedies in theory can give antitrust officials greater flexibility to shape outcomes of proposed transactions that may not necessarily lend themselves neatly to structural remedies, like divestiture, and do so in a way intended to safeguard competition and consumer welfare without undermining economic efficiencies of deals. Having that flexibility could prove particularly useful to antitrust enforcers in this era of technological convergence and vertical integration being witnessed in and among telecom, media and tech sectors. On the other hand, behavioral remedies necessarily involve costs to government and industry in the way of enforcement/oversight and compliance at a time when there is unceasing pressure on the government and companies alike to cut fat and run leaner operations.” For investors behavioral remedies can mean a continuing overhang, Silva said. “But that may still prove preferable to having a given transaction blocked by the government.”