FTC Gives Media Merger Review Power to DOJ

A little more than a week after the Federal Trade Commission (FTC) conceded review authority over the AT&T-Comcast proposed merger to the Department of Justice (DOJ), the two agencies have entered into a formal agreement that gives the DOJ authority over all media, communications, publishing and entertainment industry mergers.

The Memorandum of Agreement between the nation’s two federal anti-trust agencies overhauls the clearance process and for the first time formally allocates primary areas of responsibility, on an industry-wide basis, between the FTC and the DOJ.

The agreement comes six weeks after an aborted effort by the two agencies to enter into a similar agreement. The agreement, originally scheduled to be announced on Jan. 17, was put on hold when there was a Congressional request to review its terms. In response to this request, the FTC and the DOJ have provided data and information concerning clearance procedures, delays imposed by clearance disputes, and the historical allocation of matters between the two agencies.

FTC Chairman Timothy J. Muris and Assistant Attorney General Charles A. James said that the clearance system needed to be overhauled to “arrest the trend toward more frequent and time-consuming clearance disputes” that delay the initiation of investigations, and to allow the agencies to concentrate expertise and resources to investigate more effectively.

“The agreement allocates primary responsibility for anti-trust enforcement in the media and entertainment industry to the DOJ, because its expertise in this area far outweighs that of the FTC,” Muris said. “A comparison of the relative expertise of the agencies within specific sectors of this industry further demonstrates that the DOJ is better situated to conduct these investigations.”

Consumer groups are sure to complain about the new agreement, arguing that the DOJ review process will be more subject to political pressure than a review by the FTC.

Jeff Chester, executive director of the Center for Digital Democracy, said his organization will ask Sen. Ernest “Fritz” Hollings (D.-S.C.), the chairman of the Senate Commerce Committee, to hold hearings on the implications of the new review process.

“The FTC has played a unique and important role in media and new media-related mergers, given its orientation as both an antitrust and consumer protection agency. Now all such mergers will be under the supervision of a presidential appointee,” Chester said. “Given the Bush administration’s apparent support for massive media deregulation, one can only surmise that today’s announcement sends a strong signal to big special interests that they will get easy treatment. Unfortunately, key issue involving free speech, journalism, media competition, and the fate of a non-gatekeeper controlled Internet are now likely to get short shrift.”

In an FTC statement released Tuesday, the agency countered the consumer concerns by stating the “FTC’s expertise in multi-channel video distribution programming — including cable and satellite — is more limited than the DOJ’s. Although the FTC has investigated numerous cable transactions, most of its expertise in this area is too old to count in the clearance dispute process. In any event, the majority of the FTC’s cable investigations involved only horizontal issues, and did not present the complex vertical issues raised by media mergers in the last few years.”

The FTC/DOJ clearance process was formally established in 1948; refinements were implemented in 1963, 1993, and 1995. The traditional methodology for allocating matters between the agencies has emphasized historical experience in addressing specific commercial sectors.

“This agreement will improve our law enforcement efforts,” said James. “Allocating industry sectors in a more rational manner will enable the Department to investigate more efficiently possible anticompetitive conduct affecting consumers and will provide greater certainty to the business community, all of which is good for consumers.”

Muris and James pointed out that delays in resolving clearance disputes can result in “uncertainty and increased costs for businesses,” and in increased harm for consumers when possible competitive problems remain unaddressed during the clearance process. Clearance disputes have caused significant delays in both merger and non-merger antitrust enforcement efforts, and have redirected scarce agency resources away from substantive investigations. Before either agency begins an investigation, it must obtain clearance from the other agency.

“We see this agreement as a means of increasing the effectiveness, efficiency, and cooperation of our agencies’ law enforcement activities,” said Muris. “The new clearance process will enable the agencies to determine much more quickly which agency will handle the matter, and therefore to begin and conclude investigations sooner. Consumers will benefit from the more efficient use of taxpayer money. This agreement is a good government initiative, and good government benefits everyone.”

An analysis of clearance delays released by the FTC on Feb. 28 indicates that, since the beginning of fiscal year 2000, the 136 matters in which the agencies formally contested clearance took an average of three and a half weeks to resolve. In another 164 matters during this period, clearance took more than one week to resolve, although no formal clearance dispute occurred.

On average, these 300 matters — 24 percent of all matters for which clearance requests were filed during this period — imposed delays of three weeks. In some instances, clearance disputes have delayed investigations for several months. Under the terms of the agreement announced today, more than 80 percent of these 300 matters would have been resolved within two business days.

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