I read with interest Harold Feld’s blog and a related filing by Public Knowledge and the Media Access Project (MAP) on AT&T’s withdrawal of its merger application from the FCC. While Harold and his colleagues sometimes have interesting arguments to make, this isn’t one of those times.
Here are the facts:
On Wednesday, November 23, 2011, after learning that the FCC staff had prepared a hearing designation order which was to be circulated for a vote, AT&T and Deutsche Telecom, in accordance with the Commission’s rules and precedent, filed the appropriate forms at the FCC via its Universal Licensing and other systems to withdraw all applications pending before it. At the same time, the parties filed a letter to the Secretary stating that all pending applications were withdrawn effective immediately and were to be dismissed without prejudice per the Commission’s rules.
The parties’ ability to withdraw the applications by right could not be clearer. Section 1.934(a) of the Commission’s rules states that if “the applicant requests dismissal of its application without prejudice, the Commission will dismiss that application without prejudice” unless one of two conditions exists, neither of which is present here. The statement that the Commission “will” dismiss the application without prejudice leaves the Commission with no discretion.
If the rules were not clear enough, the D.C. Circuit Court recently confirmed this interpretation. In Environmentel LLC v. Federal Communications Commission, an applicant withdrew a license transfer application after the Commission had granted the application but before filing of a notice of consummation. The FCC dismissed the notice of consummation on the ground that the application had already been withdrawn.
In denying a Motion for Reconsideration, the Commission noted that “the processing of [the] withdrawal request was a routine matter” and that “[w]hat the Division did in this case was to act according to its standard procedures in processing the withdrawal request.”
On appeal, the FCC noted that “FCC staff processed [the] withdrawal request as a routine matter and granted the withdrawal.” And it further stated:
Under the Commission’s licensing rules, an assignor may file an application to assign its license, or a portion thereof, to another. Once filed, “the proposed assignor” – the licensee of record – “may request withdrawal of [the] assignment application” and may do so at any time until the prospective assignee formally notifies the Commission that the assignment has been consummated. Upon receipt of such a request, the Commission “will dismiss that application.”
The DC Circuit Court agreed, making clear that the FCC must abide by its rules and that, under Section 1.934(a)(1), an applicant has a right to the dismissal of an application if the applicant withdraws it:
[T]he FCC did not have any responsibility to investigate circumstances surrounding the assignment application beyond reviewing the documents formally filed with the FCC. Moreover, FCC regulations provide that once an assignment application has been filed, the proposed assignor may request withdrawal of that application. Upon the applicant’s request, the regulations mandate that “the Commission will dismiss that application.” 47 C.F.R. § 1.934(a) (emphasis added). The Mobility Division properly complied with this regulation by dismissing [the] assignment application upon his request.
In short, the FCC took the view and the Court agreed that applicants have a right to withdraw without prejudice a pending application for transfer of wireless licenses at any time prior to consummation of the transaction and that processing of such a request is merely a ministerial act.
The mandatory language of Section 1.934, bolstered by the Commission’s position and the D.C. Circuit’s decision in Environmentel, make clear that the Applicants have an absolute right to withdraw their applications in this matter without prejudice to their ability to refile in the future should they elect to do so. Thus, there shouldn’t be much controversy around the withdrawal of our applications last Wednesday. Yet Public Knowledge and MAP, relying on their usual tortured reading of Commission rules, contend that the FCC should somehow proceed with its review. Unnamed sources at the Commission have also been suggesting that the FCC has discretion to deny or otherwise side-step our withdrawal to keep its review alive, at least long enough to issue its draft Hearing Designation Order (HDO).
It defies logic that an agency with limited resources would continue to press forward on a transaction review even though the parties have withdrawn the applications that initiated that review. There are essentially two reasons why an applicant would withdraw a merger application – either it intends to abandon the transaction altogether, or it plans to submit a new application reflecting changes to the transaction or materially changed circumstances. Either way, a draft recommendation from staff on the withdrawn transaction is irrelevant and potentially prejudicial.
But according to Public Knowledge and MAP, they believe that the HDO itself will prove “invaluable to the determination” of the Department of Justice (DoJ) suit. In other words, the FCC needs to move forward to help a second independent agency that has its own independent statutory review process and completely separate legal standards at trial. And this help is apparently needed despite the fact the DoJ conducted its own investigation, has access to every scrap of paper and digital byte that has been filed at the FCC and is continuing to conduct extensive discovery against the parties in preparation for litigation.
I have long been a critic of the dual agency transaction review process to which telecommunications deals are subject. The kind of tag-team process recommended here by Public Knowledge and MAP is just another reason why we should re-examine that process. Once an Application has been withdrawn, there is simply no transaction pending before the FCC to designate for a hearing or take any other action.
Despite PK and MAP’s desperate desire to wave around a draft HDO, this draft HDO is simply not a final order. For one thing, it was not even voted by the Commission. But more importantly, the hearing designation process is intended to isolate factual disputes and allow the applicants an evidentiary hearing to demonstrate their case before an Administrative Law Judge (ALJ). The ALJ serves as the arbiter of fact that the Commission would have to consider as part of its order determining whether to approve or reject this transaction. There aren’t any FINAL facts yet – even for the Commission to consider – until a hearing is concluded.
So, while it would certainly serve Public Knowledge’s and MAP’s advocacy interests to have the HDO released, it would be a miscarriage of the careful statutory procedural requirements imposed by Congress upon the FCC. And, again, one would have to ask the question of why an agency with limited resources would spend taxpayer dollars in that manner.
We understand that ultimately we will need FCC approval before we can consummate a transaction. But we won’t come to that bridge unless the transaction itself or key circumstances have changed. In the meantime, FCC authority over the matter ceased when we withdrew our applications.