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November 27, 2017 10:05 AM

Assumptions On Assumptions: The DoJ's Fatally Weak AT&T/TWX Complaint

Good things are even better when they keep coming. When a friend of mine would say, "let me tell you something...before I tell you something else," you knew you'd be laughing a lot. Likewise, who doesn't love Big Sean's "Blessings" (explicit lyrics) ("blessings on blessings on blessings...lessons on lessons on lessons")?  But, unlike Ferg's hilarious commentary, and Big Sean's blessings, some things-- assumptions--only get worse when piled on top of one another.

Last week, the Antitrust Division of the U.S. Department of Justice ("DoJ" or "the Government") filed a Complaint seeking to enjoin AT&T from acquiring Time Warner Entertainment ("TWX").  The DoJ argues that, post-merger, the combined firm will be able to unilaterally raise prices for rival multichannel TV distributors (like cable companies, phone companies, Dish, or over-the-top ("OTT") video providers) and/or retail consumers.  See, Complaint paras. 5-10. The problem with the Government's theory, though, is that even they know that it's a logical house of cards, with a foundation unsupported by any market evidence.    

Relevant Markets

The DoJ notes three kinds of video distributors: 1) traditional multi-channel video programming distributors ("MVPDs"), like cable, legacy phone, and satellite providers; 2) virtual MVPDs ("VMVPDs"), which are similar to MVPDs, but offered over the internet, and available nationally; and 3) subscription video on demand services ("SVODs"), like Amazon Prime and Netflix, who offer video on demand programming nationally, but do not offer live programming like news and sports. Complaint, paras 15-19.  

Based on these definitions, the Government asserts that  two relevant product markets exist: 1) the "All Video Distribution" market, which comprises all types of video distributors (MVPD, virtual MVPD, and SVOD), and 2) the "Multichannel Video Distribution" market, which includes MVPDs and virtual MVPDs (hereinafter, "MVPDs").  The relevant geographic markets, the DoJ argues, are local Designated Market Areas, which are defined by choices of supplier available to consumers (the wireline service providers of Multichannel Video Distribution vary according to their individual network coverage areas).  Complaint, paras 27-30.  

Competitive Effects

The DoJ contends that the merger will harm competition/raise prices in both the All Video Distribution and Multichannel Video Distribution markets throughout the country because it would give the post-merger firm the ability to unilaterally raise the price of wholesale programming (from Turner Broadcasting & HBO) to rival MVPDs.  The enhanced ability to raise prices to rivals is the DoJ's primary argument.

But, almost like the perfunctory "and stuff" ending that teenagers tack on to woefully incomplete answers, the DoJ also claims that the merger will "give the merged company the ability to impede and slow innovation by hindering emerging online competitors and would increase the likelihood of oligopolistic coordination." Complaint, paras. 31-41, generally; quote from Subsection V.B.  I quote the Complaint directly so that readers can see that this alleged harm is simply too general to merit analysis. The Government's main point, though, is not a huge improvement.

Assumptions Everywhere

Putting aside the Government's lack of factual support for its theory, let's look at all the assumptions (unsupported in the Complaint) that we have to accept in order for the Government's argument--that the post-merger firm can profitably raise prices (both for rivals and its retail customers) for TWX programming--to actually make sense.

Assumption: the premerger TWX was not already extracting the highest price that each distributor was willing to pay, i.e., it could have gotten higher prices if it pushed firms into "blackout."

Assumption on assumption *2: Retail MVPD customers are--per subscriber--more profitable than programming (which is also sold on a "per subscriber" basis).
 
Assumption * 3:. "Blackout" situations are always worse for the MVPD distributor than the programmer (i.e., the distributor always loses more customers/revenue from not carrying a channel at a higher price than the programmer forgoes from losing carriage). But see, below..

Assumption * 4: The post-merger TWX, as the owner of its own competitive MVPD, will be even more resistant to the threat of any given rival MVPD not carrying its content, because if some of the rival MVPDs customers defect to other MVPDs as a result of a blackout, at least some of those customers will become AT&T retail MVPD customers.

Assumption * 5: The acquisition of some of the retail customers that will leave an MVPD in response to a TWX programming blackout is at least as valuable as that MVPD was as a program distributor.

Assumption * 6: Post-merger, an MVPD with TWX programming also can profitably charge its own retail customers higher prices.

The Government Knows It's Wrong

Rather than go through every specious block/mistaken factual assumption in the DoJ's Jenga tower of dysfunctional logic, let's just analyze one--Assumption * 3.  This "assumption" (essentially, that the programmer will always get its price, no matter how uneconomic) seems to be something the Government actually believes is required by the antitrust laws; though principles of basic economics, and actual market conditions, say otherwise.  You see, a year ago (and only weeks after this merger was announced), the Government filed suit against AT&T and DirecTV, blaming AT&T's DirecTV unit for every other MVPD's refusal to carry the L.A. Dodgers for (at the time) the past 3 baseball seasons!

The Government filed its case--charging only DirecTV of wrongdoing--knowing full well that AT&T/DirecTV would have to settle prior to closing its merger (which it did in March of this year).  DirecTV's "crime," according to the DoJ, was publicly stating its refusal to accede to Time Warner Cable's (no affiliation w/TWX, and since then acquired by Charter Communications) "extravagant" demands of $5/subscriber simply to carry L.A. Dodgers baseball games, this particular "blackout" continues, and has lasted well over 4 seasons with MVPDs losing relatively few subscribers.

Notably, the Government did not accuse DirecTV, or any other MVPD, of participating in an illegal agreement to "boycott" TWC's regional sports network ("RSN").  Moreover, although AT&T settled the DoJ Complaint in March, Charter Communications (the successor to TWC) is still the only MVPD carrying the Dodgers' regular season games.  Thus, ironically, the DoJ, better than anyone, knows full well that the scheme it outlined in its Complaint has no basis in reality--as even the most "must have" sports content cannot be forced on competitors by a single vertically-integrated competitor (lCharter, which owns the programming (L.A. SportsNet) and serves about half of the L.A. area retail market).

Obviously

Likewise, the aggregate retail market conditions also clearly refute DoJ's assumption that price increases can be easily and profitably passed on to retail customers.  So far, as of the 3rd quarter, in 2017 the number of households, nationwide, subscribing to a MVPD service is down over 11% over the past 3 years. Leichtman Research Note, 3Q 2017 at pp. 2-3 (79% of American households subscribe to a pay TV package--down from 88% in 2014; a decline of over 11% in 3 years).  Moreover, satellite (like DirecTV) and telephone (AT&T's legacy U-Verse) MVPDs are losing customers at a much greater rate than cable. Id. at 6 (in Q3 2017 AT&T lost almost twice as many MVPD customers as all cable providers combined). Thus, any price increase--especially by a satellite or legacy telephone MVPD--would only accelerate customer loses!

The DoJ knows that the foundation of its case--assumptions on assumptions--is supported by nothing but mere speculation and out of context "hot docs." Soon enough, U.S. District Court Judge Richard Leon will know as well that the market realities in this case simply cannot support the Government's assumptions. 
 
November 13, 2017 11:22 AM

The Strange Case of the Inverted Vertical Merger

After a year of not really hearing anything about AT&T's proposed acquisition of Time Warner Entertainment ("TWX"), we learned last week that the deal could be in serious jeopardy from the Antitrust Division of the U.S. Department of Justice ("DoJ" or "Department").  Many of the stories earlier in the week, citing "DoJ sources," suggested that the Department wanted AT&T to sell CNN, in order to gain approval.  In an extensive interview at the New York Times DealBook Conference, AT&T's Chairman, Randall Stephenson put the rumor to rest that CNN was a divestiture the DoJ was seeking, or that AT&T had offered. (See video of the full interview).  
 
Stephenson also noted his "surprise" that the Department would have concerns serious enough to litigate; noting that a vertical merger had not been successfully challenged in court in over 40 years, and that Comcast's acquisition of NBCU had presented much more difficult content problems than AT&T's proposed TWX acquisition.  Stephenson is understandably surprised, because he's absolutely correct on the law.  Nonetheless, the DoJ must have some concern about the deal, so what's going on here?
 
What an Anticompetitive Vertical Merger Looks Like
 
The words "vertical" and "horizontal" are used in antitrust to refer to firms' positions in the supply chain, from creating a product through to its delivery to consumers.  Firms at the same position in the supply chain are, of course, direct competitors, and a merger between them would be called a "horizontal" merger. On the other hand, the merger of a bakery with a grocery store would be an example of a vertical merger--the bakery produces products that are distributed to the public through grocery stores.
 
A vertical merger will rarely present an antitrust problem, unless one or both of the two merging partners has "market power." For example, if the distribution of a service is a monopoly (think local telecommunications services prior to the late 1990's) and a provider of a "competitive" service using this distribution network (like a long distance voice company) wanted to acquire the local telephone exchange, the antitrust agencies would likely be concerned that the acquiring firm may be able to foreclose other long distance companies from being able to continue to access the local distribution network to sell their services to end users, resulting in higher prices to consumers of long distance service.
 
AT&T and TWX

AT&T provides consumer fixed line voice, internet, and multi-channel television service throughout the service territories of its former incumbent local exchange providers. AT&T also provides nationwide mobile voice and internet service through AT&T Wireless, and nationwide multi-channel television service through its satellite (DirecTV) and streaming (DirecTV Now) services. All of the consumer services provided by AT&T are "competitive" services, available from multiple providers.
 
TWX is a worldwide entertainment conglomerate.  Its 3 major divisions are HBO (premium television/streaming entertainment), Turner Broadcasting (includes a number of popular cable channels, including CNN, TBS, and TNT), and Warner Bros. (primarily film and television production/distribution).  The Turner Broadcasting division, it should be noted, owns the rights to broadcast a number of basketball (NBA and NCAA Tournament) and MLB games, as well as assorted sports that no one watches, like golf and women's Irish curling [probably].
 
Nominal Overlap: While generally AT&T distributes the programming of others, it does own some regional sports networks under the "AT&T SportsNet" name. Although AT&T owns the exclusive rights to distribute the games of certain local teams (NBA/NHL/MLB/some NCAA) in Houston, Pittsburgh, Portland, OR, Seattle, and Utah, these regional sports properties do not "compete" with the games that Turner Broadcasting distributes nationally.
 
What Is Going On?
 
Adding to the confusion surrounding the Department's concerns, the reactions from even well-informed commenters have diverged greatly. Because this merger presents nothing exceptional from an antitrust perspective, some, like economist Hal Singer, have concluded that the only reason the DoJ is holding up the deal is to further prosecute President Trump's ongoing personal feud with CNN (owned by TWX).  However, others, like Harold Feld, argue that the DoJ is on the right track and that only large scale divestitures (like all of Turner Broadcasting, or DirecTV) could remedy the competitive problems with this merger.  
 
While Feld makes a compelling case to question the "spite" theory, and he offers the DoJ an ostensible case theory, it's not a convincing argument; as it ignores current market conditions, and relies on a lot of the same, now obsolete, market "assumptions" that the 1992 Cable Act is based on. Of course, this should come as no surprise, since Public Knowledge's current president--Gene Kimmelman--was one of the principle forces behind the Cable Act (on the side of broadcasters).  See, e.g., this NY Times article from 1992.  Note that the 1992 Cable Act continues to richly reward the broadcasters that these ("natural monopoly") arguments favored.  Consumer Reports notes that cable company "price hikes are mainly driven by the rising costs they face for carrying both traditional broadcast networks, such as CBS and Fox, and regional sports channels."
 
The Blind Men and the Elephant
 
Sometimes, as the old fable illustrates, you can't get an accurate picture by focusing on the smallest possible market that could (conceivably) be defined; and this is what I think is going on here.  In Feld's analysis, the post-merger firm is either a distribution colossus (why else would it need to divest DirecTV?), or a "must have" programming hoarder who may well put competitive video distributors (like Comcast?) out of business.  However, to have this opinion one has to explicitly disregard AT&T's stated reason for the deal--to build an advertising platform of the scale to offer competition to the Google/Facebook duopoly on mobile and desktop screens.
 
Public Knowledge, and the other opponents of AT&T's acquisition of DirecTV, ignored the company's stated purpose for that deal--that AT&T needed scale to be a more effective video distribution competitor. Instead, opponents preferred to focus only on the limited number of TV markets that would "lose" a multichannel competitor (those in which AT&T already provided U-verse TV).
 
Three years later, where are we?  Well, customers are continuing to "cut the cord" of traditional pay TV services, like the service offered over AT&T's U-verse.  However, by creating an entirely new video product--DirecTV Now--AT&T has, in less than a year, obtained 800,000 additional customers (a number that represents about 15% of AT&T's entire base of U-Verse TV customers at the time of its DirecTV merger announcement) and 60% of these customers are entirely new customers to AT&T

Said differently, in less than a year of marketing DirecTV Now, AT&T acquired 15% of the customers that took U-Verse TV 10 years to acquire. Rather than losing a choice in a few markets, consumers nationwide gained a choice and acted on it. Thus, consistent with its stated reasoning for acquiring DirecTV, the acquisition allowed it to stimulate output of multichannel video services. Opponents failed to realize the implications of AT&T's DirecTV purchase, in which a new nationwide competitor was created to challenge not only the traditional DirecTV satellite & U-Verse TV services, but also cable companies, other OTT providers, and may have even spurred the entry into the market of newer "large screen" players like Google, Hulu, others.
 
The Opportunity and the Danger
 
The AT&T/TWX merger, as noted by Mark Cuban at a Senate Judiciary Committee Hearing almost a year ago, gives AT&T a chance--and not a very good one, at that (according to Cuban)--to compete against the dominant new media ad giants.  To do this successfully, AT&T will have to, again, expand output of the firm it is acquiring; there simply are not any credible hypotheticals where AT&T "wins" anything by restricting TWX output. 
 
But, if the Department insists on defining the elephant as a snake, based on the shape of its trunk, there is a danger that it leaves existing markets worse off than when it found them.  If, for some crazy reason, AT&T actually agreed to sell off Turner Broadcasting, the only buyer would be another media conglomerate--further concentrating an already highly concentrated market (which is trending toward even greater concentration with Fox-Disney merger rumors) .  Similarly, if AT&T were required to sell off DirecTV, its entire ability to market to a nationwide base of potential video customers would be eliminated--practically guaranteeing that its only profitable strategy would be to restrict output to local market multichannel competitors!
 
November 4, 2016 11:09 AM

Why Is DoJ Siding Against Consumers in its DirecTV Complaint?

On Wednesday of this week (11/02), the Antitrust Division of the U.S. Department of Justice ("DoJ") sued AT&T arguing that its DirecTV subsidiary was the "ringleader of information sharing agreements" among rivals that "corrupted" competition among rivals to carry the Dodgers' cable TV channel. Complaint at para 2.  According to the DoJ, this is the primary reason that Dodgers' fans in L.A.--living outside of Time Warner Cable's ("TWC") service area have not been able to watch Dodgers' games since the 2013 season.

Unfortunately, the DoJ seems dangerously unaware of findings by a federal court--in an antitrust case on the exact same subject matter being litigated during the same time frame as the facts in the DoJ complaint--that the exclusive sports distribution contracts (that raise consumer rates) may well be the more obvious Sherman Act violation. When we know what DirecTV knew--as a defendant to that litigation--we can better understand why the DoJ could not be more wrong in this case.

L.A. Regional Sports Networks ("RSNs")

Until 2011, Fox Sports was the leading RSN in the L.A. area.  It had two channels, one of which distributed games of the Lakers, Kings, and the Anaheim Angels, and the other of which distributed the games of the Clippers, Dodgers, and Anaheim Ducks. 

But, as Fox's contract with the Lakers was ending in 2011, TWC swooped in and paid $3 billion for the rights to broadcast the Lakers' non-national games for the next 20 years.  As DoJ recounts in its complaint, TWC raised the prices to carry the Lakers (as a standalone channel) well above any range of what any of the other pay TV distributors considered fair value. DoJ Complaint paras. 29-39.
 
In 2013, Guggenheim Partners paid an unheard of $2.15 billion for the Los Angeles Dodgers baseball team ("Dodgers").   The private equity investors then turned around and sold the exclusive rights to distribute Dodgers' games--in the form of a dedicated "Dodgers channel"--to TWC for an even-more-unheard-of price of $8.3 billion.

Reportedly, TWC never budged on its demands, that every pay TV distributor (i.e., competitors and other cable/satellite companies), would have to pay it--on a per-subscriber basis for the rights to broadcast Dodgers games--regardless of how many of these distributor's customers want to watch the games.  Until Wednesday, the narrative was that TWC's "unmitigated disaster" of a deal showed that perhaps there was some limit to the ever skyrocketing costs of sports programming.

DoJ to TWC's Rescue

The DoJ contends that DirecTV privately told other pay TV companies that it was not going to pay TWCs outrageous demands. The DoJ argues that, but for this exchange of information, TWC's competitors, and other pay TV distributors in the L.A. Dodgers home market, would have been happy to pay (and pass along to their consumers) the supra-monopoly prices being demanded by TWC.

Bizarrely, DoJ contrasts the "anticompetitive" situation of today with an earlier--presumably "competitive"--negotiation period, in which TWC (as the new RSN for the Lakers) extorts a price from Cox Communications' subscribers of "60% more" than Cox's internal analysis indicated the content was worth. Complaint at para. 36. No, the DoJ's thinking is that if cable companies aren't just spending their customers' money and passing through rate increases, then something illegal is afoot.

The fact, though, is that the vertical distribution contracts--which are responsible for the sports programming price increases (that  DoJ is incomprehensibly fighting for)--were under antitrust scrutiny, and coming up short, throughout the relevant time period covered by the DoJ suit.  After looking at these contracts in the light of antitrust precedent, we can truly appreciate just how wrong the DoJ was to go after the victim--and not the cause--of spiraling sports programming costs.

Consumers Fight Anticompetitive RSN Contracts

In 2012, consumers filed class action antitrust lawsuits against the MLB and the NHL in the Southern District of New York. See, e.g., Laumann v. NHL, et al. and Garber v. Office of the Commissioner of Baseball, et al., 907 F. Supp.2d. 462 (SDNY 2012).  These cases squarely attacked the contracts at the heart of the exclusive "home television territory" ("HTT") distribution model.  Specifically, consumers alleged that the contracts between the teams, MLB (and the NHL), and the RSNs of DirecTV and Comcast, illegally restricted competition in the broadcasting/streaming markets because these agreements also restrict the right of the "away" team--a non-party to these contracts--to sell its own broadcast feed to anyone in the HTT area of another RSN.
 
MLB fans can only watch games of their "home team" by purchasing a cable package from the RSN (or a distributor of the RSN, such as AT&T, Verizon FiOS, or a satellite or cable company).  Fans of other teams could only watch the games of out-of-market teams by purchasing an out-of-market package ("OMP") from the leagues (for streaming customers) or from the RSN (distributing on behalf of the leagues).

The plaintiffs' successfully argued (at every pre-trial stage) that the complicated web of contracts between the teams, the leagues, and DirecTV and Comcast (which prevented a non-party to the contract (i.e., any "away team") from selling its own independently-produced feed of the game to any fan in any part of the country) were "contracts . . . in restraint of trade" in violation of the Sherman Act.  The plaintiffs' contention was that, but for these contracts, fans could purchase the away-team feeds of games on an "a la carte" basis, even if they did not want to buy home team's cable package.

The Case History/Court Findings

Throughout the case, DirecTV and Comcast (in the same role as TWC in the DoJ case), vigorously argued at every possible stage that, as the RSNs, they were merely accepting terms set forth by the Leagues and that they did not benefit from the exclusivity--and the higher-than-competitive consumer prices--that this exclusivity produced.  The court rejected this argument in both the defendant's motions to dismiss in 2012 (opinion) and their motions for summary judgment in 2014 (opinion).

The court explained that,

evidence that the Television Defendants would not have entered the contracts at the prices prescribed but for the territorial restrictions, is sufficient evidence from which a fact finder could infer a tacit horizontal agreement among the RSNs and MVPDs

See, Opinion Denying Defendant's Motions for Summary Judgment, at 50 (emphasis added). Further, in rejecting the defendant's motions for summary judgment, the court found,

The clubs in each League have entered an express agreement to limit competition between the clubs - and their broadcaster affiliates - based on geographic territories. There is also evidence of a negative impact on the output, price, and perhaps even quality of sports programming.
See, Id. at 30/57.

In May of 2015, the court certified the plaintiff's class to go forward to trial in order to seek injunctive relief, but not money damages, because there was no common monetary impact among the class members. This decision pretty much guaranteed that the case would settle, which it did, on the eve of trial, earlier this year.  The settlement agreement, unfortunately, leaves intact the geographic market exclusivity, which, in turn, ensures that sports content costs will continue to spiral.

To What End?

In many ways, this is/was the perfect case for an antitrust enforcement agency to bring--meritorious, but without the profit potential to ensure the efficacy of private enforcement. However, there is no evidence the DoJ was even aware of this antitrust litigation.

So, instead of taking up the consumer's side, the DoJ chose to sue on behalf of conduct that a United States District Court has already characterized as "express agreement[s] to limit competition between the clubs - and their broadcaster affiliates - based on geographic territories" and their corresponding "evidence of a negative impact on the output, price, and perhaps even quality of sports programming." It is sad that the DoJ didn't follow antitrust developments in this field closely enough to know that agreements which result in distributors paying 60% premiums over value is the result of a "corruption of competition"--rather than competition itself.

Finally, it is interesting to consider that, until several months ago, DirecTV had every reason to believe that a court would be likely to find that its RSN contracts were an illegal restraint of trade.  How ironic that, having dodged a bullet with respect to its RSN agreements, DirecTV would find itself the target of another lawsuit for not agreeing to pay the most anti-consumer RSN contract in America!


December 31, 2011 3:54 PM

The Year of "The Whale"

Well, here it is: New Year's Eve 2011, and--in case you haven't been reading along--over the past several months, I kind of took to calling Sprint "the Whale" in one of my blog posts based on their disproportionate (to their size in the market) influence in Washington (everything they do is "crazy big").  So when it came time to recognize a regulatory "player of the year", I have to give props where they're due, and congratulate the Whale.

Whether you like it or not, and whether by skill or luck, you have to give the Whale credit . . . of all the big telecom players/issues considered this year, the Whale pulled a clear-cut victory on their priority issue when AT&T and DT announced they were abandoning their deal to allow AT&T to acquire T-Mobile.  This doesn't happen much, and you have to recognize that this is no easy feat.  For this alone, 2011 was the year of the Whale, and 2012 will, by virtue of the Whale's win in 2011, by no means be the year of the consumer

Not taking anything away from Sprint's achievement, the coordinated actions of the DoJ and the FCC, did ensure that AT&T was never going to get an opportunity to defend itself on the merits in front of an impartial arbiter.  This is because, once it becomes clear that the regulator (which has much broader authority to deny the merger than that conferred on federal judges under Section 7 of the Clayton Act) has made up its mind to deny a merger, a court has a lot less incentive to even try an antitrust case. 

Consider that a U.S. District Court--under its Section 7 analysis--can only prevent the merger if it finds that it will lessen competition.  The FCC, on the other hand, seems free to ignore the analytical framework the court is bound by, and the FCC does not have to approve a merger unless the parties convincingly demonstrate that the merger "promotes" the public interest.  Thus, the FCC always holds the final cards. 

In cases like the DoJ/AT&T case--where DoJ seeks a permanent injunction (equitable relief that requires a longer trial/discovery period than traditional "extraordinary" merger relief, such as preliminary injunctions and temporary restraining orders, courts might well be much more likely to include the regulator in the process early, so as to avoid "wasting time."  Unfortunately, administrative/judicial efficiency can come at the cost of the merging parties' due process rights.

So, Congratulations! are in order for Sprint this New Year's Eve, and, looking forward, I would say that the way the "2 layer" merger review process (Justice/FTC + Regulatory Agency review) was exploited this year by the Agency, will possibly tee up this issue for legislative elimination in 2012. 

Happy New Years! to all my readers.  Thanks for taking the time to read my blog--I'm grateful for every "unique" view that I get--so tell all your friends!  Best wishes to all for a safe and successful 2012!

November 30, 2011 10:47 AM

FCC Dismisses Applications, But Can't Let Go

Yesterday, the FCC issued an Order Dismissing the Applications of AT&T and Deutsche Telecom for license transfers.  This was not unusual.  The way the Commission did it, and the drama leading up to yesterday's events was.

As AT&T's Jim Cicconi succinctly and thoroughly notes in a blog post yesterday, the Commission's action was the only legally correct response to AT&T and DT's request to withdraw their license transfer applications.  So far, so good, but then the FCC decided to include a 109 page document entitled "Staff Analysis and Findings", which is primarily FCC staff's attempt to analyze the merger under Section 7 of the Clayton Act (the subject of pending litigation by the agency charged with enforcing Section 7 of the Clayton Act in a venue authorized to decide challenges brought under that statute)  This is where it gets interesting.

Yesterday's action--the appending of the "Staff Analysis and Findings" to the Dismissal Order--was interesting, not only because it was unusual and unnecessary to accompany an order terminating an FCC matter, but because the Commission seemed so intent on releasing its own primarily antitrust analysis, when the parties are already engaged in active antitrust litigation in a court with the jurisdiction to decide antitrust claims.  

While the Commission attempts to offer some superficially unpersuasive justifications in paragraph 8 of its order, these justifications are laughable. For example, they note that "a lot of people spent a lot of time on this"--in what large matter do they not?  The Commission also argues that releasing the document "furthers transparency"--this is the one that is laughable.  The Commission never releases pre-decisional, deliberative documents.  In fact, there is a Freedom of Information Act exception that allows agencies to withhold exactly this information.

Finally, the FCC notes that "the parties could still re-file."  But, doesn't this argue for just holding on to the original draft order?  Far from persuading, the order's empty reasoning leaves the reader with the question of "why did the Commission really bother?"  

Comm-temptible?

Personally, when I heard the Commission planned to release a report containing the "Commission staff's" opinions (that were allegedly the basis of the draft designation order) along with an order approving the parties' withdrawal of their applications, my reaction was that the agency was engaging in a distasteful, rude, and uncivil disregard for the legal process. After all, the proper authorities were already well engaged in antitrust litigation with the parties before a U.S. District Court.

You would hope that the FCC would show some respect for the rule of law, and the responsibilities of the judiciary, and simply take the action they were legally bound to take--dismissing the license transfers.  But instead, the FCC displayed a relative contempt for the law.

The Commission certainly understood that it was extinguishing its own jurisdiction over the applications it was dismissing. So, what purpose did the Commission have that was so important that would cause it to include--in a dismissal order--its own, non-expert, antitrust analysis that was admittedly not based on solid evidence (which is why the FCC wanted to refer the matter to an ALJ)?  

It's hard to believe that the Commission wasn't aware that it would at least create the perception that it was attempting to exert some extra-legal influence over the pending antitrust litigation.  Thus, my initial reaction--when I heard what the Commission planned to do--was one of disappointment at the agency's disregard (if not contempt) for the integrity of the court proceeding.  

Or Comm-edic?

I spoke to a reporter last night who had talked to a lot of other attorneys.  The reporter wanted to get my "take" on the Commission's action--which I just described.  The reporter told me that I was the only person that had expressed this opinion.  It turns out that most people were focused on the substance of the staff report, and what (generally negative) effect this report would have on AT&T's prospects for its antitrust litigation.

Many people opining on the matter claimed to be under the impression that the FCC was asked to release its report at the request of the Antitrust Division. Personally, I don't believe this to be true, because it just sounds silly on its face.  The basis of this report was a draft order, prepared by Commission staff for the Commission's own internal purposes.  The "draft order" was clearly converted to a "staff report and analysis" in an awfully short period of time, and this is what makes the "Antitrust Division request" theory all the more incredible.

First, what Antitrust Division attorney, working on their own case, would want to be stuck with a report, analysis, and support prepared by FCC staff, and released under a cloud of bias?  It makes no sense.  FCC staff did not write the Division's complaint, FCC staff have not reviewed the same evidence as the Division staff, so it is more likely that the FCC staff report would lock the Division into a weaker case than the Division should be able to make for itself.

Second, why would the Antitrust Division want its case, including supporting materials, laid out for AT&T's inspection for a full two and a half months prior to trial?  What attorney would be comfortable with this arrangement?

Third, whether the DoJ asked for it or not, they now have to deal with the prospect of bias in the eyes of the court.  Even though the defendant is a big company, courts are mindful of fairness.  Any contradictory inconsistency between the Division's actual case and the staff report will be the government's burden to reconcile and justify.

To What End?

There is no good answer for why the FCC included its report in its dismissal order.  By showing bias at this point, can the FCC really re-claim the mantle of the "public interest?"  If the case settles, or the parties win the litigation, can the FCC do anything more than process and approve a new application?