SBC Communications Inc. v. F.C.C.

• Decision Date: 23 June 1995
• Docket Number: Nos. 94-1637,94-1639,s. 94-1637
• Parties: , 1995-1 Trade Cases P 71,047 SBC COMMUNICATIONS INC., et al., Appellants, v. FEDERAL COMMUNICATIONS COMMISSION, Appellee, AT & T Corporation, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1484

56 F.3d 1484

312 U.S.App.D.C. 414, 1995-1 Trade Cases P 71,047

SBC COMMUNICATIONS INC., et al., Appellants, v. FEDERAL COMMUNICATIONS COMMISSION, Appellee AT & T Corporation, et al., Intervenors.

Nos. 94-1637, 94-1639.

United States Court of Appeals District of Columbia Circuit.

Argued May 16, 1995.

Decided June 23, 1995.

Appeals of an Order of the Federal Communications Commission.

Michael K. Kellogg, Washington, DC, argued the cause, for appellant SBC Communications Inc. With him on the briefs were James D. Ellis, San Antonio, TX, Liam S. Coonan, Dayton, OH, and Martin E. Grambow, Washington, DC.

L. Andrew Tollin, Washington, DC, argued the cause, for appellants BellSouth Corp., et al. With him on the briefs were Michael D. Sullivan, Robert G. Kirk, Craig E. Gilmore, Georgina M. Lopez-Ona, Walter H. Alford, John F. Beasley, William B. Barfield and Jim O. Llewellyn, Atlanta, GA.

John E. Ingle, Deputy Associate General Counsel, F.C.C., Washington, DC, argued the cause, for appellee. With him on the brief were William E. Kennard, General Counsel, Christopher J. Wright, Deputy General Counsel, Daniel M. Armstrong, Associate General Counsel, and Laurence N. Bourne, Counsel. John W. Berresford, Counsel, F.C.C., Washington, DC, entered an appearance.

David W. Carpenter, Chicago, IL, argued the cause, for intervenor AT & T Corp. With him on the brief were Peter D. Keisler, Washington, DC, and Mark C. Rosenblum, Basking Ridge, NJ.

Charles H. Helein and Julia A. Waysdorf, Washington, DC, were on the brief, for intervenor Ad Hoc IXCs.

Michael E. Glover, John Thorne, James R. Young, Arlington, VA and Stephen M. Tuller, Bedminster, NJ, entered appearances, for intervenor Bell Atlantic Telephone Companies.

Before: GINSBURG, SENTELLE and RANDOLPH, Circuit Judges.

GINSBURG, Circuit Judge:

SBC Communications Inc. and BellSouth Corporation appeal an order of the Federal Communications Commission approving the transfer of radio licenses and other authorizations from McCaw Cellular Communications, Inc. to AT & T Corporation in connection with the merger of those two companies. See Craig O. McCaw and American Telephone and Telegraph Co., Memorandum Opinion and Order, 9 F.C.C.R. 5836 (1994) (Order ), errata, slip op. (Enf.Div. Sept. 27, 1994). The appellants make three types of claims: first, that the Commission approved the merger only because it underestimated the anti-competitive impact of the merger; second, that in order to mitigate the anti-competitive impact of the merger it should have imposed certain conditions upon the transfer of licenses; and third, that its procedures were both arbitrary and inadequate. Finding no merit in any of those claims, we affirm the order in its entirety.

I. BACKGROUND

AT & T is the leading provider of interexchange (IX) service in the United States and one of the largest manufacturers in the U.S market for cellular telephone network equipment, i.e., cellular switches, radio transceivers, and the related network equipment and software necessary to operate a cellular carrier. In 1993 it announced a plan to merge with McCaw, the leading provider of cellular telephone service in the country; McCaw would become a subsidiary of AT & T and would transfer to AT & T control of its more than 400 radio licenses.

AT & T and McCaw applied to the Commission for approval of the license transfer under 47 U.S.C. Sec. 310(d) ("No ... station license ... shall be transferred ... to any person except upon application to the Commission and upon finding by the Commission that the public interest, convenience, and necessity will be served thereby"). The Commission published notice of the application and solicited comments, see Public Notice, 8 F.C.C.R. 7110 (1993). A number of parties including BellSouth and SBC, both of which own Bell Operating Companies that provide cellular service in competition with McCaw, filed petitions to deny the application or to impose conditions upon the grant of the application. See Order, p 5.

Meanwhile, AT & T and McCaw had submitted to the Department of Justice extensive materials relating to the merger as required by the Hart-Scott-Rodino amendment to the Clayton Act (HSR), 15 U.S.C. Sec. 18a. In May 1994, after the period for commenting upon the pending license transfer application had closed, the Commission staff asked AT & T and McCaw to submit the HSR materials to the FCC and to allow counsel for any party of record to review all the HSR materials pursuant to an order prohibiting the unauthorized release of confidential information. See Protective Order, 9 F.C.C.R. 2613 (C.C.Bur.1994). After reviewing indices identifying all HSR materials relating to certain specified subjects, however, the staff narrowed its request for HSR materials and stated that it would not expand the scope of its examination "in the absence of extraordinary circumstances and a specific factual showing that good cause exists for delaying the Commission's decision." After reviewing the HSR indices themselves, however, BellSouth and SBC filed further comments suggesting, inter alia, that the Commission review certain additional HSR documents.

In July 1994 the DOJ simultaneously filed in the U.S. District Court for the District of Columbia a complaint charging that the merger would violate Section 7 of the Clayton Act, 15 U.S.C. Sec. 18, see United States v. AT & T Corp. and McCaw Cellular Communications, Inc., No. 94-CV01555 (D.D.C.) and a proposed consent decree to which AT & T and McCaw had already agreed, Proposed Final Judgment (PFJ), 59 Fed.Reg. 44,159, 44,159-66 (1994). The district court has not yet passed upon the PFJ.

For its part, the Commission approved the license transfers in September 1994. The portion of its public interest inquiry most central to this appeal is its "consideration of the effect of the transfer on competition," Order, p 9. The Commission analyzed the competitive impact of the merger in three markets: (1) the national market for IX services, see id. at pp 12-15, 21-34; (2) the local market for cellular service, see id. at pp 16-17, 36-41; and (3) the national market for cellular network equipment, see id. at pp 18-19, 42-56. It found that the merger would have significantly greater pro-competitive than anti-competitive effects, id. at p 62, and rejected most of the many conditions that the parties challenging the merger had urged it to impose upon the transfer, see id. at p 20. The Commission also rejected various objections to the procedures it had followed, see id. at pp 155-173.

BellSouth and SBC now appeal the Order, pursuant to 47 U.S.C. Sec. 402(b)(6). AT & T intervenes in support of the Commission, and the Ad Hoc IX Carriers (Ad Hoc IXCs), a "coalition of resellers of [IX] service," see Order, p 152, intervene in support of the appellants. In addition to supporting the appellants' arguments, however, the Ad Hoc IXCs challenge the Commission's refusal to consider their allegations that the merger would facilitate AT & T's continuation of certain allegedly anti-competitive practices, see Order at pp 152-154. Because "an intervening party may join issue only on a matter that has been brought before the court by another party," Illinois Bell Telephone Co. v. FCC, 911 F.2d 776, 786 (D.C.Cir.1990), we do not address the merits of that argument.

II. ANALYSIS

We review the Commission's decision only to determine whether it is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," 5 U.S.C. Sec. 706(2)(A). The Commission's decision that a license transfer is "in the public interest" is entitled to "substantial judicial deference." FCC v. WNCN Listeners Guild, 450 U.S. 582, 596, 101 S.Ct. 1266, 1275, 67 L.Ed.2d 521 (1981). So long as "the FCC's action resulted from consideration of the relevant factors" and the agency has not "succumbed to a clear error of judgment," its decision must be upheld. GTE Service Corp. v. FCC, 782 F.2d 263, 268 (D.C.Cir.1986).

A. The Commission's Public Interest Analysis

BellSouth and SBC challenge different aspects of the Commission's public interest analysis, see Order, pp 1-61. BellSouth, supported by the Ad Hoc IXCs, contends generally that the Commission applied the wrong standard and that its public interest analysis was riddled with errors and inconsistencies. More particularly, SBC argues that the Commission should have analyzed the impact of the merger in the market for IX service available to cellular customers.

1. BellSouth's Appeal

BellSouth launches a diffuse attack, supported by a collection of loosely intertwined arguments, upon the Commission's public interest analysis. Here, we summarize and address first its broad claim and then each of its individual arguments.

First, BellSouth contends broadly that the Commission "manipulated the legal standards for analyzing competitive effects" by relying solely upon the antitrust laws in order to analyze the anti-competitive effects of the merger while looking beyond antitrust considerations to gauge the pro-competitive benefits. Second, and more specifically, BellSouth argues that the Commission failed to consider "special circumstances affecting competition," particularly the fact that the Modified Final Judgment (MFJ)--the consent decree setting forth the terms by which AT & T divested the BOCs--prohibits a BOC (and consequently a BOC-owned cellular carrier) from selling IX service directly to its customers, see United States v. American Telephone & Telegraph Co., 552 F.Supp. 131, 227 (D.D.C.1982). Third, BellSouth contends that the Commission's decision allows AT & T to be "the only facilities based national and local end-to-end service in the country since divestiture," which it would not have done had it properly focused its competitive analysis upon the market for the "integrated provision of nationwide and end-to-end cellular and interexchange service." Fourth, and relatedly, BellSouth challenges the...