Loss of State Authority on M&A Seen by Critics
States, many of which have never been very involved with telecom mergers and acquisitions, are losing what little authority they do have, experts said. They said that's bad for all stakeholders other than telcos. The state role always has been about documenting issues that could arise from an acquisition, because if the decision is left to only the FCC, harm unknown to federal officials could come to consumers, they said. Even in those states that still have a tough review process -- California and New York especially -- that authority doesn’t apply to all kinds of transactions, only to those in parts of the industry that the state commissions regulate.
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The role of states has diminished due to state laws and M&A lately involving technology platforms outside state authority, said Dave Bergmann, a consumer advocate consultant. States don't have jurisdiction over the full range of activity when a phone company that also offers broadband and video merges with a video company that also offers broadband, he said. Those issues have meant a lessening of state influence, but some states are still very active, said Bergmann. Nevertheless, because consumer advocates are generally not as well funded as telcos, the latter have far more resources to fight at the legislative level, he said.
State legislators have taken powers of review away from the state commissions because telco lobbyists have convinced elected officials they shouldn’t care about those deals, said Regina Costa, telecom policy director for The Utility Reform Network (TURN). But the FCC relies heavily on state reports in these matters, such as the record that California developed on the unconsummated AT&T/T-Mobile and Comcast/Time Warner Cable deals, she said. Even though just two states have significant review processes, “If a state is concerned about the issues, and they investigate, that work is taken very seriously,” she said. “It’s whether or not the larger carriers have been able to influence the state legislature to take away that ability that affects whether or not a state gets involved. The states that do have authority, when something arises in their state, are glad to have the ability to do something about it.”
Frontier Communications and Verizon are a good example of a state review process helping the public, said Sarah DeYoung, executive director for the California Association of Competitive Telecommunications Companies, which according to its website has members including Level 3 and XO Communications. Three states are involved with the Verizon/Frontier deal, but two -- Florida and Texas -- lack the jurisdiction to review the acquisition, she said. The third, California, requires the state commission and the attorney general to do a comprehensive review of the proposal and look at the impact on safety, rates, competition and quality of service. The state commission is working on that process now, DeYoung said. "It's really a contrast from California to Texas and Florida, it's too bad for the retail customers as well as the CLECs that operate there that those commissions don't have the same statutes in place to do a similar review,” she said. "What we've been able to do in California [is] shed some light, especially on the conditions of the Verizon plant, and I can't believe that that's not an issue with Florida and Texas.”
New York has among the most rigorous review requirements in the country, said a New York Public Service Commission spokesman. In April 2014, Gov. Andrew Cuomo (D) signed into law changes in the state’s cable franchise law that gave the PSC enhanced regulatory powers to do a thorough and detailed investigation of cable M&A, such as Comcast/TWC, said the spokesman. The new regulatory review power also applies to Charter Communications' planned buy of TWC and Bright House. In the past, the New York commission was required to grant approval for a deal unless it found the transaction was not in the public interest, said the spokesman. Under the new law -- like with gas and electric utility M&A in the state -- the burden has shifted to cable companies to demonstrate that the transaction is now in the public interest, he said.
At least 33 states have deregulated completely because telcos convinced legislators that competition will take care of complaints, said Bill Levis, interim executive director for the National Association of State Utility Consumer Advocates. In Colorado, the legislation even took away the state commission’s ability to interfere on all telecom cases, he said. And that issue carries over to other states under the thinking that the federal oversight is enough, Levis said. “The argument that ... occurred here was if there are federal protections, it’s not necessary for the states to get involved in those things,” he said. “There’s the concern that by not having state oversight, that consumers aren’t as well protected as in the past. Obviously, the providers are going to disagree.”
With the loss of jurisdiction has come a “significant diminution of expertise” among state commissioners on telecom issues, said Larry Landis, Indiana Utility Regulatory commissioner emeritus. As staffers retire and commissioners turn over, a lot of states may not even be able to mount an investigation into proposals even if they had the authority, he said. But not much more M&A is likely, Landis said. "There are still three baby Bells, but the landscape has changed dramatically," he said. "Much of that consolidation has already occurred. What may still lie ahead is cross-platform acquisitions. It's conceivable that a wireless company without a large terrestrial presence may acquire a terrestrial company be it in telecom or cable. But for the most part, that's gone."