8 February 2016

Racial diversity lawsuit exposes lawless FCC

By Arielle Roth

In a $10 billion lawsuit filed against the Federal Communications Commission last week, TV distributor Byron Allen and the National Association of African American-Owned Media allege that the Commission’s merger review policy has encouraged racial discrimination in the television industry. According to the complaint, the FCC silences diverse voices on television by enabling purported racists to consolidate control of television markets, and encourages “sham diversity commitments from merger applicants, in excess of its statutory duties”. While Allen is right to condemn the Commission for acting outside of its authority, his complaint should go further. FCC merger review is nothing but a lawless power grab. The Commission has no business reviewing mergers at all.

The plaintiffs are primarily aggrieved by the FCC’s process. The Commission is notorious for taking advantage of companies’ desperation for merger approval and coercing “voluntary” commitments as quid pro quo—many of which involve sham promises to promote diversity in television programming.

In its bid to take over NBC Universal, Comcast attempted to placate the FCC by designating token advisory roles for minorities and consulting with civil rights groups. According to the complaint, such gestures do nothing to discourage discriminatory channel carriage practices, and merely cultivate the FCC’s fraudulent image as a champion of diversity.

Moreover, there is no opportunity for parties to challenge these company-specific rules. Since the commitments are supposedly “voluntary,” they do not constitute official FCC agency action, and are immune from judicial review under the Administrative Procedure Act.

Allen is correct to blame the FCC for offending the rule of law. If the FCC wants to impose rules on any business, including merger applicants, it should do so lawfully, according to regulatory procedures, and with opportunity for judicial review. Otherwise, the Commission engages in legislation by fiat.

What Allen’s lawsuit ignores, however, is that lawlessness is endemic to the FCC’s entire merger review scheme. No statutes instruct or even permit the FCC to oversee mergers in the first place. The FCC falsely derives its general power over mergers from a statutory authority to review license transfers. But countless government agencies must approve transfers of government permits and licenses, and only the FCC has leveraged that authority into selective use of full-blown merger reviews. Following the FCC’s logic, since companies in virtually every industry possess FCC licenses, nearly every merger in America would be subject to FCC oversight. Yet only those merging parties routinely regulated by the FCC are subjected to this special treatment. These businesses are easy targets: no one with frequent regulatory issues before the FCC would risk challenging the FCC’s excessive discretion in court.

Unlike the Department of Justice and the Federal Trade Commission, which review mergers based on statutory authority and written rules, and whose decisions can be appealed in court, FCC merger reviews have no statutory authority, written rules, or meaningful court appeals. There are no time limits in FCC merger review, leaving companies in indefinite limbo. Decisions are reviewed under a vague and deferential “public interest” standard. The result is government at its worst: lawless, arbitrary, and beyond review.

While Allen repudiates the FCC’s coercive negotiating practices, he would nonetheless keep the FCC’s authority to review mergers—insofar as it succeeds in blocking media consolidation deals he opposes, such as the Charter-Time Warner Cable merger. But he can’t have it both ways. In relying on the amorphous “public interest” standard to argue for merger denials, Allen urges the FCC preserve its lawless, arbitrary, and unreviewable process.

The promotion of racial diversity on television may be a noble goal, yet there is no legal basis for the claim that the FCC should block any mergers—let alone those that supposedly discourage diversity. The rule of law should prevail at every stage of the process, not just where it coincides with Allen’s interests.

If Allen truly wants to solve lawlessness at the FCC, he should go further than calling for an end to coercive merger conditions and demand that the Commission end merger review entirely.

Arielle Roth is a Legal Fellow at the Hudson Institute’s Center for the Economics of the Internet.