Analysis of Innovation in FCC M&A Transactions from 1997 to 2015

As a term, “innovation” is used inconsistently, often resembling ‘cheap talk.’ In telecom. and media policy debates like network neutrality, both those supporting and against proposed regulation will claim their position improves innovation, while their opponents’ position will harm innovation. However, “innovation” becomes a valuable legal term of art when used in mergers and acquisitions (“M&A”) decisions, particularly when the Federal Communications Commission (“FCC”) evaluates “Major Transactions.” The primary aims of this work are to clarify the meaning of innovation as it pertains to competition regulation and M&A strategy and offer insights into how innovation should influence future regulation and strategy formation. After the Telecommunications Act of 1996 enabled telecommunications and media companies to compete in once-restricted lines of business, there was a flurry of M&A activity that has continued to this day. Simultaneously, innovations related to digital convergence have placed these once disparate lines of business in increasingly direct competition with one another. This research reviews the 82 FCC “Major Transaction” orders between the passage of the Act and 2015, using a textual coding method related to the various economic and legal definitions of innovation to analyze all 509 instances of the grammatical variations of the term's use. Four primary conceptual definitions of innovation are identified and explored through legal analysis, with the term’s usage patterns analyzed in connection to bundling, business mavericks, business innovation, innovation markets, technological innovation, and the concept’s integration into the competition regulation framework. Each of 82 orders is also categorized by the general markets involved and the type of transaction under review, and explored through a combination of the results of this coded data and legal research, which clarifies and reframes innovation discussions surrounding the precedents contained within the FCC’s major mergers, acquisitions, joint ventures, and licensing transactions. Policy and business strategy conclusions are considered, with insights about how technological innovation challenges antitrust law’s discrete market definitions and why open access factors across a broader range of indirect competitors may be more important.