As Consolidation Continues, Law Firms Find They Must Adapt to Changing World

Industry consolidation has been underway for decades and its challenges for the communications bar are nothing new, communications industry lawyers said. Law firms face steady pressure to keep the rates they charge low and, as companies expand, many take routine matters "in-house," the attorneys said. But the attorneys also said technological evolution, including the explosion of wireless, has meant new areas of practice and new clients seeking representation.

“There’s a lot of new people coming into the field, a lot of new technologies,” said Richard Wiley, head of the communications practice at Wiley Rein, which he founded after he was FCC chairman. “We’ve been busy. When consolidation occurs and you lose a client as a result, it’s always going to have an impact on you. … Sometimes you’re lucky and your client is the acquirer.” Major FCC spectrum auctions -- especially the pending TV incentive auction -- have provided work for many law firms, Wiley said. The FCC has been busy in a lot of areas, he said. “Some you might like and some you might not like, but there’s a lot of action.”

Getting established at a law firm is difficult for young lawyers in all areas of practice, not just communications, Wiley said. “A lot of clients don’t want to see first-year people working on their matters. Firms have to work hard to develop their younger people.” In general, “it’s been more difficult for a lot of firms in recent years,” Wiley said. Many companies have taken work inside, he said. Clients are “tougher on rates,” he said. “There [are] a lot of billable hour questions, whether you want to go to alternative fee arrangements.” Law firms have to be “nimble,” he said. “You do see clients expecting law firms to run as they do as businesses, watching the dollar and making sure they’re getting value for the money they’re spending.”

The business is “episodic,” said Steven Lerman, managing partner at Lerman Senter. “When you look at radio, in the old days before [the FCC] changed the multiple ownership rules there were dozens and dozens of owners if not hundreds of owners, and they were more local too,” he said. “Then we saw consolidation, massive consolidation.” Television has seen a little less consolidation because of the national cap. “Overall, there are fewer clients on the broadcast side for sure,” he said. “For law firms, there is some luck involved. It can be who your client merges with.” Other areas have seen growth, Lerman said. The firm represents ISPs and utilities, for example, and both are a “vibrant” arena with lots of regulatory work they need done, he said. “It’s all billable hours,” he said.

“When I started practicing in 1972, it was what they called common carrier and broadcast, that’s all there was,” Lerman said. “Now there is wireless and a host of other disciplines." There are different and “bigger issues” like net neutrality or the incentive auction and the reallocation of spectrum, he said. “We didn’t have that in the old days,” he said.

“Of course, consolidation within an industry can mean more competition for fewer clients, but consolidation in the communications industry has been coupled with disruptive entrants, new business models that dismantle old silos, more regulatory scrutiny, players with the power and resources to fund significant new technologies and innovation, and an explosion of new, complex and very interesting business,” said Davis Wright cable attorney Paul Glist. “Maybe we don’t have 100 [sizable] cable companies anymore, but now we have 165 lawyers working on Internet, privacy, wireless, mobile payments, online infringement, tech licensing, compliance, and litigation and working with a host of other clients who thought they were just bricks and mortar but now realize they need communications/media/intellectual property assistance from firms that have spent decades in the field.”

The practice of law has gotten more complex for communications lawyers, Glist said. “We always needed to understand the technology, business and policy around companies to provide value-added legal service, but now we have to assemble and apply an even wider set of expertise, and an entrepreneurial spirit of innovation, as technologies and businesses converge,” he said. “And of course, more work is done in-house in large companies, so outside legal counsel has to consistently deliver extraordinary value.”

In-House Counsel

As companies grow and consolidate, they tend to rely more on their own legal staff rather than outside firms, said John Hane, attorney at Pillsbury. “That means less ‘commodity’ day-to-day compliance work to be done by relatively younger associates,” Hane said. “There is a lot of competition for that commodity work, because several firms can do it.” As communications law has gotten more complex, a bigger premium is placed on experienced attorneys who can work across multiple areas of communications law, he said. “Both the deals and the policy work are much more complicated,” he said. “That work isn’t commodity and there’s far less competition for it. Clients look for specific experience or lawyers they trust, when specific experience doesn’t exist. That happens more and more often. Very little of my work is routine these days. I feel like I’m breaking new ground almost every day.” The trade-off is that it's difficult for new lawyers to break into the field, Hane said. “Like many other areas of law practice, the ratio of associates to partners has declined.”

“Looking back over 20 years, one major change has been the expansion of in-house regulatory departments as telecommunications companies have grown in size,” said Carl Northrop, founding partner of Telecommunications Law Professionals, a boutique law firm. “One result has been that much of the routine regulatory work that used to be done by outside communications firms now is done in-house,” he said, citing such areas as routine FCC applications, comments in rulemaking proceedings and annual reports. “This has been both a curse and blessing for telecommunications law firms,” Northrop said. “On the downside, there is less regular recurring ‘bread and butter’ work,” he said. “On the upside, the work that outside firms get asked to do is more interesting and important to the client.”

Consolidation certainly has had an impact on the communications bar, Northrop said. “One major motivation for mergers is to achieve cost synergies and there are synergies to be gained in legal budgets when two law firms can be replaced by one, or when work that used to be done by outside firms can be done in-house,” he said. “One way that communications law firms have adapted is to broaden the base of companies they represent. Instead of focusing solely on regulated companies as clients, the practice expanded to include companies that provide goods and services to telecom companies.” Technological change has also had a major effect, he said. “Not that long ago, the wireline telephone business, over-the-air broadcasting, paging service and CLEC services were flying high,” he said. “The advent of wireless broadband, cable and satellite services changed the landscape dramatically and, along with it, lawyers and law firms aligned with old technology companies needed to adapt. One major form of adaptation has been to broaden the range of services provided. In addition to traditional regulatory work before the FCC, communications attorneys now handle transactional work, federal, state and local litigation involving telecom companies and lobbying work.”

Michele Farquhar, leader of the communications practice at Hogan Lovells, said the size of the firm’s communications group has tripled in just two years. “There are more opportunities to work for new and existing technology, media and telecom companies focused on delivering cutting-edge and converging services, especially for global firms that can handle questions involving several markets at the same time,” she said. “These companies expect outside practitioners to be their partners -- we need to understand their businesses and technologies in addition to bringing regulatory, legal and strategic insights to handle increasingly complex issues.” The critical infrastructure, healthcare and transportation industries, plus utilities, seek communications counsel, Farquhar said. “The FCC is moving faster, companies expect rapid responses and outside counsel are problem solvers, and the problems are far more challenging.”

“Our firm is busier than at any time since it was founded almost 20 years ago,” said Scott Harris, chairman of Harris Wiltshire. “While there has certainly been industry consolidation, the new technologies and services that have been developed in that time have brought many new companies into the communications sector. In fact, many of our largest clients didn’t exist 20 years ago. In addition, these new entrants tend to use outside counsel more than some of the legacy telecom companies did. Finally, because we see so many new companies developing new technologies and services, the nature of the practice has changed. It is less rote, and requires far more creativity and strategic thought than it once did.”

“The current FCC continues to be extraordinarily busy, and that keeps the entire communications bar busy,” said Natalie Roisman, partner at Wilkinson Barker. “The commission’s high level of engagement includes an expanded regulatory reach. As a result, more types of clients are touched by the work of the FCC, and this creates an increase in demand for communications-related legal services, which presents increased opportunities for all communications practices. We have found this to be especially true for boutique firms, which are ideally suited to attract both cost-conscious clients and lateral talent.”

Robert McDowell has been back in the practice of law for just under a year after seven years as a member of the FCC. “New companies and ideas are springing up every day,” said McDowell, at Wiley Rein since last September. “The expansion of this economic sector is sparking [merger and acquisition] activity as well as capital formation and legal work. While the market's evolution can be disruptive to old business models, it offers terrific opportunities for professionals advising this space -- be that law, investment banking, venture capital, private equity, economic consulting or engineering. Opportunities abound for those who are willing to adapt on a daily basis."