News

Court Rejects 30% Cap

9/05/2009 2:00 AM Eastern

Financial analysts may have treated a federal appeals court smackdown of the FCC's 30% cap on cable subcribers as an M&A yawner, but it was still a big legal — and political — victory for the industry.

The unanimous decision from a three-judge panel of the U.S. Court of Appeals for the D.C. Circuit held that the Federal Communications Commission's retention of the limit — which allows cable operators to serve no more than 30% of all pay TV subscribers nationally — was arbitrary and capricious. The ruling butressed cable's long-standing argument that its marketplace is hotly competitive and needs less, not more, regulation.

Only Comcast, the nation's largest cable operator, is even close to that now-discredited 30% cap (about 25% of subscribers), and it could still buy all but its largest rivals without topping 30%. Thus, the decision's lead line was not about opening the floodgate to mergers — which is unlikely to happen during the current recession — but about making the case that competition, particularly from satellite TV, is alive and well in the multichannel marketplace.

In fact, the National Cable & Telecommunications Association amended its filing in the FCC's video competition report proceeding to essentially lead off with language from the appeals court decision.

The NCTA quoted the court's finding that “the record is replete with evidence of ever increasing competition among video providers: Satellite and fiber optic video providers have entered the market and grown in market share since the Congress passed the 1992 Act, and particularly in recent years. Cable operators, therefore, no longer have the bottleneck power over programming that concerned the Congress in 1992,” the court concluded.

The same court had asked the FCC back in 2001 to rethink the cap in light of increased competition from DBS. The judges were particularly peeved by the FCC's failure to give DBS its due this time around either.

“The commission's dereliction in this case is particularly egregious,” wrote Judge Douglas Ginsburg. “In the previous round of this litigation we expressly instructed the agency on remand to consider fully the competition that cable operators face from DBS companies … The commission nonetheless failed to heed our direction and we are again faced with the same objections to the rationale for the cap. It is apparent that the Commission either cannot or will not fully incorporate the competitive impact of DBS and fiber-optic companies.”

But that could change under the commission's new management, which has pledged to collect better data on competition and use that to buttress whatever steps, if any, it takes into the marketplace.

FCC chairman Julius Genachowski suggested that the court decision would not be the last word on the cap.

“As part of the Cable Act, Congress required the commission to adopt horizontal ownership limits to enhance effective competition in the cable television marketplace,” he said last week. “The FCC staff is currently reviewing the court's decision with respect to the limit previously adopted and the commission will take this decision fully into account in future action to implement the law.”

March