News

Cap's Day in Court

12/28/2007 7:00 PM Eastern

Washington
— The cable industry, probably led by Comcast, will likely ask a federal court to strike down a new cable-ownership restriction adopted Dec. 18 by the Federal Communications Commission.

The rule bans a cable company from serving more than 30% of all pay TV subscribers nationally. The 30% cap is the same limit a federal court struck down in March 2001, although FCC Democrat Michael Copps promised that “the underlying economic justification is quite different [and is] completely responsive to the issues raised by the [court].” The U.S. has 96.9 million pay-TV subscribers, according to SNL Kagan.

Copps voted for the 30% cap along with fellow FCC Democrat Jonathan Adelstein and Republican FCC chairman Kevin Martin — the same bipartisan alliance that slashed cable leased access rates by 75% in November.

FCC Republicans Deborah Taylor Tate and Robert McDowell dissented from the 30% cap, just as they did from the leased-access ruling.

The FCC's effort to impose cable-ownership limits has been an odyssey. Although Congress gave the agency the authority to do so in 1992, the FCC has been able to enforce a rule for only a brief time — 287 days from May 2000 to March 2001 — because of adverse court rulings.

Comcast and the National Cable & Telecommunications Association said in statements that the FCC's resuscitation of the 30% cap would mean more trouble in federal court.

“We remain highly confident that the federal courts will agree that the Commission's decision is not supported by the record and that this cap is unconstitutional,” said Comcast executive vice president David Cohen.

Stifel Nicolaus analysts Blair Levin and David Kaut all but predicted a cable victory in court.

“We believe the FCC will again face an uphill battle to defend the 30% cap … given another expected cable challenge,” they said in a client note shortly after the FCC vote.

FCC enforcement of the 30% limit would frustrate Comcast's ability to make a big cable acquisition. Comcast has 26.1 million subscribers for 27% pay-TV market share under FCC rules. The FCC's cap would rule out a Comcast combination with either Time Warner Cable, Cox Communications or Charter Communications. Keeping Comcast penned in helps AT&T and Verizon preserve their territorial dominance over cable.

Six years ago, a panel of the U.S. Court of Appeals of the D.C. Circuit threw out the 30% cap as a First Amendment violation, in part because the agency's theories failed to take into account competition from satellite-TV providers.

The court concluded that the FCC's market analysis justified a 60% cap.

As McDowell observed, cable competition has grown more fierce with the entry of AT&T and Verizon Communications and with satellite-TV market share growing by about two-thirds.

“This order will be overturned by the D.C. Circuit,” McDowell said.

The cable cap is designed to ensure that a large multiple-system operator can't make or break an unaffiliated programmer by denying to initiate carriage or refusing to extend a carriage contract.

“As with all ownership rules, it is important that the [FCC] promote competition and the diversity of voices,” Martin said in a statement.

What Comcast Could Buy
Successful imposition of a 30% ownership cap would prevent Comcast from buying the biggest cable multiple-system operators — Time Warner Cable, Cox Communications and Charter Communications — but the rest of the top 25 would remain fair game. One side note: Comcast could buy cable operators 10 (CableOne) through 25 (MidOcean) and control just 30.7% of the pay TV universe. (Bresnan's 295,000 customers are already attributed to Comcast.) — Mike Farrell
OPERATOR SUBSCRIBERS PERCENTAGE
* Comcast already attributes Insight's full 1.3 million customers, but is in the process of unwinding its 50-50 Insight Midwest partnership. Once that deal is completed, Comcast will take control of 684,000 former Insight customers, with 639,000 subscribers retained by Insight.
** Comcast owns a minority interest in Bresnan, but all of Bresnan's 295,000 subscribers are included in Comcast's 26.1 million attributable subscribers.
Source: NCTA and
Cablevision Systems3.1 million30.1%
Bright House Networks2.3 million29.3%
Suddenlink Communications1.4 million28.4%
Mediacom1.3 million28.3%
Insight*1.3 million27.0%
Cable One696,00027.7%
WideOpenWest361,00027.3%
RCN355,00027.3%
Bresnan Communications**295,00027.0%
Service Electric289,00027.2%
Atlantic Broadband286,00027.2%
Armstrong233,00027.2%
Knology222,00027.2%
MidContinent199,00027.1%
Pencor Services183,00027.1%
Broadstripe158,00027.1%
Buckeye CableSystem147,00027.1%
Metrocast143,00027.1%
General Communications142,00027.1%
Northland Communications140,00027.1%
MidOcean/Crestview139,00027.1%

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