Analysts Split on Cap Verdict

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Analysts were divided last week over the near-term implications for the industry as a whole from a federal court ruling that found the Federal Communications Commission's cable-ownership cap unconstitutional.

With one exception, most felt the ruling was more skewed to AT&T Broadband, which exceeds the cap due to its acquisition of MediaOne Group Inc.

Some pointed to another part of the decision: a ruling that could reverse the FCC regulation that bans cable operators from owning more than 40 percent of the programming they offer to viewers.

Here are some analysts' takes:

Ray Katz, Bear Stearns & Co. Inc.:
"If Comcast [Corp.], Cox [Communications Inc.], Charter [Communications Inc.] and Adelphia [Communications Corp.] wanted to merge, they could have merged and been under the [existing] cap. It [the court decision] is almost AT&T-specific.

"I don't think this is going to be a priority for this chairman," Katz said of any FCC plans to justify the 30-percent ownership cap. "This is not Kennard's FCC."

Jessica Reif Cohen, Merrill Lynch & Co. Inc.:
"We believe this is a huge victory for cable and sets the stage for further consolidation. The obvious consolidators are Comcast and AOL Time Warner [Inc.], given their very solid balance sheets.

"We believe the court ruling is a mixed blessing for AOL Time Warner. On one hand, the company would indeed benefit from more deregulatory cable ownership limits as consolidation opportunities would potentially emerge for AOL Time Warner. Also, the program-ownership limits related primarily to AOL Time Warner, as it is the most content-rich cable operator (although on a practical basis, not a huge impact). However, at the same time, a raised ownership cap on cable would eliminate AT&T's need for a forced disposal of its stake in TWE to satisfy an FCC requirement for the MediaOne merger."

Tom Eagan, UBS Warburg:
"While we agree that the potential deregulation is a net long-term positive for the sector, we believe that the reversal of this specific regulation is really a positive only for AT&T Broadband. With none of the other cable operators [besides AT&T Broadband] near the 30-percent cap, we do not expect a rush to consolidate due to this ruling. Actually, we consider this ruling to be a modest negative for the remaining cable operators. This is because we believe that this ruling will improve AT&T's bargaining position [in the expected sale of up to 3 million subscribers to the other cable operators] by eliminating any regulatory imperative associated with its system sales."

Gary Farber, SG Cowen Securities Corp.:
"Two or three years ago, it seemed like the cable guys were at a disadvantage as far as negotiating for programming. This ruling, if it stands, would seem to indicate the pendulum is swinging their way. I think this will lead to more programming joint ventures. If you take a look at the industry trends, you don't see new channels being launched, you see brand extension of what's out there. If there is an area where the cable operators wished they had gotten bigger sooner, it's programming."

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