Consumer Groups: Tighten Ownership Rules

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Washington -- Consumer advocates and public-interest groups
want the Federal Communications Commission to rewrite cable-ownership rules, claiming that
the agency failed to prevent one or two cable operators from dominating the market.

In October, the FCC modified its rules to allow one cable
operator to serve 30 percent of all pay TV subscribers, which works out to about 36
percent of cable subscribers in a pay TV universe of 80 million.

That's too big a chunk of the cable market, according
to the Consumer Federation of America, the Center for Media Education, the Association of
Independent Video and Filmmakers and the United Church of Christ.

Congress, the groups said, intended for the FCC to place
limits on cable-system ownership under a formula related exclusively to cable subscribers
and without reference to subscribers to cable's competitors.

Revising the formula was "the telecommunications
equivalent of defining ketchup as a vegetable," the groups said. "Congress
wanted cable power limited, and not increased."

The FCC justified the change by saying that cable-ownership
rules should take into account growing competition from direct-broadcast satellite
operators, which had about 12 million subscribers at the end of 1999.

The FCC is not enforcing the cable rules because a federal
court declared the 1992 law authorizing them unconstitutional in 1993.

A three-judge panel of the U.S. Court of Appeals for the
District of Columbia Circuit is expected to rule on the constitutionality of the statute
in a few months. If the court upholds the statute, it will then launch a review of the
FCC's rules.

Rather than asking the FCC to reconsider its rules, Time
Warner Inc. decided to file an appeal with the D.C. Circuit. But the court tends to
postpone judicial review of rules while petitions for reconsideration are pending at the
FCC.

The National Cable Television Association declined to seek
reconsideration of the rules, but it is still considering an appeal or joining the Time
Warner case as an intervenor, senior vice president of law and regulatory policy Dan
Brenner said.

As part of their petition, the consumer and public-interest
groups said the FCC erred in its revision of rules that determine when a minority interest
in a cable system should count toward the 30 percent pay TV subscriber cap.

In the rules, the FCC said a minority owner's interest
in a limited partnership would not count if the minority partner were not materially
involved in the video-programming activities of the partnership.

This change came in handy for AT&T Corp., which is
planning to acquire a 25.5 percent stake in Time Warner Entertainment -- a limited
partnership with 9.7 million cable subscribers -- if regulators here approve
AT&T's purchase of MediaOne Group Inc.

In a recent filing, AT&T said if the TWE stake were
attributable, it would own 39 percent of pay TV subscribers -- well over the limit. But
AT&T insisted that TWE should not be attributable because it would not have any say in
the programming decisions of the partnership.

The groups said the FCC has loosened the attribution rules
so much that the 30 percent cap is effectively meaningless. "[The FCC] has created a
loophole in the attribution criteria so great that it swallows the whole," they
added.

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