Court Voids 30% Cable Cap

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Washington -- In a major legal victory, a federal court here Friday struck
down a slew of cable-ownership rules in a case that could have broad impact on
the structure of both the cable and broadcast industries.

The U.S. Court of Appeals for the District of Columbia Circuit handed down
the unanimous decision in a challenge to Federal Communications Commission rules
brought by the nation's two largest cable operators, AT&T Corp. and Time
Warner Entertainment.

In summary, the court:

\u0007 Struck down as unconstitutional the FCC rule that bars one cable operator
from controlling more than 30 percent of the 85 million subscribers to cable,
direct-broadcast satellite and other providers of multichannel-video
programming;

\u0007 Struck down as unconstitutional an FCC rule that said cable operators may
not occupy more than 40 percent of their first 75 channels with programming in
which they have an attributable interest;

\u0007 Struck down as arbitrary a rule that said a cable-system-ownership interest
would be attributable even if the company were controlled by single majority
shareholder; and

\u0007 Struck down as arbitrary a rule that said a minority stake in a cable
limited partnership would be attributable if the minority stakeholder sells its
programming services to the partnership.

But the court upheld a rule that said a 5 percent voting stake in a cable
company triggered attribution, as did a 33 percent mix of debt and equity.

Regarding the cap, the court said: 'Constitutional authority to impose some
limit is not authority to impose any limit imaginable.'

The court said the cap had to fall, especially due to an absence of evidence
proffered by the FCC of collusion or anti-competitive behavior by cable
MSOs.

'Such findings have not been made,' the court said.

The 26-page opinion was written by Judge Stephen F. Williams and supported by
Judges Douglas H. Ginsburg and David S. Tatel.

The voided cable rules -- first adopted in 1993 and modified in 1999 -- were
remanded to the FCC, which has the discretion to try once again.

The court warned the FCC that any new cable-ownership cap that might be
adopted had better take into account the galloping progress of the DBS
industry.

With the cable-ownership cap voided, the decision appears to put some
broadcast-ownership rules in jeopardy. Fox and NBC are asking the same court to
void a rule that limits a broadcast-station owner to 35 percent of TV
households.

The decision represented a substantial victory for AT&T, which -- after
merging with MediaOne Group Inc. last June -- was credited by the FCC with
having 40 percent of the market. It was order to sell either subscribers or
programming interests, or to divest its 25 percent stake in TWE.

The court's decision means AT&T's interest in TWE -- a limited
partnership that houses the bulk of AOL Time Warner Inc.'s 12 million cable
subscribers -- is no longer attributable to AT&T.

It also likely means that AT&T's one-third interest in Cablevision
Systems Corp. is no longer attributable if the FCC determines that Cablevision
chairman Charles F. Dolan and his family constitute a single majority
shareholder.

It was unclear Friday how the decision would affect AT&T with respect to
the FCC's order approving the MediaOne deal. The agency approved that deal not
only by relying on its ownership rules, but also on its broad mandate to protect
the public interest.

The commission had no immediate reaction other than to say it was reviewing
the decision.

FCC chairman Michael Powell said he was skeptical about retaining ownership
rules that had outlived their usefulness, adding that the burden for retention
should be shouldered by those who say the rules should stay, rather than by
those who say the rules should go.

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