D.C. Court Hears Cable-Ownership Case


Washington -- A cable-ownership-limitation law -- a
potential obstacle to AT&T Corp's cable-acquisition strategy -- is now in the hands of
a three-judge panel after a six-year delay in which neither the law nor federal
regulations were enforced.

The U.S. Court of Appeals for the District of Columbia
Circuit, which heard oral arguments in the case Dec. 3, isn't expected to rule for several
months, and probably not until after federal regulators have acted on AT&T's $56.4
billion merger with MediaOne Group Inc.

However, the Federal Communications Commission has put
AT&T on notice that if the court upholds the law and the agency's regulations,
AT&T will likely be required to divest the necessary number of cable systems to come
into compliance.

AT&T can skirt the whole controversy if the court
strikes down the law or if the MSO can persuade the FCC that its 25.5 percent stake in the
Time Warner Entertainment partnership, which has 9.7 million subscribers, should not count
toward a national ownership cap.

The court heard oral arguments on the law only. The actual
FCC rules may never get a hearing if the statute is struck down.

"We get out of that case if that happens,"
quipped Judge Douglas H. Ginsburg, who served on the panel with Judges David S. Tatel and
Judith W. Rogers.

Also at issue in the case is the constitutionality of
another provision that authorized the FCC to limit the number of channels a cable operator
may occupy with its own programming. But that provision took a backseat to the ownership
law during oral arguments.

The ownership law -- a provision of the 1992 Cable Act --
ordered the FCC to impose "reasonable limits" on the number of cable subscribers
one company may serve. The commission responded with a 30 percent cap on cable homes
passed nationally.

In October, the FCC changed the test to 30 percent of
subscribers to all multichannel-video-programming distributors, reflecting the advent of
satellite competition.

The agency never enforced its rules because they were
adopted subsequent to a federal district court's ruling in 1993 that the statute was
unconstitutional under the First Amendment.

TWE is challenging the law as an invasion of its
free-speech rights. The Department of Justice is defending it as a content-neutral
structural barrier intended to stop one or two companies from owning all, or substantially
all, cable systems in the United States.

Lasting about one hour, the hearing centered on whether the
law was "content-based." Laws found to be content-based receive the highest
level of scrutiny and seldom survive in court.

Time Warner Inc. counsel Robert Joffe, of Cravath, Swaine
& Moore, said the law was content-based because the government was imposing an
outright ban on speech between the cable operator and potential subscribers. "That
prevents willing speakers from speaking to willing listeners," Joffe said.

Ginsburg suggested that Joffe's analysis was unsound
because the law did not prevent Time Warner from selling programming -- its speech, in
this case -- to cable operators it didn't own.

"It is the package [of channels], not the content,
that is being limited," Ginsburg said. "Our speech is the package," Joffe

Congress also passed the law to prevent a cable operator
that had amassed a huge number of subscribers from using that power to dictate winners and
losers among cable networks.

Ginsburg and Tatel pressed Joffe on whether Congress was
entitled to prevent monopoly and promote ownership diversity in cable, just as it had in
the broadcast arena. "Diversity is fine so long as you don't suppress someone
absolutely to let someone else speak. This shuts us up," Joffe said.

Joffe said the ownership cap was a more flagrant violation
of the First Amendment than "must-carry" -- a provision in the same law that
required mandatory cable carriage of local TV signals. In Joffe's view, must-carry was a
"modulation" of the cable operator's right to speech, rather than outright

DOJ attorney Jacob M. Lewis asserted that the law was
content-neutral and upheld under a more lenient standard of review -- one that requires
the government to have substantial interest while burdening protected speech no more than

He repeated often that the purpose of the law was to
prevent one cable operator from dominating the market without regard to the type of
programming the operator sold to subscribers.

"The statute is not content-based on its face,"
Lewis said. "Cable has bottleneck monopoly power."

Ginsburg noted that the FCC's new 30 percent cap reflected
competition from direct-broadcast satellite and wondered aloud whether the law could
survive that evolving competitive market.

"As DBS become more competitive, a cap set today might
become unconstitutional tomorrow," Ginsburg said. "Today is a little
early," Lewis added.