FCC to Launch Ownership Rulemaking

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After being dealt a big legal setback six months ago, the Federal
Communications Commission is planning to take another crack at crafting
cable-system-ownership rules that can withstand court scrutiny.

At its public meeting Sept. 13, the FCC is scheduled to launch a rulemaking
designed to place some kind of limit on the number of subscribers one cable
company may serve. The agency has been struggling with the issue since 1993.

The old FCC rule -- which barred a cable operator from serving more than 30
percent of all pay TV subscribers in the United States -- was tossed out on
First Amendment grounds by a panel of the U.S. Court of Appeals for the District
of Columbia Circuit March 2. AT&T Corp. and Time Warner Entertainment
challenged the cap in court.

The FCC, in conjunction with the Department of Justice, declined to appeal
the case. However, consumer and public-interest groups have asked the Supreme
Court to hear an appeal seeking reversal of the D.C. Circuit.

The commission is also planning to modify two other rules struck down in
court.

One of them barred cable operators from occupying more than 40 percent of
their first 75 channels with affiliated programming.

A second one dealt with the manner in which the FCC counted minority
investments in cable systems toward the 30 percent cap. The agency said that if
a limited partner sold programming to the partnership, all of the subscribers in
the partnership were attributable to both the general and the limited
partner.

In July, FCC Cable Services Bureau chief W. Kenneth Ferree said he and his
team wanted to ensure that any new rules they were able persuade the commission
to approve would be sustainable in court.

'Given the court's rhetoric in the decision, we want to be very careful to
support whatever we do the next time around and not have the court sending
something back with the kind of language that we saw in the last decision,'
Ferree said.

When the 30 percent cap was in effect, only AT&T Broadband had a
compliance problem. Pursuant to the FCC's order approving AT&T's purchase of
cable operator MediaOne Group Inc. in June 2000, AT&T faced a May 19
deadline for divesting cable subscribers or programming interests.

However, after the court decision came down in March, the FCC suspended the
MediaOne merger conditions.

On its own, AT&T has taken several steps putting it on track to meet the
30 percent cap, including its Aug. 10 spinoff of Liberty Media Group and the
announced sale of its interest in cable operator Cablevision Systems
Corp.

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