FCC Launches Program-Access Ruling

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At a time when the program-distribution market could tip in favor of the
direct-broadcast satellite industry, the Federal Communications Commission is
examining whether to continue to force cable operators to sell their programming
to DBS rivals.

On Thursday, the FCC voted 4-0 to launch a rulemaking on whether to sunset
so-called program-access rules. Under the rules, satellite-delivered cable
networks are banned from signing exclusive deals with cable operators -- even
MSOs that have no ownership interest in the cable networks.

As a result, those cable networks must be sold to DBS, and the rules are
widely credited with giving birth to the rapidly growing DBS industry. Although
Congress imposed the rules in 1992 as part of a broad reregulation of cable
operators, it permitted the FCC to lift the exclusivity ban Oct. 5, 2002.

'What we will be looking at is whether, in fact, there are still
opportunities for vertically integrated programmers and cable operators to skew
the market with exclusive contracts,' said W. Kenneth Ferree, chief of the FCC's
Cable Service Bureau.

Ferree -- whose staff will make recommendations to the four FCC members --
added: 'The idea in this notice is to find out whether that is still a threat,
and if it is, then we would still presumably need to maintain the prohibition on
exclusivity. If it's not, then we would have to re-examine that.'

At the meeting, FCC chairman Michael Powell withheld comment. But earlier
this year, Powell indicated that the program-access rules had slightly more
merit than other mass-media rules he views as no longer necessary to
enforce.

The other FCC members urged interested parties to file comments on a range of
topics related to the impact the exclusivity provision has had on the cable and
DBS industries. None of them made statements indicating which way they were
leaning.

'We need solid information on what effect this prohibition has had on
competition and diversity,' commissioner Kathleen Abernathy said.

The FCC could come under heavy pressure not to sunset the exclusivity
provision from the member of Congress who was instrumental in enacting the
program-access law -- House Energy and Commerce Committee chairman Billy Tauzin
(R-La.).

Tauzin spokesman Ken Johnson said the commission can expect to hear from
Tauzin on the rulemaking.

'You can count on it,' Johnson said. 'We have not seen any developments in
the marketplace today to suggest that the program-access rules are no longer
necessary.'

Over the past decade, the program-ownership market has undergone substantial
change. Although AOL Time Warner Inc. and other MSOs own a large stable of
networks, FCC data show that vertical integration in the cable industry has
declined sharply.

In 1994 -- two years after the program-access law passed -- cable operators
had an ownership stake in 53 percent of national cable networks. Last year, the
percentage dropped to 35 percent of 285 national programming networks. With
AT&T Corp.'s recent spinoff of programming giant Liberty Media Corp., the
level of vertical integration in the cable industry has dropped even more.

But consumer groups want the program-access rules extended despite the
decline in vertical integration mainly because the cable operators still retain
control over some of the most widely viewed cable networks that DBS cannot
afford to lose.

The FCC's rulemaking could occur simultaneously with the acquisition of
DirecTV Inc. -- the No. 1 DBS carrier, with 10 million subscribers -- by News
Corp. and Liberty.

If the long-delayed deal were to happen, DirecTV would emerge as the most
vertically integrated multichannel-video-programming distributor in the United
States, and it would be under no obligation to sell its programming to cable
operators.

None of the FCC officials addressed whether the program-access rules should
be applied to vertically integrated DBS carriers in the event the agency decided
to extend the cable rules beyond next October.

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