FCC Looking at Subscriber-Limit Cap


Washington -- The Federal Communications Commission is
considering a new test for determining the market power of cable operators, for the
purpose of capping the number of subscribers that a cable operator may serve.

Under FCC rules that have been stayed pending judicial
appeal, no cable operator may own systems that reach more than 30 percent of all homes
nationwide that are passed by cable wires.

The FCC rules permit "horizontal ownership" to
expand to 35 percent if the additional systems are more than 50 percent-owned by
minorities -- an allowance that no cable operator has utilized since the release of the
rules in October 1993.

In place of a "homes-reached" test, the FCC is
soliciting comment on a new formula based on the actual number of subscribers served by a
cable operator.

Also under the new test, the FCC is asking whether it would
be appropriate, as well as legal, to combine a cable operator's cable subscribers
with any subscribers that it may have as a result of owning noncable
multichannel-programming distributors -- namely, direct-broadcast satellite systems.

In a proposed rulemaking released June 26, the FCC said it
was considering the following formula: a numerator that would include an MSO's cable
subscribers, plus its DBS subscribers (if any), above a denominator that would include all
cable subscribers, plus all subscribers to noncable multichannel-video-programming

"We are trying for a more accurate measure of market
power," an FCC source said. Commission sources said the proposed subscriber-reach cap
would be 30 percent.

As a real-world example, under the FCC's new formula,
Tele-Communications Inc.'s market share would work out to its 10.4 million cable
subscribers, plus PrimeStar Inc. subscribers attributable to the MSO, divided by 73.6
million (all cable subscribers, plus all noncable multichannel-video subscribers).

TCI's market share would come to about 16 percent,
assuming that all of PrimeStar's subscribers are attributable.

Some issues are cloudy. For example, TCI's market
share may be much greater than 16 percent. That would depend on whether TCI is affiliated,
under FCC ownership-attribution rules, with the many cable operators that it reached deals
with over the last year-and-a-half.

Two weeks ago, the FCC announced a separate rulemaking
designed to overhaul its cable-attribution rules so that it can define TCI's various
ownership interests and enforce a subscriber-limitation cap.

"The obvious issue here is: What level is TCI
at?" an FCC source said. "These issues of attribution have to be resolved to
sensibly enforce horizontal standards."

Two weeks ago, the FCC agreed to continue its five-year
stay of the 30 percent of households cap until a federal court rules on the
constitutionality of the underlying provision in the 1992 Cable Act.

Congress passed the law to block one cable operator from
using its control over cable systems to dominate cable programmers -- especially new
programmers seeking carriage on systems with which they are not affiliated.

The FCC's stay decision was important to TCI. Two
weeks ago, AT&T Corp. chairman C. Michael Armstrong announced in a press release that
one of the benefits of the merger with TCI was that the MSO had access, on its own or
through affiliates, to "33 million homes."

Based upon Nielsen Media Research's figure of 98
million U.S. households (96 million of which are passed by cable), TCI's cable
systems today reach 34 percent of cable households. The FCC made it clear that if its stay
were ever lifted, cable companies would have to come into compliance with the 30 percent

The 30 percent cap would affect not only TCI, but also its
affiliates. For example, questions have been raised about whether Cablevision Systems
Corp., in which TCI has a one-third stake, would be barred from acquiring additional cable