FCC Restarts Clock on News-DirecTV

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Rupert Murdoch's U.S. satellite merger is back on track at the Federal Communications Commission.

Last Monday, the FCC restarted the 180-day merger review clock on News Corp.'s $6.6 billion deal to take operational control of Hughes Electronics Corp., parent of DirecTV Inc.

The deal got sidetracked at the FCC when the agency sought more data from News and Hughes. The commission stopped the clock at day 149. The resumption of the clock means the 180-day review should conclude prior to the end of the year, consistent with Murdoch's plan to take charge of DirecTV by Dec. 31.

Retrans Limits?

The merger requires the approval of the FCC and the Justice Department. The deal is expected to be approved but conditions on how News Corp. uses retransmission consent for its 35 owned and operated Fox stations might attach to the approvals.

FCC sources said chairman Michael Powell recently met with Murdoch to tell him to expect conditions on the deal.

Several cable companies, including hundreds of small cable companies, have complained that Murdoch would withhold his Fox TV stations from them until they paid higher fees for News Corp. cable networks. Cable operators fear that if they didn't meet Murdoch's demands, they would lose customers to DirecTV, which Murdoch would supply with the programming that cable companies complained was too expensive.

In September, News Corp. and DirecTV announced plans to carry every local U.S. TV station by no later than 2008. Today, DirecTV serves less than half of all TV markets.

Boucher Letter

Last week, Reps. Rick Boucher (D-Va.) and Bob Goodlatte (R-Va.), sent Powell a letter complaining that 2008 was too far in the future for thousands of rural Americans in their southwest Virginia districts.

The lawmakers called on the FCC to ensure that all consumers have access to local TV signals via DirecTV "by a specified date in the in the near term."

They added, "While we applaud News Corp.'s new pledge to serve even more markets, we do not think our constituents should have to wait that long for services that have been available to parts of the country since 1999."

Big cable operators — for example, Comcast Corp. and Time Warner Cable — have not injected themselves into the merger debate at the FCC. The National Cable & Telecommunications Association has also remained on the sidelines.

But midsized and small cable companies have been the most vocal. They have said News Corp.'s control of a 12 million-subscriber DBS operator, nearly three dozen TV stations, and key regional sports properties can be manipulated and leveraged to require cable to pay higher than otherwise for News Corp. programming.

Cox Communications Inc., Advance/Newhouse Communications, Cable One Inc., and Insight Communications Co. — which together serve about 10 million cable subscribers — have been the loudest cable critics. Cablevision Systems Corp. recommended a condition barring News Corp. from electing retransmission consent for its analog TV stations.

Miron's Take

At a Senate hearing earlier in the year, Robert Miron, chairman and CEO of Advance/Newhouse, put cable's predicament this way: "DirecTV could make a deal to carry Fox Sports at a higher rate and then negotiate with the cable company to pay the same rate. If the cable company refused to pay that rate, [Murdoch] would have de facto exclusivity of that product."

But Murdoch told the Senate panel that dominant cable operators were scared of competition. He told a House panel that withholding programming from competing distributors would cost him hundreds of millions of dollars a year.

The FCC has demanded data from News Corp. and Hughes to test some of cable's theories. An FCC source said the data request was part of an effort to determine whether News Corp. could use DirecTV to extract higher programming fees from cable operators.

The FCC appeared interested in knowing whether a DirecTV promotion supported by the Walt Disney Co. was an effective weapon during Disney's bitter retransmission consent dispute with Time Warner Cable in early 2000.

ACA Wants Clout

The American Cable Association, which represents small cable companies serving about 9 million subscribers, wants its members to have the right to bargain as a group with News Corp. for access to its TV stations. That would be similar to how ACA members currently bargain for access to News Corp.'s cable programming.

ACA also called for News Corp. to make its non-broadcast programming available to small MSOs on the same terms offered to DirecTV and to promise to disclose the DirecTV conditions to the FCC and the National Cable Television Cooperative, small MSOs' buying agent.

"The conditions are intended to restrain News Corp. from using its control over both retransmission consent rights and DirecTV to disadvantage smaller competitors of DirecTV," ACA said in a Nov. 18 letter that summarized discussions the previous day with several top FCC officials.

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