Four MSOs Fuel Anti-Merger Fire

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A group of cable operators, led by Cox Communications Inc., continues to heckle the proposed merger of News Corp. and DirecTV Inc. as a recipe for higher cable rates.

The MSOs have warned regulators that News's control of DirecTV parent Hughes Electronics Corp. would push cable rates upward, due to the market leverage gained by combining a major owner of broadcast stations and the largest direct-broadcast satellite company, with more than 11 million subscribers.

In an Aug. 4 filing, Cox told the Federal Communications Commission that if cable companies don't agree to pay more for access to Fox TV stations and regional sports networks, News will injure the cable companies by making its "must-have" programming available to DirecTV and other cable competitors.

The MSOs joining Cox were Advance/Newhouse Communications (parent of the BrightHouse Networks systems), Cable One Inc. and Insight Communications Co.

The MSOs called on the FCC to adopt "target conditions" to avert threats to consumer welfare.

In the past, News has said that withholding programming from cable — which controls close to 70% of the pay TV market — for the exclusive benefit of DirecTV, which holds 13%, made no economic sense.

But the MSOs outlined for the FCC — which must approve the deal — how their scenario for a News-driven escalation in cable rates would play out. News, they said, would deny access to Fox-owned TV stations and Fox Sports Net regional sports channel to a few small and midsized operators, unless they paid more money.

That strategy would minimize financial risk to News — which actually might benefit financially if cable subscribers abandoned their cable company for DirecTV to view Fox programming — while putting pressure on other operators not to drop Fox programming.

"By placing a cable operator in the position of either giving in to higher programming fees for 'must-have' content, or ceding such content to its chief rival, the transaction creates a structural circumstance in which an adverse impact on consumer welfare — in the form of higher prices or reduced output — is inevitable," the MSOs said.

Murdoch has agreed to abide by cable's program-access rules, that is, to make News-owned programming available to competing distributors at nondiscriminatory rates. However, he declined to include access to his company's 35 local TV stations, the broadcast home of many National Football League games, in his commitment.

Murdoch said the inclusion of the TV stations would put Fox at a disadvantage against NBC, ABC, and CBS.

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