For local regulators, the announcement that Time Warner Cable and Comcast Corp. will devour bankrupt Adelphia Communications Corp. is generating more uncertainty than answers.
Officials say they are not sad to see Adelphia, along with its empty pockets — and promises — go. But they fear the bankruptcy court overseeing the merger may trump their local authority.
They also feel bigger isn't necessarily better when it comes to a new local system owner. Comcast is already known for throwing its weight around the negotiating table, some regulators said, adding to concern that the deal-making process will become even more time-consuming and expensive with an even bigger MSO at the bargaining table.
And critics of media consolidation swear they will do all in their power to fend off the merger.
Fridley, Minn., stands as an example of the immediate problems that could rise from the deal. The Minneapolis suburb has been unsuccessful negotiating a new franchise with Time Warner.
The community preliminarily declined to refranchise the operator. Fridley was in the process of notifying Time Warner it would launch the formal phase of the refranchise proceedings when the Adelphia deal, and its related system swaps impacting the Minneapolis area, were announced.
“Who do they talk to now? Whose financials do you look at? The city has no desire to waste time or money,” said attorney Brian Grogan, the city's consultant.
The announcement is also bringing long simmering contract disputes to a head. Once the deal was announced, the city of Minneapolis filed suit in Hennepin County Court, seeking a declaration of its rights to collect franchise fees on cable-modem service. The city also believes Time Warner has failed to live up to its obligations to dedicate a portion of system capacity for municipal use.
Time Warner Cable declined to comment on the pending litigation. Cities, including Chicago, have challenged operators to pay fees on data based on local franchise language but have failed to convince the courts of their arguments. The Brand X case before the U.S. Supreme Court is anticipated to generate the definitive word on fees applied to data products.
Legal observers note that bankruptcy courts have wide-ranging power (one attorney said they are “second only to God”) but the attorneys predicted the court liquidating Adelphia would acknowledge the authority of the federal Cable Act and let stand the local franchise terms and conditions.
Frank Zerunyan, a bankruptcy attorney who represents Los Angeles County and a number of Adelphia cities, noted that not only does federal law guide franchises, but also most local terms are supported by city ordinances that set the contract terms into city code.
“From a practical standpoint, I doubt the bankruptcy court will force local officials to do something contrary to local contracts,” he said.
The only likely option for Adelphia, he opined, is to accept or reject the franchises, known in bankruptcy law as “executory contracts.” However, he noted that it might be in the interest of the company, in markets where it has operated under adverse contract terms, or in communities where its systems have been very unprofitable, to reject the contracts in those rare locations.
In addition to concerns about local agreements, regulators said national implications of the deal also cause consternation. They question whether the system shuffles will actually keep Comcast under the federally mandated 30% cap on market share.