Merger Has Some D.C. Hurdles


Washington -- Viacom Inc.'s $37 billion friendly
takeover of CBS Corp. is deal that must clear difficult, but not insurmountable, hurdles
at the Federal Communications Commission.

The merger clashes with two standing FCC rules -- one
banning ownership of two broadcast networks, and another that says a broadcast company
cannot reach more than 35 percent of U.S. households.

FCC chairman William Kennard, who has expressed concern
about mass-media consolidation, issued a terse statement: "This merger is not yet
before the FCC. Once it is, the essential question will be: How will this merger
accelerate the delivery of digital-age services to all consumers?"

Reaction from Capitol Hill was hardly antagonistic, mainly
because some key lawmakers support looser broadcast-station-ownership rules.

Rep. Billy Tauzin (R-La.), chairman of the House
Telecommunications Subcommittee, said in a prepared statement that the Viacom-CBS deal did
not come as a surprise, especially in light of consolidation among cable operators.

"In a digital, broadband world, companies are going to
need additional resources to compete on a global scale," Tauzin said.
"Production and distribution are going to be integrally linked in the 21st century,
and both Viacom and CBS are positioning themselves to be a key player."

In a joint statement, Sens. Mike DeWine (R-Ohio) and Herb
Kohl (D-Wis.) said they also were not surprised. The lawmakers -- who head the Senate
Subcommittee on Antitrust, Business Rights and Competition -- said the deal was so large
that it deserved "a close look" as to its "impact on both the antitrust
landscape and the marketplace of ideas."

The merger will mean that the new company will own TV
stations reaching 41 percent of U.S. households.

The national-ownership-cap issue has driven a wedge between
the major networks and their affiliates. The networks have pushed for raising the 35
percent cap, but the affiliates have fought back, claiming that a relaxation would give
the networks too much power over them.

The rift caused News Corp. to bolt the National Association
of Broadcasters earlier in the year.

The Viacom-CBS combination would include the CBS network
and Viacom's existing 50 percent stake in United Paramount Network -- in violation of
the ban on dual-network ownership.

The FCC could issue waivers, or it could decide to modify
the rules as an outgrowth of its ongoing biennial review of mass-media-ownership rules, a
broadcast attorney based here said.

"While the new company may have to spin off some
television stations to satisfy federal ownership rules, I predict that the old regulatory
barriers limiting TV ownership are soon going to fall," Tauzin said.

Washington Research analyst George Reed-Dellinger said the
merger won't encounter much opposition at the FCC.

"I think the deal will be readily approved. They can
iron out the broadcast-ownership conflicts. But they will be under constant surveillance
that they don't discriminate in favor of their own programming," he said.