MSOs Want Flexibility for Mergers


With industry consolidation at an all-time high, cable operators are seeking maximum flexibility to merge without bumping into federal ownership limits.

Cable is seeking almost boundless merger potential, but consumer groups, Hollywood writers and at least one religious organization remain hostile to unbridled industry consolidation.

For more than a decade, the Federal Communications Commission has tried to limit the size of cable operators, reflecting concerns in Congress that large MSOs would exercise too much power over program suppliers — particularly networks they didn't own.

The agency's most recent attempt to fix a limit — by capping a cable system owner at 30 percent of the 87 million household pay TV market — was tossed out last March by the U.S. Court of Appeals for the D.C. Circuit on First Amendment grounds.

So now the FCC has returned to the issue at a time when AT&T Broadband and Comcast Corp. intend to merge and form the largest cable company ever, with at least 22 million subscribers.

In extensive comments filed last week, neither AT&T nor Comcast called on the FCC to totally abandon the effort to restrict the size of cable companies.

But the MSOs emphasized that the market conditions that prevailed a decade ago are drastically different from today, so the agency would be hard-pressed to establish a competitive justification for retaining the 30 percent cap.

Although the FCC might have had good reason to limit cable ownership in the early 1990s, it no longer oversees a dominant cable industry that can determine the fate of programmers with impunity, the MSOs said.

Cable operators cited several industry benchmarks to buttress their claims. Over the last 10 years, the MSOs said:

  • Cable's market share has declined, from 95 percent to 77 percent;
  • The number of analog channels has increased from 50 to 80;
  • Dozens of digital networks are received by 14 million cable subscribers;
  • The number of program networks has risen from 99 to 281;
  • The percentage of networks owned by cable MSOs has declined, from 53 percent to 25 percent.

"Because of the current structure of the market for program distribution, no cable operator could, simply as a consequence of the number of homes it served, unfairly impede the flow of video programming to the consumer," AT&T said.

Said Comcast: "Today, there is simply no basis for concern that viewers can be confined to a limited menu of video-programming choices, controlled by a single 'gatekeeper.' "

The basis for the MSOs' deregulatory approach is the robust direct-broadcast satellite industry, which since its advent in 1994, has chalked up 17 million subscribers by offering a mix of national and local programming in digital format.

The DBS industry — which is not subject to any current FCC subscriber limit — is also consolidating. Its top two players, EchoStar Communications Corp. and DirecTV Inc., intend to merge.

Time Warner Cable was less indirect in its recommendations to the FCC. The No. 2 MSO (with 13 million subscribers) said current market conditions are such that the agency should not impose any subscriber limit.

On prior occasions, the FCC feared that large cable operators could make or break a cable network by denying carriage. Time Warner said that scenario is no longer possible because a cable operator that rejects a network based on reasons other than subscriber preference runs the risk of losing customers to popular services carried by EchoStar, DirecTV or both.

"In a nutshell, concern about continued entry by a new video-programming service is like concern about the continued availability of sand in the Sahara," Time Warner said. "Because no subscriber limit can be justified, the [FCC] should exercise the discretion granted it by the statue not to impose any subscriber limit."


Industry watchdogs urged the FCC to dismiss cable's analysis — particularly its take on the competitive threat posed by DBS. The Consumer Federation of America, joined by a host of other organizations, urged the regulator to retain the 30 percent cap and develop a better competitive rationale to prevent a second court rejection.

"DBS remains nothing more than a niche product purchased by people who cannot get cable (40 percent of DBS subscribers cannot get cable) or viewers who are willing and able to purchase expensive specialty bundles, such as sports and foreign-language services," the federation said.

Hollywood writers — through their union, the Writers Guild of America, which represents 11,300 TV- and film-industry writers — urged the FCC to retain the 30-percent cap, curb the amount of programming a cable network can produce in-house and reduce the number of hours of airtime that an affiliated producer can obtain on a co-owned network.

"We have witnessed an unparalleled consolidation within our industry. This consolidation limits diversity and creativity. Ultimately, it is the American public that is hurt," WGA West president Victoria Riskin said in a prepared statement.

One religious organization, the U.S. Conference of Catholic Bishops, said past cable mergers have led to a reduction in the amount of church-sponsored programming. It argued that the FCC should cap the size of cable companies to reverse the trend.

"Catholic dioceses report that cable operators are increasingly pushing their programming away from the basic tier, charging higher fees for programming and dropping long-running programming [such as Mass for shut-ins] altogether.

"These actions appear inevitably to follow the sale of cable systems," the bishops said.