Federal regulators must broadly review cable-system ownership limits and place a new emphasis on a given stakeholder's actual level of management control, National Cable & Telecommunications Association president Robert Sachs said last Tuesday.
The Federal Communications Commission is examining whether to limit the size of cable companies by placing a cap — also called a horizontal-ownership restriction — on the number of pay-TV subscribers that a single operator may serve. Other types of limits are also under consideration.
The agency is acting in response to a March decision by a panel of judges from the U.S. Court of Appeals for the District of Columbia Circuit, which voided an FCC cable-ownership limit on First Amendment grounds. The commission had blocked a cable operator from serving more than 30 percent of the country's 85 million pay TV subscribers.
But Sachs said the FCC has refrained from looking broadly at its attribution rules, which determine whether minority investments in cable systems should count toward the overall subscriber cap.
"It's very difficult for the commission to come up with a rational set of horizontal rules in the absence of taking a fresh look at the attribution rules," Sachs said. "There is a very close relationship between attribution rules and horizontal rules. The commission really needs to be looking at both parts of this in order to finally get its arms around this subject."
To bolster his case, Sachs cited AT&T Corp's. 25 percent stake in Time Warner Entertainment L.P., which AT&T acquired when it merged with MediaOne Group Inc. in June 2000.
AT&T clashed with FCC officials over the company's minority investment in TWE, a limited partnership with about 10 million cable subscribers. AT&T insisted that the TWE interest should not count toward the cap, because TWE was controlled by its general partner, Time Warner Inc.
Until the D.C. Circuit overturned its attribution rule on limited partnerships, the FCC insisted that the TWE stake was attributable to AT&T. That helped push AT&T over the FCC's 30 percent cap.
The FCC said attribution was triggered because AT&T sold cable networks to the TWE unit.
As a result, FCC approval of the AT&T-MediaOne merger was made contingent upon AT&T selling certain assets in order to comply with the cap. That asset-sale mandate was later suspended due to the court decision.
PROGRAMMING TIES, TOO
The confusion over attribution also extends to cable programming interests, Sachs said, noting Cablevision Systems Corp.'s 30 percent interest in Fox Sports Net.
"News Corp owns the other 70 percent. Who runs that company? Does [Cablevision chairman] Chuck Dolan or [News Corp. chairman] Rupert Murdoch?" asked Sachs. "According to the FCC's attribution rules, Chuck Dolan does," even though News is firmly in control of FSN.
The AT&T-TWE and Cablevision-FSN examples show that the attribution rules potentially place restraints on minority owners who can demonstrate that they play no management role, Sachs said.
In January, the NCTA plans to file comments with the FCC urging the agency to examine attribution rules not only with respect to cable, but also with respect to broadcasters and newspapers, Sachs said.
"You shouldn't have different attribution rules in cable, broadcasting and newspaper," he said.
In the cable context, NCTA will ask the FCC to re-examine a policy that triggers attribution when one cable company has at least a 5 percent voting stock interest in another operator. The D.C. Circuit court affirmed that policy.
"What we want are attribution rules that establish that a company is credited with ownership where it actually controls an entity," Sachs said. "This is a complicated subject and we don't expect it will be resolved quickly."
The FCC should retain the 5 percent rule because control is not the basis of attribution regulations, argued Andrew Jay Schwartzman, president of the Media Access Project, a public interest law firm here.
"The cable industry has repeatedly tried to argue that attribution at the 5 percent level makes no sense because nobody can control a company when they have 5 percent of it," said Schwartzman. "[But] attribution is not about control — attribution is about influence."
The Securities and Exchange Commission requires that those who hold 5 percent or more of a company to disclose that ownership interest. That's because the SEC maintains that such a stakeholder can influence operations by threatening to dump stock or using the investment to secure a board seat, said Schwartzman.
"This is a standard the FCC looked at in setting its 5 percent threshold," Schwartzman said. "By putting the stock in the dumper, you have a lot of influence over what they do."
The FCC might be forced to address the attribution rules sooner than anticipated, should AT&T decide to sell its AT&T Broadband MSO unit. The telecom giant is now evaluating bids submitted two weeks ago by several suitors, including AOL Time Warner, Cox Communications Inc. and Comcast Corp.
"If there is a transaction with AT&T, there will be some examination here of how many subscribers are owned and controlled," Sachs said.
Among other topics discussed by Sachs:
The cable industry expects to end 2001 with 15 million digital video subscribers, 7 million cable-modem subscribers, and at least 1.6 million residential cable telephony customers.
If the Supreme Court bars the FCC from setting cable pole-attachment rates when cable operators offer Internet access, the NCTA will seek a "legislative fix" from Congress "because we don't believe that this was [what] it intended at the same time it was encouraging broadband deployment" in the Telecommunications Act of 1996.
The NCTA did not know whether its convention in New Orleans from May 5 to May 8 would suffer a 48 percent attendance decline, as did last month's Western Show in Anaheim, Calif.
The trade group has assembled a broad-based committee headed by Wink Communications Inc. CEO Maggie Wilderotter in an effort to make the National Show more valuable to MSOs, programmers, equipment vendors and software companies. NCTA has also talked with other cable organizations about the prospect of also staging their meetings in concert with the National Show.