Washington -- Comcast Corp. and other big cable
consolidators could wake up one day and find that they are too big for the Federal
Communications Commission's rules to accommodate.
The FCC is quietly at work on cable-system-ownership
limitations that could require Comcast -- because of its acquisition of MediaOne Group
Inc. and MediaOne's stake in Time Warner Entertainment -- to shed some cable systems.
And the cable industry is growing so top-heavy that Comcast
might not be the only victim of the FCC's rules.
"AT&T could have the same problem," said an
FCC source, who asked not to be identified, referring to AT&T Corp.'s acquisition of
Tele-Communications Inc. and its stakes in various MSOs such as Cablevision Systems Corp.
While the rulemakings aren't on everyone's radar screens in
Washington, both Comcast and MediaOne are aware that they could pose problems for their
$48 billion merger.
One day after the merger was announced, Washington
lobbyists for Comcast and MediaOne -- Jim Coltharp and Susan Eid, respectively -- visited
FCC officials to discuss the merger and the potential impact of new FCC ownership limits,
which are called horizontal-ownership rules.
"That was one of the issues that we discussed briefly
-- the horizontal aspect," a source said.
Under FCC rules, a cable operator and its affiliates are
barred from reaching more than 30 percent of U.S. households, or about 30 million
Comcast, for now at least, has nothing to worry about. The
30 percent cap is not being enforced, and the underlying statute has been held
unconstitutional by a federal judge.
But at some point, a higher court could uphold the statute
and give the FCC the green light to enforce the 30 percent cap.
In that event, AT&T would clearly have a problem, as it
has told the FCC that it currently passes 39 million households through cable systems that
it owns in whole or in part. But an attorney for AT&T has said that the 39 million
figure was derived based on the least favorable reading to AT&T of FCC rules.
For Comcast, whether it has breached the 30 percent cap
will depend on how the FCC views Comcast's prospective 25 percent interest in TWE. The FCC
will likely determine this in a second rulemaking, called cable-ownership attribution.
In August, MediaOne told the FCC that current attribution
rules were "bizarre" because they treated MediaOne and TWE as a single entity
with 14.5 million subscribers, even though MediaOne directly served 4.9 million
MediaOne said that because it has a 25 percent interest in
TWE, only 25 percent (2.4 million) of the partnership's 9.6 million cable subscribers
should be attributable to MediaOne.
Otherwise, MediaOne told the FCC, it "could not
acquire more than another 2.6 million cable subscribers without likely violating the 30
Yet last week, MediaOne, in a sense, added not just 2.6
million subscribers, but more than 5 million, as a result of the Comcast buyout.