Ownership Rules Get a Revival

Author:
Updated:
Original:

Washington— The Federal Communications Commission decided to put its cable-ownership proceeding on steroids last Tuesday, launching a rulemaking one day before Comcast Corp. and Time Warner Inc. formally sought agency permission to acquire bankrupt Adelphia Communications Corp.

After a humiliating court defeat in 2001, the FCC let the cable-ownership issue languish. Former chairman Michael Powell had said he was reluctant to adopt new rules because the agency lacked a strong record that could withstand court review.

But some observers believe Powell refused to touch cable ownership after his attempt to relax broadcast-ownership rules was largely rejected last June by a federal appeals court in Philadelphia.

ENDING LIMBO

Under new chairman Kevin Martin, the FCC decided to end the limbo and determine whether the agency can cap the size of cable companies and limit the number of affiliated channels they cable can run on their systems.

Martin didn’t release a statement, but the agency’s two Democrats — Michael Copps and Jonathan Adelstein — expressed disappointment that the record had grown so stale since the 2001 court defeat, that the agency had to seek a new round of public comments.

The two commissioners voiced support for the FCC’s tentative determination that Congress mandated FCC adoption of cable-ownership limits and did not make it discretionary.

In the past, Comcast had argued that a rigid percentage cap was unnecessary.

“Against this backdrop, we hope cable operators and other parties do not argue that there should be no numerical limits, but instead provide appropriate and necessary information to help us implement the clear command of the statute,” Copps and Adelstein said.

In a joint filing, Adelphia, Comcast and Time Warner said the merger wouldn’t violate any federal laws or FCC rules (even if the old cable ownership rules were still in effect) and would advance the public interest because the deal would accelerate the rollout of digital video and data services and provide the scale necessary to foster voice communications competition with the Baby Bells.

The merger “will generate real and substantial benefits for consumers that are not achievable through other means and will do so without violating any statute or [FCC] rule or creating any anticompetitive effects or media-diversity concerns,” the cable companies said in an 86-page filing.

Another bonus: the Adelphia deal will allow Comcast to divest its 21% interest in Time Warner Cable two years earlier than required under the FCC’s order approving Comcast’s takeover of AT&T Broadband.

But a $17.6-billion merger involving the two largest cable companies is expected to take up to a year or more for the FCC to review.

During that time, the merger is likely to come under assault on a number of fronts.

  • DirecTV Inc. and EchoStar Communications Corp. are expected to raise concerns about access to programming, especially if Comcast and Time Warner can use local market clout to sign exclusive deals, particularly with regional sports channels.
  • Reviving an old issue, Internet-service providers, Web content players and Web-based voice-over-Internet protocol (VoIP) providers might seek various conditions on access to Comcast’s and Time Warner’s cable networks and guarantees of nondiscriminatory treatment of unaffiliated Web content and services.
  • Public-interest groups might go to court to block FCC consideration of the merger if it appears the agency is planning to approve it prior to adopting new cable ownership rules.
  • Playing to FCC chairman Martin’s concerns about indecent cable programming, cable content critics might seek merger conditions that require Comcast and Time Warner to offer a family-friendly program tier or a certain number of channels a la carte.

The big cable merger also needs approval by the Federal Trade Commission, sources confirmed last week. The Justice Department reviewed Comcast-AT&T Broadband.

Under chairman Robert Pitofsky, the FTC slapped numerous conditions on the 2001 merger between America Online Inc. and Time Warner in a five-year consent decree that forced Time Warner Cable to carry a few competing ISPs.

But the FTC’s predictive judgments about AOL-Time Warner failed to materialize when the deal soon collapsed into a corporate disaster. Whether the FTC will show a little more humility this time around is unclear.

“The FTC is considered somewhat more inclined to impose merger conditions than the Justice Department, so the merger’s opponents may get a second bite at the apple if the FCC does not impose conditions,” said Paul Gallant, a former FCC official who is now a media analyst with Stanford Washington Research Group.

Cable ownership rules trace to the 1992 Cable Television Consumer Protection and Competition Act, which required the FCC to limit the size of cable companies to ensure that they cannot use their clout to dominate the programming market. Congress also told the agency to restrict cable carriage of programming services owned by the cable company.

After six years of inaction due to court rulings and other legal maneuverings, the FCC adopted in 1999 a rule that limited one cable company to serving no more than 30% of pay-TV subscribers nationally. The agency also required a cable company to fill no more than 40% of its first 75 channels with affiliated programming.

UNDUE BURDEN

In March 2001, a panel of judges from the U.S Court of Appeals for the D.C. Circuit reversed and remanded both caps, saying the agency unduly burdened cable’s First Amendment rights and failed to give proper consideration to satellite competition.

In a press release, the FCC said it wanted “to take a fresh look at rules that will foster competition and diversity in the video-programming market,” taking into account “industry developments that may affect the development of sustainable cable-ownership rules.”

Generally, the cable industry has argued in various FCC policy debates that the satellite industry’s control of 23 million pay-TV subscribers represented genuine competition and justified removal or relaxation of regulatory restraints.

In their merger filing, the three cable companies said that after the transaction Comcast would have 28.9% and Time Warner 17.9% of the country’s 92.6 million pay-TV subscribers, adding that even if the 30% cap were in effect, the merger would be in compliance.

In his note to clients, Gallant warned that the FCC merger review could drag on if public-interest groups ask a federal court to require the FCC to adopt cable-ownership rules before acting on the Adelphia merger.

“Public-interest groups have suggested that they may seek court involvement. They may argue to the court that the cable cap should go first because the FCC could theoretically settle on a 25% cable cap, which would preclude the agency’s approval of the Adelphia deal (which would raise Comcast’s reach to 29%),” Gallant said.

Related