Upside to Down Stocks: Reregulation Insulation?

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A down market can shave billions of dollars off cable stocks, but it also could buy operators some insurance against regulation.

"I'm not sure there's a trend toward regulation right now." said AT&T Broadband CEO William Schleyer. "Why would you kick the telecom industry or the cable industry when stocks are so down?"

Tom Rutledge, president of Cablevision Systems Corp.'s New York City-area megacluster, said he saw a benign regulatory climate amid all the market turmoil.

"I haven't seen anything that indicates that there's a change in there," Rutledge said.

Schleyer and Rutledge were the highest-profile executives from the cable-operator ranks to speak at last week's New England Cable & Telecommunications Association convention here. The annual event occurred not only amid the storm on Wall Street, but just a week after John Rigas and two of his sons were led away in handcuffs for allegedly plundering Adelphia Communications Corp.

Schleyer said he didn't find the Rigas family arrest unnerving. "They were bad guys, allegedly bad guys. They did some bad things," he said.

Like Adelphia during the Rigas era, Cablevision is a family-controlled company — a structure that has some investors spooked that family-run firms will now garner much closer regulatory scrutiny.

Rutledge claimed that he has not heard from investors that the Charles F. Dolan family's grip on Cablevision is harming the company.

"You can look at that as a negative as to what's gone on at Adelphia, but the positive side of that is that the [Dolan] family has historically done extremely well for itself and its shareholders," he said.

AT&T Broadband hopes to merge with Comcast Corp. to create the largest U.S. cable company, with at least 22 million subscribers. Comcast is controlled by the Roberts family, whose continued clout at AT&T Comcast Corp. will be maintained through control of about one-third of the voting shares.

"When the companies agreed to merge, there were issues raised about the Roberts family. But we addressed those, I think, favorably toward investors," Schleyer said.

AT&T and Comcast are awaiting regulatory approval of their merger by the Justice Department and the Federal Communications Commission. Comcast is evidently confident of gaining approval, because the company has already announced its post-merger cable leadership team by region and market.

MULTI-ISP UPDATE

AT&T and Comcast hope the merger is approved without a requirement to carry unaffiliated Internet-service providers. The FCC has a separate rulemaking pending on the ISP-carriage issue that is not expected to be completed prior to action on the big cable merger, according to FCC sources.

"We have to figure out how to regulate all of this stuff — what it is, where it falls within our statutory framework," said FCC Media Bureau chief Kenneth Ferree, who shared the dais with Schleyer and Rutledge.

Schleyer said his company has embraced multiple ISPs as a solid business model, noting deals it has reached with EarthLink Inc. in Seattle and in Massachusetts.

"We are very supportive of ? an open-ISP model. We want to bring more companies into our network and have them lease part or our capacity," Schleyer said.

But Rutledge said he failed to see the business upside in multiple ISPs, and as a result, his company hasn't gone beyond the trial stage with AOL Time Warner Inc.'s America Online.

"We have not yet, as a business proposition, found that multiple ISPs actually create additional value," Rutledge said. "How the model works is not exactly clear to us going forward."

Business issues aside, Schleyer predicted that many cable companies would adopt his position on multiple ISPs "if not by choice, then by Ken [Ferree]'s edicts, probably."

Ferree said his team was still trying to craft a regulatory model for cable-modem service.

"I can't even begin to give you a glimpse of what that regulatory model might look like. It's not Olympic ice skating, where the results are preordained," Ferree said.

GETTING IN TUNE

FCC chairman Michael Powell, who named Ferree to oversee the cable and broadcasting industries, is billed as a free-market advocate. But Powell bristles at descriptions that he's a libertarian who is allergic to any government regulation.

In April, Powell unveiled a voluntary plan that called on all sectors to move forward with the transition to digital television. The cable, broadcasting and direct-broadcast satellite industries met Powell's challenge, but the Consumer Electronics Association did not.

The CEA — reluctant to add $200 to the price of TV sets — balked at including off-air DTV tuners in nearly all new models by 2006. Powell publicly scolded the CE industry for an inadequate response.

Next Thursday, the FCC is planning to adopt a rule requiring the inclusion of off-air DTV tuners along the lines Powell had proposed in April.

In April, both Powell, Ferree and a parade of FCC officials insisted the Powell plan was voluntary.

"The CE manufactures were the last to step forward and they stepped forward very inadequately, and they are the first to get regulated, as a result," said Frank Lloyd, the NECTA's Washington, D.C. cable attorney with Mintz, Levin, Cohn, Ferris, Glovsky & Popeo.

An FCC source said the agency gave the industries time to make the DTV transition work on their own, but all they produced was a "endless circle of blame."

The agency decided the time was ripe for some "adult supervision," the source added

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