FCC Tackles Cable Reach

How big is too big? The FCC launched its second major attempt at settling that question for cable operators since 2001, when judges for the federal appeals court in Washington tossed out previous ownership limits. The rulemaking comes on the heels of the April 21 announcement by top system operators Comcast and Time Warner that they plan to divide the assets of bankrupt Adelphia. The deal requires FCC approval.

Last week’s notice of rulemaking makes clear the FCC believes that the 1992 Cable Act still gives it authority to limit national reach, although the notice gave no specifics. The FCC is also examining whether to change its vertical limits, including rules barring an operator from devoting more than 40% of its lineup to programming it owns.

Comcast, the largest cable operator, reaches 28.2% of pay-TV homes in the U.S.; if the FCC approves the plan to divvy up Adelphia’s assets, Comcast would grow slightly to 28.9% of homes, an addition of 680,000 subscribers. Time Warner, the No. 2 operator, would add 3.5 million subscribers and reach 18% of pay-TV homes.

Because their new ownership totals will remain under the old cable cap, industry analysts predict few problems for the deal, regardless of where the new limit is placed.

Nevertheless, public-interest law firm Media Access Project has threatened to take the FCC to court if the Adelphia carve-up is approved before a new cable limit is imposed. MAP President Andrew Schwartzman says setting a limit today has increased in importance because the pay-TV industry is more concentrated than it was in 2001 and the new limit should be even lower than 30%. He doubts that new FCC Chairman Kevin Martin would set a limit that low, however.

A Comcast spokesman declined to comment. But in a joint filing to the FCC, Comcast and Time Warner said the deal will benefit consumers because it will speed the rollout of digital cable, Internet voice and video-on-demand.

“The transactions will ... further accelerate the rollout of advanced services and will create efficiencies and economies of scale and scope that will benefit both existing and newly added subscribers,” the companies told the FCC.

The cable operators also warned the FCC that attempts to set a limit below 30% won’t hold up in court: “The dramatic competitive changes that have occurred in the marketplace since 2001 make it even more unlikely now that the commission would be able to justify a lower ownership cap.”

Under previous FCC Chairman Michael Powell, the agency’s Media Bureau drafted a proposal raising the cap to 45% of pay-TV households. That 2002 plan was never submitted to other commissioners for a vote, however, because Powell switched gears and focused instead on rewriting broadcast-ownership limits. The resulting broadcast rules were struck down by the federal appeals court in Philadelphia last summer.

The new cable-ownership review seeks to refresh its record with public comment and empirical evidence that will help the commission set new limits that can withstand legal challenge. Specifically, the FCC wants information on the availability of specific services, competition in markets, and the economic basis for establishing specific limits.

Democratic FCC Commissioners Michael Copps and Jonathan Adelstein, foes of more consolidation, are skeptical that the cable industry would suggest a new limit they could support.

Said the commissioners in a joint statement, “We hope cable operators and other parties do not argue that there should be no numerical limits but instead provide appropriate and necessary information.”