At Last, FCC OKs Adelphia Deal

“Deal” is the operative word in commissioners' last-minute give-and-take

With some 11th-hour negotiating by FCC Chairman Kevin Martin and the Republican majority to secure a bipartisan vote, the FCC last week approved the $17.4 billion sale of Adelphia's cable systems to Time Warner and Comcast, allowing the two biggest cable operators to get even bigger. Democrat Jonathan Adelstein crossed over to join the Republican majority after getting what he felt were some key provisions added, including on leased access and reviewing program-access rules.

The deal was before the commission for 404 days. Then, the scheduled 9:30 meeting was delayed for four hours—they had to send out for pizza—because of both the size of the item and Commissioner Adelstein's negotiations with the Republicans.

Although Adelstein had sought tougher conditions, he said that bankrupt Adelphia had been “rotting on the vine” while awaiting resolution of the sale and that the public's interest was served in resolving the bankruptcy. He cited pledges by Time Warner and Comcast to invest $1.6 billion in upgrades.

The FCC said the key public-interest benefits of the merger were two-fold: the upgrades of Adelphia systems and the resolution of its bankruptcy. They outweighed the potential anti-competitive harms, the majority concluded.

That left only Democrat Michael Copps, the loudest voice against media concentration on the commission, in opposition.

The key conditions the FCC did put on the merger had to do with regional sports networks (RSNs).

Calling local sports “must- have” programming, the FCC added conditions to prevent the companies from controlling access of RSNs, though with a carve-out for Philadelphia, where Comcast has kept the Phillies off the satellite competition. In addition, the FCC included some protections for leased-access programmers and promised a review of its program-access rules, both apparently key to Adelstein's support.

Comcast and Time Warner must put disputes over pricing or access to its RSNs to arbitration. The companies also cannot deny access to their sports networks to any other multichannel programming providers, with, as expected, the Philadelphia carve-out. But Adelstein got an exception to that to grandfather providers already carrying the Philly sports net.

The decision does close the terrestrial loophole for RSNs, which means that program- access rules will now apply to landline-delivered RSNs. Previously, they applied only to satellite-delivered programmers. “The conditions apply regardless of the means of delivery,” the FCC said. “Terrestrial means are included.”

Comcast and Mid Atlantic Sports Network (MASN) will now have to submit their dispute to binding arbitration, which means likely resolving a fight that has kept the Washington Nationals baseball games out of many Washington homes. That was an issue that many on Capitol Hill had pushed the FCC to address. New Commissioner Robert McDowell was given credit for working on it.

There is not a guaranteed outcome to that arbitration, however, only a guarantee of arbitration, which is a two-step process. First, the arbitrator must decide whether there was an unlawful process; then, if so, in a second step, the two parties make their best carriage deal and the arbitrator picks one.

Per Adelstein's request, leased-access complaints will also be subject to arbitration.

McDowell had some strong words for the FCC bureaucracy, saying it had been slow to resolve and address program- carriage issues. He said he wholeheartedly supports a review of program-access rules.

“The MASN complaint has been left to rot in some small crypt in this building,” he said. It had become clear to him that complaints wait too long for action, he added, blaming an “indolent bureaucracy's failure to obey simple congressional mandates.”

He praised the decision to put a shot clock on resolving those complaints.

Copps was unhappy that there were not tougher program-access and other conditions. “While rescuing Adelphia is laudable,: he said, “the anti-competitive combination of assets is not.”

He said that nothing in the order “rebuts the truth that competition means higher prices.” It is big media getting bigger, he said, without sufficient protections from dominating programming and potentially broadband access as well.

Adelstein dissented in part because of the absence of network-neutrality conditions.

Martin said he did not believe that network-neutrality conditions were called for absent any showing of present harm. But he added that the FCC would stand by its four network-neutrality principles and monitor for potential harms.

Consumer advocate Media Access Project, which had sought conditions, is generally pleased. “Viewed in light of the initial predictions that this transaction would receive prompt and complete approval,” says President Andrew Schwartzman, “the FCC has actually looked long and hard at the issues and imposed significant conditions on the deal.”

The conditions on the merger sunset after six years.

Time Warner Cable and Comcast will divvy up Adelphia systems serving 5.2 million subscribers scattered across 31 states. The two cable operators will further swap systems from their existing portfolios to create stronger geographic clusters. The deal will allow Time Warner to emerge as the largest cable operator in the Los Angeles market, which has been the most fragmented major market in the country.

The deal will also allow Comcast to fulfill its promise to regulators to unwind its 21% ownership of Time Warner Cable, inherited in a past deal and cited by Adelstein as one of its benefits. Antitrust regulators frowned on such a significant link between the two largest cable operators—a legacy of the AT&T deal.

Additional reporting by John M. Higgins