Supreme Court backs cable cap


The U.S. Supreme Court Tuesday upheld the government's power to limit a cable company's audience.

The nation's highest court refused to hear Time Warner Inc.'s appeal of a lower court's decision issued last May affirming constitutionality of the 1992 law requiring the FCC to prevent concentration in the cable industry. Although Time Warner Inc. initiated the case against the cap, the court's decision most dramatically impacts AT&T, the nation's largest cable company. Because of the government's ownership limits, AT&T is under orders to sell a large chunk of the cable systems it own.

AT&T and Time Warner have one more opportunity to strike down the current FCC rules, which bar one company from serving more than 30% of U.S. multichannel subscribers. In a second case pending before the federal appeals court in Washington, the two companies argue that the FCC's specific limits are unjustified.

Officials at AOL Time Warner, the parent company of Time Warner, would not comment. Officials at AT&T, which did not join Time Warner's challenge to the 1992 law, had no comment on Tuesday's decision either. FCC officials also had no comment.

Regardless of how the second case winds up, AT&T could well face tough going at the FCC. Already the company is at odds with the agency over system sales ordered last June as part of the FCC's approval of AT&T's acquisition of MediaOne Group.

AT&T's current cable subscribership stands at 41% of the multichannel audience and the company must pare its holdings below the 30% cap by May 19. Two months ago, AT&T said its preferred route is to sell holdings in Liberty Media and other programmers that sell television shows to Time Warner.

AT&T has a limited partnership with Time Warner's cable system that pushes the company over the cap. Under the FCC's complex cable ownership attribution rules, investments in limited partnership count toward the cap only when the parent company is "materially involved" in the partnership's video programming decisions Completion of the Liberty sale, however, depends on a IRS decision shielding AT&T from capital gains. Absent a favorable IRS ruling, AT&T said it would instead sell its limited partnership with Time Warner outright.

The FCC isn't happy with AT&T's failsafe plan and has said it will hold the company to selling the Time Warner partnership. Despite the FCC's warnings, AT&T officials say they will stick to their plan and will deal with any dispute with the regulators in May.

The wild card in this dispute is the change in FCC personnel and it's unclear whether new agency chairman Michael Powell will encourage his colleagues to take the same hard line as his predecessor William Kennard.
- Bill McConnell