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Cable Presses FCC on Ownership Rules

Washington -- The cable industry is urging federal
regulators to relax cable-system-ownership rules in light of the rapid development of
direct-broadcast satellite as a robust multichannel-video competitor.

A federal court decision on the Federal Communications
Commission's authority over how many subscribers an MSO can control could have broad
implications for such heavyweight deals as the Tele-Communications Inc.-AT&T Corp.
merger and TCI's many joint ventures.

In filings last week at the FCC, the National Cable
Television Association said one cable operator should be allowed to serve "well
beyond 35 percent" of all subscribers with multichannel-video services.

The NCTA said that in view of the fact that one out of
eight multichannel-video subscribers belongs to satellite competitors, cable operators are
no longer the make-or-break bottlenecks in the programming-distribution market that they
were in 1992, when Congress passed a law requiring the FCC to adopt horizontal

"The quantum increase in multichannel competition
since 1993, by itself, justifies substantial relaxation of the horizontal-concentration
rule," the NCTA said.

Gene Kimmelman, Washington office co-director of the
Consumers Union, said his organization is pushing the FCC to reduce MSO concentration.

"It's astonishing that in one of the most
concentrated communications industries, anyone would even consider relaxing concentration
levels," he said. "If anything, we think that the FCC should be cracking down
and tightening up."

If the FCC adopted the cable industry's
recommendation, it could remove a regulatory cloud that is hanging over AT&T's
$48 billion acquisition of TCI and the many deals that TCI has struck with cable operators
over the past two years.

Some inside the FCC and elsewhere believe that TCI is
technically in violation of FCC rules that bar an MSO from owning systems that reach more
than 30 percent of U.S. households passed by cable wires.

TCI's problem could have a domino effect because the
30 percent cap would also apply to cable operators like Cablevision Systems Corp., in
which TCI has a substantial ownership position.

However, there's one catch in all of this: The 30
percent cap has been stayed by the FCC indefinitely in response to a 1993 court decision
in which the judge found that the provision of the 1992 Cable Act authorizing a
subscriber-reach limitation was unconstitutional.

In June, the FCC reaffirmed the 30 percent cap, it refused
to lift the stay and it warned TCI indirectly that it would have just 60 days to comply
with the cap if the courts ultimately rule on appeal that the statute is constitutional.

Should the 30 percent cap take effect, TCI would likely
have to divest cable properties or undergo a restructuring, perhaps reversing AT&T
chairman C. Michael Armstrong's stated goal of adding systems to AT&T's
portfolio or creating alliances to expand AT&T broadband reach.

Under an enforceable 30 percent cap, Cablevision and any
other cable operator with an attributable link to AT&T-TCI would not be allowed to buy
cable systems without an offset somewhere else within its ownership structure.

But under the NCTA's proposal, all of
AT&T-TCI's potential regulatory woes would become moot.

The NCTA went so far as to suggest that a 49.9 percent
subscriber cap might pass muster under antitrust law. It also said any subscriber-based
cap should be flexible to accommodate cable operators that add subscribers through
internal growth.

"The [FCC] should permit cable MSOs to grow internally
beyond the cap. Any other approach will penalize operators that successfully attract
customers by offering competitively attractive services," the association said.

On top of that, the NCTA said in a separate filing that the
FCC should broadly liberalize rules that determine whether one cable operator has a
meaningful ownership interest in another.

While current FCC rules trigger attribution at 5 percent
voting-stock ownership, the NCTA said a minority position should be allowed to rise to
49.9 percent, provided that the minority owner certifies that it has no control over
programming decisions.

This proposal would likely insulate TCI's investment
in Cablevision from being counted toward a subscriber-reach cap.