Court Action Likely To Stop FCC Cap

Washington – The cable industry, probably led by Comcast, will likely ask a federal court to strike down a new cable ownership restriction adopted Dec. 18 by the Federal Communications Commission.

The rule bans a cable company from serving more than 30% of all pay-TV subscribers nationally. The 30% cap is the same limit that a federal court struck down in March 2001, although FCC Democrat Michael Copps promised that “the underlying economic justification is quite different [and is] completely responsive to the issues raised by the [court].” The U.S. has 96.9 million pay-TV subscribers, according to SNL Kagan.

Copps voted for the 30% cap along with fellow FCC Democrat Jonathan Adelstein and Republican FCC chairman Kevin Martin – the same bipartisan alliance that slashed cable leased access rates by 75% in November.

FCC Republicans Deborah Taylor Tate and Robert McDowell dissented from the 30% cap just as they did from the leased access ruling.

The FCC’s effort to impose cable ownership limit has been an odyssey. Although Congress gave the agency the authority to do so in 1992, the FCC has been able to enforce a rule for only a brief time – 287 days from May 2000 to March 2001 – because of adverse court rulings.

Comcast and the National Cable & Telecommunications Association said in statements that the FCC’s resuscitation of the 30% cap would mean more trouble in federal court.

“We remain highly confident that the federal courts will agree that the Commission's decision is not supported by the record and that this cap is unconstitutional,” said Comcast executive vice president David Cohen.

Stifel Nicolaus analyst Blair Levin and David Kaut all but predicted a cable victory in court.

“We believe the FCC will again face an uphill battle to defend the 30% cap … given another expected cable challenge,” they said in a client note shortly after the FCC vote.

FCC enforcement of the 30% limit would frustrate Comcast’s ability to make a big cable acquisition. Comcast has 26.1 million subscribers for 27% pay-TV market share under FCC rules. The FCC’s cap would rule out a Comcast combination with either Time Warner, Cox or Charter. Keeping Comcast penned in helps AT&T and Verizon preserve their territorial dominance over cable.

Six years ago, a panel of the U.S. Court of Appeals of the D.C. Circuit threw out the 30% cap as a First Amendment violation, in part because the agency’s theories failed to take into account competition from satellite TV providers.

The court concluded that the FCC’s market analysis justified a 60% cap.

As FCC Republican McDowell observed, cable competition has grown more fierce with the entry of AT&T and Verizon and with satellite TV market share growing by about two-thirds.

“This order will be overturned by the D.C. Circuit,” McDowell said.

The cable cap is designed to ensure that a large cable MSO can’t mark or break an unaffiliated programmer by denying to initiate carriage or refusing to extend a carriage contract.