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FCC OKs Cable/CLEC Purchases

It's been a good last few days for the National Cable and
Telecommunications Association. In the wake of the FCC's circulation Sept. 14
of a draft order sunsetting exclusive cable programming contracts of vertically
integrated operators, the commission Monday said it would allow cable operators
to buy competitive local exchange carriers. Both were changes NCTA had sought.

The FCC said allowing the mergers would "likely speed
the entry of cable operators into the market for telecommunications services
provided to business customers [the special access competition the FCC is
trying to promote] and will foster increased facilities-based competition for
these services."

So, while the literal language of the prohibition applied to
competitive local exchange carriers, the FCC saw the prohibition as preventing
more competition for the real target, which was "entrenched" with incumbents
like AT&T and Verizon.

The FCC actually denied NCTA's petition on Monday for a
declaratory ruling that FCC rules do not prohibit those mergers, saying it
unambiguously does. But in the same breath, or at least the same order, the FCC
concluded that NCTA had demonstrated that the FCC should forbear from enforcing
that prohibition because 1) the rules allow a CLEC to buy a cable operator, so
allowing the transaction from the other direction "harmonizes" the
rules and because 2) cable/CLEC mergers, which are usually with the non-dominant
carrier -- so no AT&T or Verizon, for example -- potentially serve many
pro-competitive goals.

The FCC has suspended its deregulatory triggers for special
access service as it decides whether and how to reregulate those rates.
Monday's forbearance is meant to be another move to spur competition in special
access -- business rather than residential -- telecom service.

"Our public interest determination derives [in part]
from our determination that a merger between a competitive LEC and a cable
operator frequently can result in significant public interest benefits, in part
because the transaction will foster facilities-based competition in the
enterprise market, a long-standing goal of the Commission," the FCC said.

The other part of its public interest determination was that
"we commend the Commission for removing outdated obstacles that have
historically deterred pro-competitive transactions between cable operators and
competitive local phone companies," said NCTA president Michael Powell. "The
cable industry provides millions of American businesses and consumers with
competitive digital voice services and today's decision will help ensure that
more Americans can benefit from the savings and convenience that cable offers."

To forbear from enforcing the prohibition, the FCC had to
conclude that: "(1) enforcement of the regulation is not necessary to
ensure that the telecommunications carrier's charges, practices,
classifications, or regulations are just, reasonable, and not unjustly or
unreasonably discriminatory; (2) enforcement of the regulation is not necessary
to protect consumers; and (3) forbearance from applying such provision or
regulation is consistent with the public interest."

The FCC also pointed out that such purchases are still
subject to its transaction review process, which is a shield from potential
harmful effects.