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Supremes Stamp Out MSO-Size Appeal

The U.S. Supreme Court last week ended the cable industry's challenge to a law that allows the Federal Communications Commission to limit the size of cable companies.

The court issued an order denying review of a case brought by Time Warner Entertainment, a limited partnership that includes the bulk of AOL Time Warner Inc.'s cable systems.

AT&T Corp. owns 25.5 percent of TWE, but the Federal Communications Commission has ordered AT&T to sell that stake by May 19.

Schwab Washington Research cable analyst Paul Glenchur said he was not surprised that the court rejected the case, mainly because it agrees to hear only a small percentage of appeals.

"They get thousands of appeals and they only hear 100 cases. So the odds are just against it," Glenchur said. "It would be a little different if the government had lost in the lower court, but they won there."

Last May, a panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled that Congress did not violate the First Amendment by allowing the FCC to cap the size of cable systems. Congress passed that law in 1992.

In October 1999, the FCC adopted a rule that limits a cable operator to no more than 30 percent of subscribers to cable, direct-broadcast satellite and other pay TV providers. There are about 85 million pay TV subscribers.

Including its investment in TWE, AT&T has an ownership interest in 34 million cable subscribers, or 40 percent of the pay-TV universe. Because AT&T is over the 30 percent cap, the FCC ordered the company to comply with the rule when it approved AT&T's acquisition of MediaOne Group Inc. last June.

TWE and AT&T are challenging the 30 percent cap and various ownership-attribution rules. A decision by a panel of the D.C. circuit court is pending.

AT&T claims the FCC attribution rules are too broad because they count minority investments as if AT&T had full ownership and control. AT&T claims it has 16 million wholly owned subscribers, compared to 34 million under FCC rules.

AT&T spokesman Jim McGann declined to comment on the Supreme Court's ownership-law decision, but said AT&T was waiting to see how the case challenging FCC rules turns out.

Glenchur said AT&T has a decent change of overturning some of the FCC ownership rules.

"There's a reasonable likelihood they could send back the attribution rules for another go-around," Glenchur said.

In addition to upholding the cable ownership law, the Supreme Court also refused to review a D.C. circuit decision that upheld the constitutionality of a law that permits the FCC to cap the number of channels a cable operator may occupy with programming from affiliated networks.

Under FCC rules, a cable operator may not occupy more than 40 percent of its first 75 channels with affiliated programming.