FCC May Ease Cap on Cable Ownership

The Federal Communications Commission is considering easing the national cable ownership cap to permit a single cable company to control as much as 45% of the national pay-television market, sources said Tuesday.

The proposed rule -- which would replace a fixed 30% national cap that was ruled unconstitutional in 2001 -- is being drafted by the FCC’s Media Bureau and is expected to be submitted soon to commissioners. A formal FCC vote is not expected until next month.

Critics fear the cap, if approved, would give cable giants too much control over what Americans watch on television and how they connect to the Internet.

“This would turn over the nation’s cable industry to two companies, AT&T; Comcast and AOL Time Warner,” said Jeffrey Chester, director of the Center for Digital Democracy.

FCC staffers are leaning toward replacing the fixed 30% cap with a more flexible rule in which mergers that give a cable company 30% to 45% of the market would be judged on a case-by-case basis, sources said.

That would mark a shift from other FCC rules that rely on fixed limits. Experts say the flexible cap, if approved by the commissioners, could provide a hint about how the FCC might approach broadcast ownership rules that are expected to be revamped next year.

“Traditionally the FCC has drawn very hard lines,” said Blair Levin, former FCC chief of staff and now an analyst at Legg Mason. “But this new methodology is a harbinger of things to come. It tells us how the FCC is going to approach the other rules.”

The approach is similar to a commonly used antitrust index, which Justice Department regulators use to determine which mergers will be approved and which ones will be subjected to closer scrutiny.

FCC Chairman Michael K. Powell, who previously worked in the Justice Department’s antitrust division, is said to support a case-by-case approach.

Factors in each case would include whether a specific cable deal hurts competition, either regionally or nationally.

Mergers creating a cable operator serving less than 30% of the national market would continued to be allowed. Those serving more than 45% would be banned.

Sources cautioned that Media Bureau Chief W. Kenneth Ferree has not finalized the review and may make changes.

A spokesman for the National Cable Telecommunications Assn. said he was not familiar with the FCC proposal.

Adoption of the rule may spur consolidation by removing the regulatory cloud that has hung over the market. Though the U.S. Court of Appeals for the District of Columbia tossed out the 30% cap in March 2001, industry officials expected that the FCC would attempt to reinstate a limit and have been reluctant to pursue deals until the new rule is complete, analysts said.

A flexible 30% to 45% cap would leave plenty of room for more cable consolidation.

After completing its merger last month, AT&T; Comcast Corp. is the nation’s largest cable operator, with 27 million customers, or 29% of the pay-television market.

Even a merger between the next two largest cable operators -- AOL Time Warner Inc., with about 13 million customers, and Charter Communications Inc., with about 8 million -- would not exceed the lower end of the proposed range.

AOL Time Warner, which plans to spin off its cable operations next year, has said it would consider additional acquisitions. The New York-based media company tried to buy AT&T; last year.

Spurred by federal courts and his own views that broadcast ownership rules were outdated, Powell has launched a top-to-bottom review of the agency’s ownership caps.

FCC insiders said the approach on cable ownership, assuming it is adopted by the commission, would show that Powell is not seeking to completely reject the old rules -- as some critics have alleged.

“He has no intention of trashing the rules,” one FCC official said.

Content companies, including News Corp., Walt Disney Co. and Viacom Inc., probably would oppose a higher cable ownership cap, which they worry would give cable operators more leverage in purchasing programming.

Cable executives, such as AT&T; Comcast Chief Executive Brian Roberts, have indicated that they hope to use their size and clout to squeeze costs charged by cable networks.

“This is going to hurt,” said an executive at one entertainment company.