In the latest battle between cable and the FCC, it appears that cable has gained the upper hand as a U.S. appeals court late last week overruled the agency's ownership cap rule that says no cable operator can own more than 30 percent of total U.S. video subscribers. The U.S. Court of Appeals for the D.C. Circuit said that the FCC's rule, which was put in place under former FCC Chairman Kevin Martin in 2007, was "arbitrary and capricious."
Comcast, the largest U.S.-based MSO, is the main benefactor of the ruling. The Philadelphia-based MSO, which currently owns 25 percent of the video market, is the only MSO that could even come close to the cap under the former ownership cap. Comcast filed suit in March 2008 with the court to challenge the ruling, arguing that the FCC was favoring telco mega mergers such as the AT&T/BellSouth combination. Meanwhile, Time Warner Cable, the second largest U.S.-based cable MSO, only controls 13.6 percent of the video market.
In issuing its ruling, the court argued that there is now sufficient triple-play competition from both satellite (DirecTV) and telcos (AT&T U-Verse and Verizon FiOS TV) to remove the cap. "The commission has failed to demonstrate that allowing a cable operator to serve more than 30 percent of all cable subscribers would threaten to reduce either competition or diversity in programming," the court said in a Reuters report.
However compelling the ruling may be, a Cable Digital News article argues that it's unlikely to facilitate a bevy of M&A activity anytime soon. Craig Moffett, an analyst with Sanford C. Bernstein, wrote in a research note that even if Comcast were to successfully purchase Cablevision, for example, the MSO would still be below the former limit. What's more, any major purchase of another cable MSO such as Time Warner Cable "would still be reviewed on a case-by-case basis by the FCC, without certainty of approval."
This latest ruling adds yet another challenge to newly-appointed FCC Chairman Julius Genachowski's already full plate at the commission, which can challenge the court, develop a new regulation or just leave the issue behind.
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