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Policy

Comcast Close to 'Sub Cap’

4/24/2005 8:00 PM Eastern

Washington— Comcast Corp.’s participation in the purchase of bankrupt Adelphia Communications Corp. puts the MSO close to the national cable-ownership limit that a federal court rejected in 2001.

Monitoring the deal closely, public-interest watchdogs want the Federal Communications Commission to adopt a new ownership limit prior to approving any Adelphia transaction involving Comcast.

Comcast’s Partnerships
Collectively, they contain 4.7 million customers:
Source: MCN research * Going to Time Warner Cable in Adelphia transaction.
1.4 million: Midwest locations (with Insight Communications)
1.2 million: Texas (Time Warner Cable)
750,000: Southern California (Adelphia Communications) *
550,000: Various locations (US Cable, MidContinent Communications, Bresnan Communications)
500,000: Buffalo, N.Y. (Adelphia)
300,000: Kansas City (Time Warner)

“What’s critical here is that the statute is mandatory. It’s not like the FCC has discretion not to issue a rule,” said Andrew Jay Schwartzman, an attorney with Media Access Project, a public-interest law firm here.

ADELSTEIN: ADD LIMITS

FCC Democrat Jonathan Adelstein, a vocal opponent of media consolidation, agreed that cable limits should be adopted.

“I think we need to put rules in place … so the market knows what we are dealing with,” he said.

Under a 1992 law, the FCC once barred a cable company from serving more than 30% of all pay TV subscribers. But in March 2001, a federal court rejected the rule as lacking proper justification.

Cable horizontal-ownership rules are designed to ensure that one cable company can’t use its clout to inflict anti-competitive harm on new or established programmers.

During the last four years, the FCC sought additional public comment on possible new rules, but the agency never revived the cable cap. With no cable limit in place, the agency approved Comcast’s acquisition of AT&T Broadband in November 2002, making Comcast the largest U.S. cable company.

In a recent filing, Comcast told the FCC it has 21.5 million wholly owned subscribers and another 4.7 million subscribers that are partially owned but nevertheless deemed wholly owned under FCC cable ownership-attribution rules.

With those 26.2 million subscribers, Comcast is attributed with about 28.5% of the 92.2 million pay-TV subscriber base.

Neither Comcast’s pay-TV penetration nor the total size of the pay-TV universe are static. Cable subscriber growth has varied by quarter — both rising and falling — while large subscriber gains by DirecTV Inc. and EchoStar Communications Corp. in recent years have increased the overall size of the market.

Definitive agreements signed last week call for Comcast to add 1.8 million wholly owned customers in the Adelphia transaction with Time Warner Inc. Comcast chairman and CEO Brian Roberts was asked about the subscriber-cap issue last Thursday during a conference call about the Adelphia transaction. “As everyone knows there was a 30% cap. I believe that the combined company after this transaction remains below 30%. It’s in the 29% range.”

He also noted the courts had thrown out the cap as “too confiscatory” and earlier said Comcast’s planned investment in former Adelphia systems should be received well in local communities. “We will begin the process and we are optimistic and hopeful that people will see this is a beneficial transaction.”

Schwartzman said Comcast would actually control 45% of pay TV subscribers because of the company’s 21% interest in Time Warner Cable. However, under the FCC’s Comcast-AT&T Broadband merger approval order, Comcast had to place its Time Warner Cable stake in a trust and divest it within five and one-half years.

“The spinoff has never happened,” Schwartzman said. “The expectation is that [it] will.”

The Adelphia transaction also will result in Comcast’s divesting the Time Warner Cable interest in exchange for subscribers.

“I keep on waiting for it to disappear,” said Schwartzman, skeptical the FCC will hold Comcast’s feet to the fire. “They spin it out and roll it back in when nobody’s looking. We want it divested.”

Medley Global Advisors analyst Christopher Stern said in a recent report that the FCC would not hold up an Adelphia merger involving Comcast to give it time to adopt new cable-ownership rules.

If it needs to get smaller, Comcast has options. For example, some of the 4.7 million partially owned subscribers are contained in partnerships with Time Warner and Adelphia. Comcast could reduce its partial interests to keep from bumping into the 30% cap.

NOT A MARTIN PRIORITY

Before leaving office March 17, FCC chairman Michael Powell proposed issuing a notice of proposed rulemaking in an effort to refresh the cable-ownership docket. But an FCC source indicated that new chairman Kevin Martin is not rushing to adopt new cable-ownership rules.

Instead, Martin is working on personnel matters and reviewing the status of various rulemakings across the agency’s portfolio.

Schwartzman said he believed the FCC would adopt a new cable cap before signing off on an Adelphia transaction. If the agency failed to do that, he said, he plans to go to court.

September