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Ownership Won’t Delay Adelphia Deal

5/18/2005 10:47 AM Eastern

A decision by the Federal Communications Commission to revive cable-ownership rules shouldn’t delay the agency’s review of the $17.6 billion joint purchase of Adelphia Communications Corp. by Comcast Corp. and Time Warner Inc., according to a report Wednesday by Stanford Washington Research Group analyst Paul Gallant.

Gallant, a former FCC official, said the commission would take between 9-12 months to review the deal after weighing concerns about whether Comcast and Time Warner will have too much market power in various markets and whether their high-speed-data customers can roam the Internet freely.

After the Adelphia deal, Comcast would control about 29% of pay TV subscribers. FCC rules once capped a cable company at 30%, but that cap was tossed out by a federal court four years ago.

The FCC launched a new cable-ownership rulemaking Tuesday, tentatively concluding that it is required by law to cap the number of subscribers one cable company may reach in order to ensure that one company can't dominate unaffiliated programmers.

Gallant cautioned that the FCC could take longer if public-interest groups ask a federal court to require it to adopt new cable-ownership rules prior to acting on the Adelphia merger.

“Public-interest groups have suggested that they may seek court involvement. They may argue to the court that the cable cap should go first because the FCC could theoretically settle on a 25% cable cap, which would preclude the agency’s approval of the Adelphia deal (which would raise Comcast’s reach to 29%),” Gallant said.

In a three-page analysis, Gallant said the regional clustering issue “will be a close call” for the agency. The cable companies would argue that local scale makes them more efficient and helps to launch local channels, while phone and satellite companies would claim that Comcast and Time Warner could use their size to lock up marquee programming -- sports channels especially.

He said it was “unlikely” that the FCC would impose Internet-neutrality conditions on the merger, noting that the agency tends to deal with issues with broad application in rulemakings. Congress, he added, is expected to address the issue in legislation overhauling the Telecommunications Act of 1996, taking pressure off the FCC to pave the way.

Gallant said it was expected that the Federal Trade Commission, not the Department of Justice, would review the cable merger. He noted that the FTC is “somewhat more inclined to impose merger conditions than the Justice Department, so the merger’s opponents may get a second bite at the apple if the FCC does not impose conditions.”

September