FCC SEEKS EVIDENCE TO JUSTIFY ANY CABLE OWNERSHIP CAP

FCC asked public interest groups and cable companies to justify necessity of horizontal and vertical ownership caps, saying Commission would adopt rules limiting industry consolidation based only on credibility of data from opposing sides. FCC Cable Bureau staff took “fresh approach” in rulemaking launched Thurs., saying it wants Commission decision to withstand judicial scrutiny. Cable Bureau didn’t suggest any specific numerical cap, but outlined 2 regulatory models it believed could fit: “Safe Harbor” or “Open Field.”

Under Safe Harbor or threshold framework, standard would be based on FCC examination of state of competition in MVPD market at point in time in question and rules could change along with market. Notice asks parties to suggest economic models that would help Commission determine appropriate definition and measure of particular companies’ market power. With Open Field approach, FCC would examine whether independent programmers would have “economically viable alternatives to reach consumers” if denied carriage by largest cable operator in market. Model is based on premise that new programming network must reach 20% of 80 million multichannel video subscribers to succeed.

Public interest groups criticized action, saying FCC was inviting media giants to set their own limits. Commission is abdicating its responsibility to protect public interest because it decided not to formulate its own limits on cable consolidation, but instead leave onus on consumer groups to prove their case, said Gene Kimmelman of Consumers Union. Center for Digital Democracy said Commission’s action would either “dramatically weaken” or eliminate safeguards to ensure diversity of media ownership and threaten future of Internet as “open medium for commerce and expression.” AOL-Time Warner (AOL-TW), NBC, News Corp., and Viacom have found “a sympathetic ally” in Bush- appointed FCC Chmn. Powell, center said. Industry officials called rulemaking “reasonable approach.” NCTA declined comment, although it said it would submit its opinion to FCC eventually. In past, NCTA has favored antitrust approach. Agency proceeding comes as several companies have expressed interest in possibly acquiring AT&T Broadband, nation’s largest cable operator, including Comcast, No. 3 operator, and AOL-TW, No. 2.

Cable Bureau Chief Kenneth Ferree said Commission hadn’t made decision on any aspect of proposed rules and was seeking “empirical evidence” as well as “theoretical” justification for rules. Bureau economist Andrew Wise was careful not to use word “cap” in his presentation. He said staff wanted parties to provide data that would “permit us to craft regulations that address specific harms while still allowing consumers to enjoy the benefits of horizontal and vertical concentration,” meaning savings from economies-of-scale and cost-cutting measures.

Commission launched rulemaking in reaction to March decision by U.S. Appeals Court, D.C., to throw out FCC 30% ownership cap (CD March 5, p1). In Time Warner v. FCC, court said Commission couldn’t support its number, saying it had pulled figure “out of thin air.” Court also said FCC hadn’t adequately considered changes in MPVD market, such as DBS competition. Currently, only AT&T is over 30% cap. Under Cable Act, Commission is obligated to establish limits on number of subscribers cable operator may serve and number of channels operator can devote to affiliated programming. Latest FCC vertical limit prohibits cable operator with up to 75 channels from carrying affiliated programming on more than 40% of its channels. For systems with more than 75 channels, limit says 45 channels must be for nonaffiliated programming.

“No one likes a do-over,” Chmn. Powell said, referring to court’s decision throwing out FCC rules. He said the Commission must “raise the level” of its evidence for any rule to withstand legal scrutiny. Comr. Abernathy noted that, no matter what Commission decided, any standard would be appealed in court: “We need to resolve this as quickly as possible.” Comr. Copps said that if he were to support any changes in rules, he wanted to know “with as much precision as possible” how changes would “serve the public interest, convenience and necessity.”

Commission is asking companies, consumer groups and other parties to provide, among other things, evidence on potential harms and benefits of concentration; whether a cap on the number of subscribers cable operators could reach could be established and justified; whether FCC should adopt safe harbor regulatory approach as opposed to open field approach; and what, if any, channel occupancy limits agency should adopt. Stakeholders have 75 days to submit comments and 30 days after that to file replies.