Web Exclusive: Cable Cap Controversy

Now that the FCC has placed a 30 percent cap on cable’s market share, expect to see the matter go to court – again. That’s because this isn’t the first time the agency has capped cable.

In 1992, Congress passed the Cable Act. The idea was to promote competition in so-called multichannel video programming. Part of the plan allowed the FCC to set a “horizontal limit” on the number of subscribers one cable operator could serve, as well as a “vertical limit” on the number of channels a cableco could allot to its affiliated programming networks. And like now, the 30 percent limit – first set in 1993 – was so contentious that Time Warner Cable challenged it in court in 2001.

The Washington, D.C., circuit court reversed the FCC’s decision in 2001 on grounds that there wasn’t enough evidence for a cap. Judges told commissioners to re-evaluate the data and the matter languished at the FCC for six years. Then, on Dec. 18, 2007, the commission voted 3-2 to institute the horizontal cap. The justification was that no one cable company can keep competitors out when each operator has no more than 30 percent of subscribers.

The commission also wants public comment on an “appropriate vertical ownership limit.”

The decision was a controversial one and looks poised to head back to court. Judges probably will overturn the order again, says Blair Levin, analyst for investment bank Stifel Nicolaus and a former FCC chief of staff. Levin was one of the people who worked on the cap issue the first time around. “Given how the facts have changed since the original cap was imposed and since the court’s 2001 decision, I find it difficult to understand how the cap will be upheld,” he says.

But Chairman Kevin Martin said the Dec. 18 vote fulfilled Congress’ mandate to the FCC to “ensure that a single operator cannot unduly limit the viability of a new independent network in its formative years.”

Democratic Commissioner Michael Copps agreed. “I recognize that setting a prophylactic limit like this is never easy, and inevitably involves some line-drawing that can always be second-guessed,” Copps said in a prepared statement. “Just because the task Congress gave us is difficult is no reason to shirk it.”

Democrat Jonathan Adelstein also voted for the cap, while Republicans Deborah Tate and Robert McDowell voted against it. Tate, for her part, seemed not to have a problem so much with a cap itself, but with the percentage.

“While I recognize our statutory directive to set a limit on the number of subscribers a cable operator can have, I am also mindful of the importance of getting that number right,” she said. “If the record in 2001 supported no less than a 60 percent cap, I cannot be persuaded that the record before us today does either.”

Besides, she noted, there’s so much more competition now than there was in 2001. Satellite providers such as DirecTV and EchoStar each have nabbed about 30 percent of the subscribers in the United States, and AT&T Inc. and Verizon Communications Inc. are converting cable users by the hundreds each month.

McDowell saw matters very differently. He said the cap is outdated, bad public policy and unnecessary in today’s market. He added that the appeals court is sure to strike down the cap once more and that the cap goes against the current commission’s goals of creating parity among providers. McDowell also took a dig at Martin for seeming to promote a double standard. “[I]t is ironic that those who are voting today to limit cable company growth have consistently voted to expand telephone company growth,” he said in his prepared statement. “Such a reversal of policy just for this one sector defies logic.”

However, some observers say it’s not fair to say Martin’s singling out cable, that he’s actually making good on policy directives he has been open about since joining the commission.

The cap threatens to impact Comcast Corp. soonest; its market share hovers around 27 percent, although it is losing subscribers to telco and satellite TV competition. Time Warner Cable is the second-largest cableco with approximately 14 percent penetration. Comcast is among the many voices saying the courts are sure to shut down the FCC’s attempts to cap cable market share.

AT&T Inc. www.att.com
Comcast Corp. www.comcast.com
DirecTV www.directv.com
EchoStar www.dishnetwork.com
FCC www.fcc.gov
Time Warner Cable www.timewarnercable.com
Verizon Communications Inc. www.verizon.com