A court handed cable giants like Comcast Corp. a victory Friday, doing away with an FCC cap on the percentage of subscribers controlled by a single operator.
The U.S. Court of Appeals threw out the FCC’s 30 percent subscriber cap, calling it “arbitrary” and highlighting the intense competition from satellite operators and telecom firms that avoids cable control over programming.
“We applaud the court’s decision to reject an unnecessary rule that can no longer be justified in a market where consumers are enjoying robust competition that is producing a wide variety of world class services at affordable prices,” said National Cable & Telecommunications Association president and CEO Kyle McSlarrow.
“Today’s decision is further affirmation that consumers are benefitting from a vibrant and competitive video marketplace that has undergone dramatic change and is providing more choice and better value than ever before.”
Comcast had challenged the cap. Including all “attributable subscribers,” it currently controls about 25 percent of the U.S. pay TV market.
“We view this as largely a moral victory for Comcast, with little or no practical implication as it relates to potential M&A,” said Sanford C. Bernstein analyst Craig Moffett. “The most commonly cited possible combinations [for example, Comcast for Cablevision, which accounts for about 3.2 percent of subscribers] could have proceeded even with the prior cap. Ditto Charter [which has about 5 percent of subscribers], which Comcast has looked [at] in the past and decided to pass. Cox Communications [privately held] would have pressed the limit, but is not for sale.”
Moreover, even with the elimination of the ownership cap, “any major M&A activities would
still be reviewed on a case-by-case basis by the FCC, without certainty of approval,” he added. Pointing to a theoretical combination of Time Warner Cable and Comcast, he said it was unlikely to get regulatory approval.
In a statement, the FCC said it would take into account the court’s ruling in future rules. “As part of the Cable Act, Congress required the Commission to adopt horizontal ownership limits to enhance effective competition in the cable television marketplace. The FCC staff is currently reviewing the court’s decision with respect to the limit previously adopted and the Commission will take this decision fully into account in future action to implement the law,” said Julius Genachowski, chairman of the FCC.
The subscriber cap was originally put into place in 1993, struck down in court in 2001, and reinstated in 2007. It had practical implications only for Comcast, which controls about 25 percent of the U.S. pay TV market.
But analysts expect no run on acquisitions based on the court decision. “We view this as largely a moral victory for Comcast, with little or no practical implication as it relates to potential M&A,” said Sanford C. Bernstein analyst Craig Moffett. “The most commonly cited possible combinations (for example, Comcast for Cablevision, which accounts for about 3.2 percent of subscribers) could have proceeded even with the prior cap. Ditto Charter (which has about 5 percent of subscribers), which Comcast has looked in the past and decided to pass. Cox Communications (privately held) would have pressed the limit, but is not for sale.”
Even without the cap, the FCC will review any major deals on a case-by-case basis. “A mega-combination of Comcast and Time Warner Cable (13.6 percent), for example, which would easily eclipse 30 percent, would likely be blocked by the current administration anyway, whether or not the 30 percent ownership cap rule were in place,” Moffett argued.
Additional reporting by Mediaweek‘s Katy Bachman