Twist-Off Cap Limits

There’s a scene in The Wizard of Oz when a trail of dark smoke appears in the sky, and the Munchkins, all in a tizzy, begin asking “What’s it mean for us?” That describes the reaction among many broadcasters, cable operators, telecom lobbyists and lawyers at the Federal Communications Commission to the ruling from the D.C. Court of Appeals March 2 that voided the FCC’s cable ownership limits.

Will this open the floodgates for big cable monopolies? Does it portend an end to the national ownership cap of 35 percent for the TV networks? The answer is a strong “maybe.” The ruling’s potential impact on ownership caps certainly figured in a move by a coalition of stations to ask the FCC to do something it’s never done before: review the changing relationship between networks and affiliates. “This would make the FCC the judge in family court,” said a telecom lobbyist. “I think the FCC has been dreading the day it would be put in this spot, but anyone in the industry could see it coming.”

Andy Fisher, president of TV for Cox Broadcasting, said the networks’ demands on affiliates “have escalated dramatically in their intensity.” Affiliates have complained about the refusal of network officials to meet with affiliates, the increase in penalties for preempting network shows and concerns that NBC and Fox particularly have interfered in some ways in sales of stations. Since the cap was raised to 35 percent in 1996, Fisher said, “it has created substantial difficulties for non-network-owned stations. Our voices don’t count.”

The petition by the Network Affiliated Stations Alliance asked the FCC to investigate whether CBS, Fox, ABC and NBC have engaged in anticompetitive behavior and violated FCC rules. The request had been planned for some time, but the court ruling gave it new urgency. FCC staffers said the request is “unusual,” and the agency is not sure how it will proceed with a Petition for Inquiry, which asks for a task force to basically review the faltering network-affiliate marriage. The networks were unanimous in their outrage at the filing, calling it variously “extremely disappointing,” “ill-advised” and “a shame.” A House staffer said, “This really opens up the gap. I think you’ll see members of Congress being prodded to take sides: are you network, or are you with your local station?”

Prior to the NASA petition, the FCC was already at work dealing with the court ruling. The decision could precipitate more consolidation in the cable industry, agreed lobbyists and analysts. Jerry Udwin, a telecom consultant, said, “With a Republican chairman [Michael Powell] who opposes regulation, it will be hard to justify trying to reinstate the 30 percent cap.” However, the same court has upheld the FCC’s right to impose caps on the percentage of households one company can reach; he said that the FCC could come back with an explanation of its cap formula and ask the court to rehear the matter. Most congressmen are keeping mum, but a House Commerce staffer said, “With cable rates continuing to rise, I think the FCC would have a hard time telling us it won’t appeal. ‘Cable monopoly’ is a scary phrase on the Hill.”

One possible winner from the ruling is AT&T, which lobbyists said will probably use the decision to ask the court to nullify its deal with the FCC to divest its Liberty holdings in order to complete its acquisition of MediaOne. Though it won’t discuss its options, AT&T has previously insisted that the FCC overstated the company’s household reach by including its minority ownership in Time Warner.

However, network affiliates fear they will be the biggest losers. The broadcast ownership cap still stands at 35 percent. “But using the First Amendment justification put forth by this court,” said a telecom lawyer, “I can see the networks and large station groups lining up to buy each other out.”