Caps May Be Off for Good

Cable World, March 12, 2001 by David Connell

It may be the beginning of a new era.

With the Bush administration in power, the cable industry expected regulatory rules to loosen. But the U.S. Court of Appeals ruling declaring the FCC's ownership caps unconstitutional was a change that came earlier than expected.

For the cable industry, a big legal victory was a long time coming. But more importantly, the notion of caps seems to be one whose time has passed, according to politicians, wonks and lawyers in Washington.

"Frankly, I'm not surprised the courts have come down the way they have," House Commerce Committee Chairman Billy Tauzin, R-La., said at a Consumer Electronics Association conference.

"I think this was a decision you had to expect in a changing world of communications voices. All those ownership restrictions and caps were built in a time of limited voices in our society. Look at all these voices now," he quipped, gesturing to the horde of business and trade journalists gathered around him.

Tauzin's comments and past promises suggest that not only are the days of cable ownership caps numbered, but so are the days of broadcast ownership caps and cross ownership rules.

The chairman's view is shared across party lines by U.S. Rep. Rick Boucher, D-Va., who sits on the Commerce and Judiciary Committees, giving him great sway over telecommunication law.

"I don't know, frankly, that the decision was wrong," Boucher said. "I had hoped that we would be in the position to legislate some changes to the cable ownership caps as part of a more comprehensive measure that addresses some other problems within the general telecommunications marketplace. I think these changes are always better made as part of larger legislation where you can expect all parties to make some contribution to solving the range of problems."

Boucher may still get his wish. While the Court of Appeals declared the commission had not met its constitutional burden when setting the caps, in essence had not justified the 30% limit, it did not deem the caps themselves unconstitutional. Instead, the court ordered the commission to reconfigure the rules or provide further justification for 30%.

Furthermore, the 1992 Cable Act requires the commission to set the caps.

Therefore, if Tauzin and Boucher want to get rid of the ownership limits altogether, it will require a legislative fix rather than a commission remedy.

For now, the ball remains in the FCC's court. The commission must decide whether to appeal the court ruling or reconfigure the caps. The most likely scenario, according to FCC observers, is that Chairman Powell will decide not to appeal the ruling and will open a proceeding re-examining the FCC rules.

Powell would not comment specifically when asked about the fate of the commission's ownership rules, but did say the FCC would have to take a second look at its ruling in AT&T's merger with Media One. That deal put AT&T over the ownership cap and compelled the commission to force the company to divest ownership interests in order to come in under the 30% mark, a decision that may now be moot.

"The merger order discussed the statute," Powell said. "Anything that might have been based on a statute that has been declared inappropriate or unconstitutional has to be reviewed."

Loraine Card, a partner with Potomac Hudson Group, which lobbies in cable issues, was pleased with the ruling. She said it reflected the reality of the industry right now.

"The industry has been consolidating over the last several years in order to compete in the variety of business lines: high-speed Internet, digital video and local telephone services, and I believe the cable broadband industry will continue to look at securing market scale through consolidations and acquisitions," she says. "Looking at the competition -- DirecTV and Echostar with nationwide coverage, Verizon and SBC with huge markets and over 95% residential local telephone share to name a few -- makes it compelling for companies to look at economies of scale issues."

After an initial rush of euphoria, cooler heads now believe the decision will have little short-term effect on the industry from a regulatory and legislative standpoint. The ruling should, however, help flame the future regulatory philosophy and places the industry squarely under the umbrella of the First Amendment.

"I don't think this makes much of a difference, with the possible exception that it gives AT&T some room to maneuver. Nobody was close to the cap," long-time cable observer Steve Effros of Effros Communications said. "What's far more significant is what the court's implications for other regulations are ... [Cable companies] are now First Amendment speakers, and there is agreement that government cannot write rules without some legal backing just to meet policy goals."

The satellite television industry is now using this logic in its case against the FCC over must carry rules. In court documents, the Satellite Broadcasting and Communications Association, DirecTV and EchoStar told the court that the cap ruling mimics some issues in the must carry suit.