Comcast/TWC Called Unlikely to Bring Back Cable Cap
A Comcast purchase of Time Warner Cable is unlikely to lead to a resurrection of the horizontal ownership cap limiting the portion of national subscribers a cable company can serve, and any FCC move to bring back such a cap is unlikely to affect the $45 billion deal, said analysts, cable attorneys and public interest groups in interviews. The FCC’s former cap was twice struck down by the U.S. Court of Appeals for the D.C. Circuit, but Comcast raised the issue again when it said the terms of the proposed Time Warner Cable deal would include a voluntary divestiture of 3 million subscribers to stay under the old cap’s 30 percent threshold (CD Feb 14 p3). A Comcast spokeswoman told us Friday that the divestiture is intended to “assuage concerns” about the size of the new company.
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Although public interest groups have raised objections to Comcast/TWC, it’s not likely the FCC would bring back the cable cap, said Guggenheim Partners analyst Paul Gallant and several communications attorneys. The commission won’t want to face another likely court defeat, one attorney said. The previous cap was struck down in 2009 as “arbitrary and capricious,” so any resurrected cap would require some evidence justifying it to survive a court challenge, a cable official said. At Thursday’s FCC open meeting, Chairman Tom Wheeler declined to comment on a cable ownership limit and said the commission would wait to see Comcast’s formal submissions to the FCC about the deal. Wheeler said Comcast didn’t tell him about the deal, unlike Sprint in expressing its interest in T-Mobile. Even in referencing the ownership cap in its announcement of the TWC deal, Comcast cited the illegality of the cap. “In a far less competitive market than today, the Court of Appeals twice did not accept 30 percent as a reasonable limit on a single cable company’s size,” said Comcast’s spokeswoman.
By volunteering to keep the deal from conflicting with a law that no longer exists, Comcast may have been hoping to short-circuit arguments to resurrect the subscriber cap, analysts and attorneys said. “It’s a smart move by Comcast to take one important objection off the table,” said Gallant. With the deal under the old cap, it takes away an easy argument that could be raised by opponents of the deal, said BakerHostetler cable attorney Gary Lutzker. Offering ahead of time to stay out of the way of controversial regulations is becoming “a popular tactic” for companies trying to get complicated deals through regulatory approval, said Free Press Policy Director Matt Wood. Public interest attorney Andrew Schwartzman said he doubted Comcast is concerned about a conversation on cable caps -- he believes the divestiture is designed to improve the “optics” of the large deal. “Comcast is perfectly capable of dealing with a cap,” he said.
By bringing up the cable cap, Comcast may also be trying to focus attention on the cable aspects of the transaction, said Public Knowledge Senior Staff Attorney John Bergmayer. “Why would they deliberately bring it up? They have a strategic reason for doing that.” Instead of a cable transaction, the deal should be thought of as a combination of two communications companies, with both broadband and cable customers, Bergmayer said. “If the 30 percent number is relevant, in broadband they would be over a 30 percent cap,” he said. “In high-speed broadband, their dominance is even higher.”
The FCC doesn’t need a cable cap to find objections to Comcast/TWC, Gallant said. “The absence of a cap doesn’t mean cable operators have unlimited freedom,” he said. “The FCC is theoretically free to say a particular cable merger is not in the public interest.” Being under an ownership cap “is not a safe harbor,” said Bergmayer. Though companies often act as though all deals under an ownership cap should be OK'd, the commission should still look at individual market conditions, he said.
Not everyone thinks a cap is off the table. The Communications Act says the FCC shall establish limits on cable subscribership, Schwartzman said. “It’s not unreasonable to think it’s something the FCC might consider doing.” Bergmayer would back and Wood said he might support a resurrected cap, though both said it was unlikely to affect the current deal.
Comcast’s announcement of the divestiture means the deal will have a larger effect on the cable industry than without it, said a cable executive. By jettisoning systems with 3 million subscribers, the Time Warner Cable takeover creates an opportunity for smaller cable companies that could change the makeup of the cable industry, said the executive. The divested systems could be substantial parts of companies affiliated with the principals, such as Bright House Networks, said the executive. Several analysts have also speculated that TWC’s spurned suitor Charter Communications is likely to buy the orphaned systems (CD Feb 14 p3), and Charter CEO Tom Rutledge seemed to reference the possibility during a Q4 earnings call Friday. Charter is “still interested in acquiring subscribers when the opportunity arises,” he said. “If the landscape changes in such a way that we see an opportunity, we'll take advantage of it.”