Court Scraps Cable Ownership Cap
Paging Mr. Monte Hall…
The cable industry may be in need of your services if some of the largest MSOs in the industry decide to play Let's Make a Deal after a the U.S. Court of Appeals for the District of Columbia tossed out a Federal Communications Commission (FCC) order that prevents cable MSOs from owning more than 30 percent of the domestic video market.
The court ruling, which labeled the ownership cap "arbitrary and capricious," is viewed as a victory for Comcast Corp. (Nasdaq: CMCSA, CMCSK), which controls roughly 25 percent of the U.S. pay TV universe, and is really the only MSO that would come near the cap if it ever tried to pursue a giant cable system purchase. No. 2 U.S. MSO Time Warner Cable Inc. (NYSE: TWC), which serves 13.6 percent, still had plenty of wiggle room under the prior cap.
The FCC, in a 3-2 vote, issued the order in late 2007 when Kevin Martin was still Chairman, holding that ownership above the 30 percent mark would allow an MSO to wield too much power over budding video networks, and if carriage was not granted, could harm the overall diversity of cable programming. The vote went through despite the fact that the D.C. Circuit struck down the cap back in 2001.
FCC Commissioners Robert McDowell and Deborah Taylor Tate dissented from the 2007 decision. McDowell even predicted the order would be overturned because it "goes out of its way to remain ignorant of current market conditions which obviate a need for a cap." Nice one. (See FCC Caps Cable .)
"We view this as largely a moral victory for Comcast, with little or no practical implication as it relates to potential M&A," Sanford C. Bernstein & Co. Inc. analyst Craig Moffett said in a note issued today. For example, even if Comcast made a play for Cablevision Systems Corp. (NYSE: CVC), for example, it could still absorb the New York-based MSO without hitting the FCC's cap. A deal for privately held Cox Communications Inc. would press the cap, but, alas, it's not for sale, Moffett points out.
And even with the cap removed, Comcast can't just slam dunk any big acquisition deal. Any major M&A activity "would still be reviewed on a case-by-case basis by the FCC, without certainty of approval," Moffett said, noting that a combo of Comcast and TWC, for example, would lilkely be blocked, anyway.
Comcast was pleased with the court's decision, but didn't indicate if that meant it was going to now go on a hunt for some big game.
— Jeff Baumgartner, Site Editor, Cable Digital News