COMCAST GROWTH AMBITIONS RAISE QUESTIONS ABOUT OWNERSHIP ISSUES
With Comcast CEO Brian Roberts making no secret of his ambitions for further acquisitions, consumer advocates are concerned that the biggest U.S. cable operator could become too big. But there’s no clear answer to the question: How big is too big? The U.S. Appeals Court, D.C., in Time Warner v. FCC, found in 2001 that the FCC wasn’t justified in establishing the old 30% horizontal ownership cap and remanded the case to the agency. The FCC has been examining the issue since then but has come to no conclusions.
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At the end of last year, Comcast reported that, through its own business plus partnerships, it had more than 26.2 million subscribers attributed to it, or about 28.9% of the total multichannel video program distributor universe. That includes the roughly 21.5 million that Comcast directly manages, plus those attributed to it through partnerships and other business arrangements, including its 50% of Insight. Meanwhile, Adelphia, with about 5.4 million subscribers, is for sale and Comcast has said it would take a hard look at it.
When asked about the effects of a future FCC cap at the NCTA convention this month, Roberts said he didn’t believe Comcast’s designs would conflict with any regulations (CD May 4 p5). But at 28.9% of the 90.9 million MVPD-subscriber universe today, a wholesale acquisition of Adelphia would put Comcast above the old percentage cap, though Comcast could always take a piece or nothing at all.
A Comcast spokesman said the company wasn’t looking to grow for the sake of growing because it already has efficiency of scale. “A number of Adelphia’s systems are natural complements to our existing footprint and so it is only logical that we would monitor the situation,” he said. Earlier this month, Comcast settled a dispute with the city of L.A., agreeing to pay $400,000 in past-due franchise fees, and some observers deduced Comcast was laying the groundwork to seek approval for a franchise transfer of Adelphia’s prized L.A. system.
Media Access Project (MAP) Pres. Andrew Schwartzman thinks Comcast is already too big. MAP and a coalition of consumer groups recently asked the FCC to impose a moratorium on allowing either Comcast or Time Warner to acquire any more systems until a cable ownership cap has been decided (CD May 3 p4). Schwartzman said he thinks 30% was too high to begin with, and he interprets the law to mean 30% of the cable universe, not the MVPD universe, which includes DBS and others. “So even if the number is 30%, if it’s the cable universe, not the MVPD universe, then they're over” the limit, Schwartzman said.
Schwartzman said “fighting about whether it’s 28.9 or 30.2 is kind of missing the big point, which is that they're huge and they want to get bigger, and there is a law that requires the FCC to set a cap and the FCC has lackadaisically failed to do what Congress required.” MAP is considering taking the matter to court. He also said Comcast has yet to sell off assets from a partnership with Time Warner called Time Warner Entertainment (TWE). Though that asset is in a blind trust, Schwartzman calls it a “broken promise. If they want to go acquiring, finish the TWE spinoff,” he said.
The FCC said each transaction involving FCC licenses comes under scrutiny, regardless of the limit. Any major transaction would face an antitrust review from DoJ or the FTC as well. Schwab Capital Markets analyst Paul Gallant, former media aide to FCC Chmn. Powell and an architect of the FCC’s broadcast media ownership rules, said media consolidation issues are less predictable at the FCC than they used to be. “But I anticipate the Commission would approve a Comcast-Adelphia merger, subject to compliance with its ultimate decision on a new cable cap. It could be difficult for the mergers’ opponents to establish consumer harm through a 5% increase in Comcast’s size.”
Some industry insiders said the number of subscribers alone isn’t a problem; the problem that was supposed to be addressed by the cap was a question of any impediments to programming reaching an audience. In other words, it’s a matter of whether a particular company controls so many subscribers that an independent programmer couldn’t possibly find an audience. Cable industry leaders argue that with competition from satellite providers, that really isn’t an issue anymore. Some consumer advocates disagree, saying cable has a stranglehold over program distribution.
Comcast has suggested that the FCC adopt a “soft” cap. With that idea, a company going above that soft cap would bear a heavier burden in proving the transaction wouldn’t harm the public interest. If a company’s deal were to fall below the cap, the transaction wouldn’t get an automatic bye, but the deal’s opponents would bear the burden presumptively.
The NCTA also said the FCC’s attribution rules need to be revised. It said questions about attribution play a role in any limitations on how much a cable company own. The rules say a person or entity has attributable ownership if that person or entity have 5% of voting stock or 33% of the company’s combined debt or equity. That means subscribers of another cable company in which Comcast holds 5% voting interest are actually counted as being Comcast subscribers. Some in the industry argue those subscribers are wrongly counted twice, once for the company that actually manages them and once for the other company that’s an investor.