Appeals court tosses cable ownership caps

Unanimous ruling also voids FCC affil regulation

WASHINGTON — Wiping the slate clean of key ownership restrictions, a federal appeals court has given big cable guns — most immediately AOL Time Warner and AT&T — carte blanche to add as many customers as they want.

The watershed ruling, issued on Friday, struck down as unconstitutional an FCC cap preventing any one cabler from reaching more than 30% of the national market.

Unanimous ruling also voided several other crucial ownership restrictions, including an FCC rule prohibiting a cabler from filling more than 40% of the first 75 channels with affiliated programming.

Decision clears the way for congloms like AOL Time Warner and AT&T to throw off the regulatory harness and go full speed ahead in wooing new customers. AOL Time Warner also can add much more of its own programming.

Also gutted Friday were several rules regarding how cable customers are attributed.

Big cablers weren’t the only ones celebrating as word ping-ponged from Washington to the West Coast.

TV net execs said the decision of the U.S. Court of Appeals for the District of Columbia could well spell the end of a similar cap barring any one broadcast station owner from reaching 35% of the national market.

Such caps were put into place to prevent monopolies from dominating the airwaves and wire waves.

“We are very pleased with the decision. It’s a good day for cable operators’ First Amendment rights,” AOL Time Warner spokeswoman Kathy McKiernan said.

Opposition speaks

Others were less pleased. “AOL Time Warner will now be able to own every cable system and every channel on it. We’re doomed,” an industry exec said.

Consumers Union co-director Greg Kimmelman said cable companies will be able to strengthen their already monopolistic hold.

“As large companies become more powerful, it becomes more difficult to get cable competition,” Kimmelman said.

Case was brought by Time Warner Entertainment (TWE) and AT&T. Congloms charged that the FCC violated the First Amendment in imposing the “arbitrary” and “capricious” caps.

Whether the ruling will override an FCC order that AT&T shed its 25% stake in TWE by May 19 was unclear as various parties digested the court’s 22-page order.

FCC issued the TWE directive when giving the go-ahead for AT&T to merge with MediaOne. Otherwise, the newly merged company would exceed the 30% cap.

“We’re pleased that the D.C. Circuit Court of Appeals agreed with the key arguments we presented in this case,” AT&T general counsel Jim Cicconi said. “We’re continuing to review the opinion carefully, and plan no further comment at this time.”

Critical of caps

The decision did leave the door open for the FCC to recraft the rules. Cablers may not need to worry about such a move, since FCC chair Michael Powell has been openly critical of ownership caps.

The court opinion said the FCC provided no justification for the 30% national ownership cap. Justices hinted that at the very most, a 60% national ownership cap might be allowable, if the FCC could provide compelling evidence that without the cap, monopolies would be unleashed.

Kimmelman said his org will petition the FCC to redraft caps.

Last month, TWE and AT&T suffered a blow when the U.S. Supreme Court declined to review a lower court’s ruling that Congress and the FCC, in general, had the constitutional authority to set ownership caps. Specific caps were not addressed.

B’casters hopeful

Broadcasters said they had strong reason to draw hope from the new action, considering the same appeals court is expected to rule soon on whether the 35% national cap passes constitutional muster.

“We have a violation of the First Amendment, because the cap keeps us from reaching viewers we would otherwise be able to reach,” one TV exec said.

Smaller broadcasting station groups don’t want the 35% rule overturned, arguing it would give far too much power to the top of the food chain, i.e., the nets. The issue caused a fracture within the National Assn. of Broadcasters.

Among the leading owners of cable content — AOL Time Warner, News Corp.’s Fox, Viacom and Walt Disney — only AOL Time Warner also owns cable systems. That might change if the current restriction against owning cable and broadcast stations in the same market is overturned as well.

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