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Court Hands Victory to Comcast: Throws Out 30% Cap On Market Share Inviting Buying Spree At Consumers’ Expense

Phillip Dampier August 31, 2009 Comcast/Xfinity, Competition, Public Policy & Gov't, Recent Headlines 8 Comments

A federal appeals court in Washington has struck down, for a second time, a rulemaking by the Federal Communications Commission to limit the size of the nation’s largest cable operators to 30% of the nation’s pay television marketplace, calling the rule “arbitrary and capricious.”

Judge Douglas Howard Ginsburg

Judge Douglas Howard Ginsburg

The 30% rule, designed to keep no single company from controlling more than 30% of the nation’s pay-TV subscribers, was originally written in 1993 by the FCC because the agency feared a concentrated cable television marketplace would stifle innovation, lock out potential new independent programmers, and discourage new forms of competition.  The cable industry immediately called the cap an overreach, and in 2001, found a friendly reception in court, with a ruling demanding the FCC reconsider the rule in light of competition from satellite television.

The FCC determined satellite competition was inadequate alone to justify reversing the 30% ownership limit, and essentially kept the limit in place, mostly at the urging of FCC Chairman Kevin Martin, who regularly tangled with the cable industry during the Bush Administration.

The decision striking down the 30% rule came in a harshly worded ruling from Judge Douglas H. Ginsburg.

“In light of the changed marketplace, the government’s justification for the 30 percent cap is even weaker now than in 2001 when we held the 30 percent cap unconstitutional,” Judge Ginsburg wrote for a three-member panel of the court.

Ginsburg wrote the FCC was egregiously derelict in its revised rulemaking because it failed to heed the court’s direction, requiring the court to vacate the rule.

The ruling is a “significant gain for cable and apparent big victory for Comcast,” said Andrew Lipman, a Washington- based partner in the media, telecommunications and technology practice at Bingham McCutchen LLP.

The Philadelphia Inquirer noted some Wall Street analysts were pleased with the court’s decision:

Wall Street analyst Craig Moffett called the decision a “moral” victory for Comcast, which contended that the market-cap rule was politically motivated by the Federal Communications Commission and wouldn’t overcome a court challenge. The rule was passed under former FCC Chairman Kevin Martin.

Speculation about what companies Comcast could likely snap up began immediately, ranging from a conceptual merger with Time Warner Cable, the nation’s second largest cable company, to quick buyouts of smaller players like Cablevision or now-bankrupt Charter Cable.

Consumer groups were alarmed by the court ruling.

“This is not the end of the fight,” Andrew Jay Schwartzmann, president and chief executive officer of the Media Access Project, a nonprofit policy advocacy group, said in a statement. “Big cable’s anti-competitive ownership structure has increased prices and limited choices for the American public. Therefore, we will consult with the FCC on whether Supreme Court review is feasible. If not, we’ll be asking Congress to pass new legislation to ensure more choice and lower prices for cable TV service.”

Ben Scott, policy director for Free Press, noted that the intent of the original 1992 Cable Act was to promote competition and consumer choice.  Yet in most cities, consumers face a cable cartel.

“Today consumers experience perpetual price hikes by large operators that already have market dominating purchasing power to decide the fate of new channels. The promises of lower prices through competition from satellite and telecom companies in the video business have never been realized. We encourage the FCC not only to revisit cable ownership limits, but to examine a variety of policy proposals to achieve Congress’s goal to bring consumers more competition and more choice in the cable industry.”

ABC News reported that while Comcast won this legal battle, it has a way to go in the court of public opinion.

Cable providers Comcast, Time Warner and Charter draw low marks on the American Customer Satisfaction Index, tracked by the University of Michigan. On a scale of 0 to 100, Comcast and Time Warner each scored 59 this year. The satellite provider DirectTV ranked first at 71, with Cox Communications cable at 66 and DISH Network at 64.

Currently there are 8 comments on this Article:

  1. BrionS says:

    I say we get over with the pain in one fell swoop – like a band-aid – and let Comcast buy up all its competition. They can change their name to Americast and we’ll all be in an idyllic environment with high-speed and low-cost Internet and video for everyone…..just like Canada.

  2. jr says:

    Best democracy money can buy as Greg Palast says

  3. Ian L says:

    I actually don’t see a problem with this. The companies Comcast would buy out (not Cablevision; they’re too crazy…though Charter is probably a given and TWC may not be far behind…maybe even Cox but probably stopping there) don’t serve the same footprint as Comcast does, so it’s not like there’s going to be less competition for Joe consumer.

    They’ll still have Dish, DirecTV, the MSO (Comcast) and, now ore than ever, either TelcoTV (U-Verse or FiOS) or a cable overbuilder (RCN, WOW, Grande) to pick from for TV service.

    For internet, Comcast has the most aggressive DOCSIS 3 program out of anyone other than Cablevision, though Charter edges out Comcast with 60 Mbps service versus 50 Mbps and Cox charges less for 50 Mbps in some markets than Comcast does. Plus you have either xDSL, fiber and/or wireless in some cases, though not all.

    For voice, you’ve got cellular providers, POTS, VoIP running over your internet connection and the cable voice service itself.

    So while Comcast buying out other companies isn’t going to magically increase competition, it won’t decrease it unless they actually buy out RCN, WOW or whoever else (highly unlikely). Plus, most people will actually get a better internet connection for their money, particularly if they’re in TWC territory (we-don’t-do-DOCSIS-3 land), and to a lesser extent in Charter territory (we’re-too-debt-saddled-to-upgrade-other-markets-to-DOCSIS-3 land).

  4. BrionS says:

    The problem I see with this is the same as anytime conglomerates come into being. Two things primarily happen:
    1. Distance between the business and the customer’s needs and wants grows because that local / regional touch is moved more centrally to the business which is farther from the actual customer interactions.
    2. Services and features drop to the lowest common denominator for a variety of reasons but often just for purposes of being able to manage the entire product catalog in a meaningful way.

    There is a third reason this is not good – vulnerability. Large conglomerates can fail and when they do entire industries can go with them. Look at newspapers these days. The Tribune Company starts to fail and takes the Cubs with them. WTF? Why does a newspaper company own a baseball team? Why does the shaky finances of the Wall Street Journal jeopardize the Boston Globe? One word: conglomeration.

    Not only is competition reduced within a particular market segment, but those acquired businesses now run the risk of failure at the hands of a company outside their control.

    Your suggestion that competition will still exist from satellite is true enough for now, but it’s not competition on the same playing field. That’s like saying DSL Internet is competition for cable Internet. In some cases that may be true, but in most cases its not – they’re not even close. They’re completely different technologies with different limitations and requirements. That’s like saying if I don’t like my phone company, I can just get a cell phone. Maybe it’s true, but maybe I can’t get a signal at my house or the cell plan costs just as much as the one phone company. What I need is competition between phone companies – both trying to wire my house and THEN I’ll see real competition and price drops.

    Strictly speaking, when you purchase a competitor, there is less competition by virtue of the fact your acquisition doesn’t compete against you anymore.

  5. DeanSB says:

    This ruling is NOT GOOD for consumers!!

    To the contrary of what Brion said above, satellite TV is NOT a viable option everywhere!! What if you live in an apartment building or complex, and that complex states in its lease agreement that you are NOT allowed to own a satellite dish?? What THAT means is that that option is now CLOSED to you, and unless you are lucky enough to live in an area that DOES offer either Verizon’s FiOS TV, AT&T’s U-Verse, or another cable overbuilder such as RCN, WOW, or Knology (which I have here in Storm Lake, Iowa), you’re now STUCK with that ONE Cable provider, and you’re “at the mercy” of that ONE Cable provider’s whims…this means that, if you don’t like their quality of service, or you have problems with picture-quality, reception, or your service goes out frequently, and they don’t offer the channels YOU want, you’re faced with the idea of “Take It or Leave It”!!

    And if you live in a smaller community in the Midwest, you might not even HAVE Cable TV for an option, let alone Broadband High-Speed Internet, for an option!! In the nearby community of Newell, for instance, their incumbent cable TV provider NEVER upgraded their cable system, sticking with a PALTRY 21-CHANNEL capacity system built back in the early-1980’s. The result was that, once direct-broadcast satellite TV service such as DirecTV and Dish Network came along, MOST homes in Newell dropped that cable system for the more advance satellite TV options. As a result of this, the cable TV provider in Newell went “belly up” and folded, leaving cable TV viewers with ONLY satellite TV for an option. But I still wonder about the few TV viewers who live in apartments in Newell? Are they now relegated to just receiving what they can get over-the-air?

    Satellite TV, while a viable option for single-family homes and rural farm homes, IS NOT a viable option for apartment-dwellers!!

    THIS is the reason WHY Cable companies MUST be limited in how much of the marketplace they can own!!

    It’s HIGH TIME to bring REAL, HONEST-TO-GOD COMPETITION to subscription TV viewers and Internet users nationwide!!

    • BrionS says:

      If you’re referring to my first post that was sarcasm, I just forgot the <sarcasm> tag. :)

      Also I wasn’t saying satellite is always an option. I’m familiar with the apartment situation. There are cases however that you can install a satellite dish in an apartment. I believe the laws changed (in the U.S. at any rate) 5 or 10 years ago requiring landlord to allow satellite dishes as long as they weren’t attached to the building (i.e. they can be in a post in the ground or on a balcony, etc.). Again, that doesn’t work everywhere and I’m not saying it’s an excuse to abuse because you have “competition”.

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