Cap in Hand: An Ownership Cap Proposal Gets Floated

One of FCC Chairman Kevin Martin’s "regulatory retreads" (that’s NCTA chief Kyle McSlarrow’s description) is a proposal to revive the 30% ownership cap. This means a provider would be blocked from serving more than 30% of the multichannel universe. As seen in the chart below, only Comcast is remotely close to danger. But in these consolidating times, a cap could be cause for concern.

Martin’s cap hasn’t gone public. It’s been floated to fellow FCC commissioners only, agency staffers say. So, it remains to be seen whether — and in what form — it emerges into the public domain. Still, talk of a 30% cap has been a source of curiosity for D.C. watchers, since it’s the same one tossed out of a federal court in 2001 for violating the First Amendment.

At that time the D.C. Appeals Court said the FCC failed to justify the 30% national cap, but it left the door open for the FCC to create and justify a new cap. It’s always been possible that new caps would appear. The FCC sought comment on the cap issue (in ’01 and ’05). It’s the return of the 30% yardstick that caught many by surprise. While the federal court stopped short of making suggestions in 2001, justices said that a 60% cap might be permissible.

Without having seen the order, it’s unclear why the chairman thinks a 30% cap is justifiable now. One thing expected to be different this time is that Martin is tying a Notice of Proposed Rulemaking to the order that would explore attribution. Under FCC rules, when a cable operator owns at least 5% of another cable company, their subscriber totals are combined, thus increasing total subs (our chart, though, excludes attributable subs). Given the fluid nature of cable deals, it’s not easy to calculate sub totals with attributable subs. Comcast had 24.236 million subs at the end of first quarter (25.1%). That number jumps to 26.256 million when its attributable subs, including Insight, are included. After unwinding the Insight partnership and adding subs from its Patriot acquisition (pending completion), Comcast has 25 million subs and 697,000 attributable subs, or 26.6% of the MVPD HHs.

The 2001 cap would have hit hard at AT&T Broadband. It was the sole operator beyond the 30% threshold (due partly to attribution rules). Comcast bought AT&T Broadband’s systems in November 2002. Consumer groups unsuccessfully petitioned to have the U.S. Supreme Court review the appeals court decision. Those arguing against a review said it was unnecessary in part because the commission was drafting a new cap. Six years later and we’ve yet to see a cap. The FCC may be back at square one.