FCC considering new rules to open cable market

by STEPHEN LABATON, New York Times

The Federal Communications Commission is preparing to impose significant new regulations to open the cable television market to independent programmers and rival video services after determining that cable companies have become too dominant in the industry, senior commission officials said.

The finding, under a law that gives the commission expanded powers over the cable television industry if it becomes too big, is expected to be announced this month. It is a major departure for the agency and the industry, which was deregulated by an act of Congress in 1996.

Officials say the finding could lead to more diverse programs; consumer groups say it could also lead to lower rates.

Heavily promoted by those groups and by the commission’s Republican chairman, Kevin J. Martin, the decision would be a notable exception to the broad deregulatory policies of the Bush administration. Officials in various agencies have relaxed industry regulations and have chosen not to challenge big corporate mergers.

“The finding will provide the commission with additional authority to assure that there is opportunity for additional voices,” Mr. Martin said Friday in an interview. “It is important that we continue to do all we can to make sure that consumers have more opportunities in terms of their programming and that people who have access to the platform assure there are diverse voices.”

The commission’s conclusion that the cable industry has grown too large will be used to justify a raft of new cable television rules and proposals. They include a cap that would prevent the nation’s largest cable company, Comcast Corporation, from growing, and would prevent other large cable companies, like Time Warner, from making any new large cable acquisitions.

The decision comes as Mr. Martin is about to formally announce his plan to relax a different media ownership rule. That rule has restricted a company from owning a newspaper and a television or radio station in the same community.

How dominant the cable industry is has been a matter of dispute. The largest cable companies say they are under increasing competition from the satellite and telephone companies. But commission officials and consumer groups say that the large cable companies dominate the marketplace. They cite as evidence the fact that cable rates have risen significantly faster than inflation.

Next week, Mr. Martin is expected to formally propose that the newspaper and broadcast cross-ownership restriction be relaxed in the nation’s largest cities if the television station is not one of the largest in the community. He has told officials that he hopes to complete action on that rule in December.

The cable finding suggests that Mr. Martin is not approaching the media ownership debate with a uniform deregulatory approach — as his predecessor did — but is instead taking a more nuanced approach and intervening in one market, cable television, even as he tries to loosen the rules for other media conglomerates.

In the cable proceeding, senior commission officials said that this month the agency would announce as part of its annual report on the state of the video services market that it has broad new regulatory authority over the cable industry under the so-called 70/70 rule of the Cable Communications Act of 1984.

Under that provision, the agency may adopt rules necessary to promote “diversity of information sources” once the commission concludes that cable television is available to at least 70 percent of American households, and at least 70 percent of those households actually subscribe to a cable service.

Officials and consumer groups said that the 70/70 cable television finding would provide the legal basis for the commission to adopt rules in the coming weeks and months aimed at increasing programming and reducing rates for consumers.

The consumer groups and networks that are independent of the cable companies have long maintained there is no adequate process for the commission to sort complaints when a cable company refuses to carry programs.

The commission is preparing to take steps to make it less expensive for rivals of the largest cable conglomerates to buy their programs — so that, for instance, a satellite company would find it less expensive to buy programs by the Turner Broadcasting System, a unit of Time Warner.

One of the proposals under consideration by the commission would force the largest cable networks to be offered to the rivals of the big cable companies on an individual, rather than packaged, basis. That proposal, known as “wholesale à la carte,” is vigorously opposed by the large cable companies.

The agency is also preparing to adopt a rule this month that would make it easier for independent programmers, which are often small operations, to lease access to cable channels.

And Mr. Martin has been circulating a plan that would use the finding on cable television dominance to set a cap on the size of the nation’s largest cable companies so that no company could control more than 30 percent of the market.

The limit would prevent Comcast from acquiring more cable companies and would significantly limit the growth of other large players, notably Time Warner. The commission’s previous cap on cable ownership was thrown out six years ago by a federal appeals panel that said the agency had not provided an adequate justification for the rule.

Immediate winners from the cable finding are independent program networks, like NFL Network and Hallmark Channel, that do not have business affiliations with the cable companies, the satellite television companies and the telephone companies that are seeking to compete by offering their own video services.

Consumer groups applauded the cable television decision, although some speculated that it could give Mr. Martin some political cover as he sets about taking other aspects of media control in a deregulatory direction. (The groups oppose the deregulation of other media ownership rules.)

“The 70/70 finding is enormous,” said Andrew Jay Schwartzman, president of the Media Access Project, an advocacy organization devoted to diversity of voices and ownership that has opposed consolidation in the media. “It gives the commission a blank check to regulate an industry that Congress had largely deregulated.” Fearing new regulation, the cable industry has lobbied the commission for years to challenge the method used to count the market.

Officials and lobbyists from the cable industry criticized the finding, saying that independent studies and the commission’s own analysis from last year have concluded that cable television, while available to far more than 70 percent of American households, is actually used by far less than 70 percent of those households. They also suggested that Mr. Martin had an overly expansive view of the rule, and that it could only be used in limited circumstances.

“Every independent analysis of the marketplace shows that cable serves less than 70 percent of the nation’s households,” said Kyle McSlarrow, the president and chief executive of the National Cable and Telecommunications Association, the industry’s main trade group. “And even the F.C.C. staff concluded last year that cable was well short of this threshold.

“The provision itself is a relic of decades-old regulation and there is no basis for reviving it now,” Mr. McSlarrow added. “Twisting statistics in order to breathe life into this rule is simply another attempt to justify unnecessary government intrusion into a marketplace where competition is thriving and new technology is providing consumers more choices, better programming and exciting new interactive services.”

By contrast, consumer groups and phone companies have urged the commission to invoke the rule. They say it gives the commission broader authority than the cable industry has claimed.

“The finding will give the commission an arsenal of tools to limit discriminatory practices — notably exclusive dealing, tying arrangements and other relationships — if they harm the diversity of programming,” said Gene Kimmelman, vice president for federal affairs at Consumers Union and an outspoken critic of the cable television industry.

The commission’s finding and its expected new regulations are the latest moves by Mr. Martin against the cable industry’s largest players.

Mr. Martin has repeatedly criticized the companies for rapidly raising rates and providing many channels that few viewers watch. He also expressed alarm about the close business ties between the cable companies and many of the largest producers of programs.

And Mr. Martin has urged the companies to offer consumers more choices so that they do not have to pay for dozens of channels tha

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