FCC to Allow Mergers Between Cable, Non-Incumbent Telephone Companies

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By Paul Barbagallo  

Cable operators and “competitive,” or non-incumbent, telephone companies may now go forward with plans to merge, the Federal Communications Commission has ruled (Petition for Declaratory Ruling to Clarify 47 U.S.C. § 572 in the Context of Transactions Between Competitive Local Exchange Carriers and Cable Operators, FCC, FCC 12-111, 09/17/12).

The agency formally approved a petition by the National Cable and Telecommunications Association, the cable industry's main trade association in Washington, to forbear from enforcing a section of the Telecommunications Act of 1996 that prohibits a local phone company and a local cable provider from merging.

“By bringing the review of cable-competitive local exchange carrier [CLEC] transactions in line with that of other similar transactions, while maintaining our own review and an important role for local authorities, we ensure that transactions that promote competition and expand broadband service deliver benefits to consumers more quickly,” FCC Chairman Julius Genachowski said in a statement accompanying the agency's order, both distributed electronically Sept. 17.

The association hailed the FCC's decision, noting that the Telecommunications Act has historically “deterred pro-competitive transactions.”

Under Section 652(a), local exchange carriers cannot acquire more than a 10 percent financial interest in any “cable operator providing cable service within the local exchange carrier's telephone service area.”

Likewise, under 652(b), cable operators cannot acquire more than a 10 percent financial interest in any “local exchange carrier providing telephone exchange service within such cable operator's franchise area.”

Section 652(c), meanwhile, stipulates that a “local exchange carrier and a cable operator whose telephone service area and cable franchise area … are in the same market may not enter into any joint venture or partnership to provide video programming directly to subscribers or to provide telecommunications services within such market.”

Situation Has Changed.

The FCC reasoned that Congress, in 1996, appeared to be most concerned with mergers and acquisitions between cable operators and larger, incumbent phone companies.

“We believe that Congress had little reason to be concerned about cable operator acquisitions of competitive LECs [local exchange carriers] when it adopted section 652 because competitive LECs, particularly in 1996, did not present a significant facilities-based alternative to incumbent LECs,” the FCC wrote. “In contrast to an incumbent LEC's acquisition of a cable operator, a cable operator's acquisition of a competitive LEC likely will not lead to one entity controlling all of the last-mile facilities, or reduce incentives to upgrade existing transmission facilities to enable carriage of new services.”

FCC Commissioner Robert McDowell, the senior Republican on the commission and former senior vice president and assistant general counsel of Comptel, a trade association that represents competitive local exchange carriers, said the order is “positive” and “constructive.” He urged the agency to undertake forbearance actions “on its own accord rather than waiting for outside parties to file costly petitions.”

“Not only would such initiative be a matter of good government, it is encouraged by the act,” McDowell wrote in a statement.

As part of Wireline Competition docket 11-118, the FCC had until Sept. 19 to rule on the cable association's petition; otherwise, it would have been deemed granted.

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