WASHINGTON -- The U.S. Federal Communications Commission yesterday relaxed its cable television ownership rules, lowering the regulatory obstacles that AT&T; Corp. must clear in its $55 billion purchase of MediaOne Group Inc.
The agency will keep rules that bar a company from owning systems serving more than 30 percent of U.S. households with cable. Yet it expanded the defined market by adding satellite TV subscribers, raising the cap to 36.7 percent of cable homes.
The FCC also voted to let cable systems own more than 5 percent of another company without subjecting it to the ownership cap when Internet and nonvideo services are offered. Such flexibility could be key for AT&T;, which would become the biggest U.S. cable provider with the MediaOne acquisition, because it would exceed the 30 percent national limit after the purchase. The company could be forced to shed subscribers or change the structure of its cable investments, analysts said.
The new flexibility "gives them an opportunity to do some creative restructuring," said Scott Cleland, managing director of Legg Mason Inc.'s Precursor Group.
The FCC's rules, required by a 1992 law, are aimed at making sure that one company can't impede a competitor's access to programming because of its market dominance. Under the new rules, the FCC would decide on a case-by-case basis whether a company is insulated from the programming decisions of its partners. If one company sells programming to its partners, it wouldn't qualify under the exemption, FCC officials said.
The rules would not apply to ownership arrangements made before June 26, 1998, when the rule-making process began. They would apply when there's a transfer of control of licenses, the FCC said.
At the same time yesterday, the agency put the rules on hold until a federal appeals court challenge of the FCC's previous rules is settled. Companies would have six months to comply with the rules after the court decides.
The FCC will continue its review of AT&T-MediaOne; on a separate track, Chairman William Kennard said. Even though the new rules are not being enforced until the appeals court decision, the agency has broad flexibility in reviewing any transaction and could determine that the company must in effect comply with the ownership rules to win approval.
The FCC effectively softened the blow on AT&T; by altering its rules that define when a minority stake in a cable system is "owned."
Kennard said the goal was to make sure that "companies that have been historically dominant in one market don't leverage that dominance in a new market." At the same time, they want to give cable companies a chance to enter the market for new, high-speed Internet services.
"Consolidation is good in this marketplace when it allows players to realize economies of scale to provide new services to consumers," Kennard said.
That flexibility is important for AT&T; because MediaOne has a 25.5 percent stake in Time Warner Entertainment, which operates most of Time Warner's cable TV systems. Those systems would have been counted in AT&T;'s total under the old rules, which the FCC had voluntarily put on hold pending the outcome of the court challenge. Oral arguments are set for Dec. 3, and the agency said the new rules will take effect six months after the court's ruling.
"I think when the dust settles, the deal can be closed without being materially impacted," said one analyst.