The Supreme Court on Tuesday blocked an effort by the nation’s second-largest cable television operator to expand its business beyond government-imposed limits.
By refusing to hear an appeal from Time Warner Entertainment Co., the court effectively backed Congress’ effort to limit the growth of cable operators, which have been consolidating rapidly in the past several years and, through mergers and acquisitions, thwarting the desire of Congress to create more cable competition for consumers.
Although the court’s decision preserves the intent of the 1992 Cable Television Consumer Protection and Competition Act, many consumers may not feel particularly satisfied with the effects of the 9-year-old law. While Congress has moved to prevent cable concentration on a national scale–the limits on national reach that Time Warner was challenging–most individual markets, like Chicago, are dominated by one cable operator. AT&T has more than 90 percent of the subscribers in the Chicago market.
Furthermore, cable rates have jumped more than 32 percent in the past five years, nearly three times the rate of inflation. And the competition for video services that does exist comes primarily from direct broadcast satellite television, which now has about 15 million subscribers nationwide, compared with about 70 million for cable.
Creating competition has proven to be much more difficult than Congress ever envisioned. Mergers and the high cost of competing convinced many to stay out, even in a strong economy. Changing technology–particularly high-speed Internet access–became the growth engine for cable, not video services.
While the dearth of competition is most easily measured in video service, cable operators are interested in raising the caps on their reach in large part because of the access it would give them to expand in the areas of greatest growth–Internet access and telephony.
The court issued its decision Tuesday without comment, but was clear that the result most affects the two largest cable companies, AT&T Broadband (16.1 million cable subscribers) and Time Warner (13 million subscribers).
“The court feels this is really a matter for Congress to address,” said Christopher Cinnamon, a Chicago attorney who specializes in telecommunications law.
A spokesman for Time Warner declined to comment.
After the passage of the 1992 law, the Federal Communications Commission adopted rules that limited cable operators from serving more than 30 percent of the nation’s households. Time Warner argued that this restriction, as well as one limiting the number of channels a cable system can offer in which it owns a financial interest, violated its 1st Amendment rights and claimed Congress did not have the authority to set the limits.
Last May, a federal appeals court panel said the law “did not run afoul” of the 1st Amendment.
The actual limits set by the FCC are being challenged in a separate case, and a ruling is anticipated at any time. In the meantime, AT&T has been lobbying Congress to raise the 30 percent cap.
New FCC Chairman Michael Powell has suggested he is open to the easing of restrictions on broadcast station ownership, including the one limiting the reach of television station owners to 35 percent of the nation’s TV households.
But the commission would be reversing itself if it were to loosen the strictures on cable. Relaxing the cable limits to the benefit of AT&T and Time Warner could contradict the spirit of concessions the government extracted from America Online Inc. and Time Warner when the two companies merged earlier this year and created a powerful cable and Internet giant. Consumer advocates and antitrust experts were concerned that the company’s wide reach in cable would allow it to dominate Internet access and other services.
AT&T Corp., the nation’s biggest cable operator, exceeded the 30 percent cap last year when it acquired MediaOne Group Inc., then the sixth-largest cable operator. AT&T said it would sell its 25.5 percent share of Time Warner Entertainment and spin off the Liberty Media Group in an effort to comply.
