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Federal Communications Commission
445 12th Street, S.W.
Washington, D.C. 20554
News media information 202 / 418-0500
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Internet: http://www.fcc.gov
TTY: 202/418-2555


This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

FOR IMMEDIATE RELEASE
October 8, 1999

NEWS MEDIA CONTACT:
Michelle Russo (202) 418-2358

FCC REVISES CABLE HORIZONTAL OWNERSHIP AND ATTRIBUTION RULES
New Guidelines Reflect Converging Marketplace and Increasing Competition in Video Programming


Washington, D.C. In two separate Report and Orders, the Federal Communications Commission (FCC) today revised its rules on the number of cable subscribers an entity may reach and on the method for identifying attributable cable ownership interests. The new cable horizontal ownership rule maintains a 30 percent limit, but calculates total horizontal ownership by counting nationwide subscribers of cable, direct broadcast satellite (DBS) and other multi-channel video programming distributors (MVPDs), not just cable homes passed. The FCC's revised cable attribution rules track most of the revisions made to the broadcast attribution rules, define the term "affiliate" and eliminate the single majority shareholder exemption. The FCC also modified language related to the definition of an insulated limited partner and changed the waiver standard for directors and officers as they apply to ownership attribution under the cable horizontal ownership limit and channel occupancy rules.

The revised rules will best serve consumers because they reflect changes in the converging marketplace while promoting competition in all markets: local telephone, cable and high-speed Internet. The FCC said two significant changes have occurred since the horizontal ownership rules were originally adopted in 1992: DBS has emerged as a significant competitor to cable, and cable companies have begun providing telephony and high-speed Internet service.

The new rules reflect the Commission's desire to permit large cable companies to realize the efficiencies of common ownership where consistent with the FCC's ongoing concern for diversity and competition in video programming. The Commission said the changes adopted today meet the challenge of limiting large cable companies' control over the video market, while giving these companies the flexibility to expand into new markets like local telephone and broadband services.

Today's actions are taken pursuant to the Commission's statutory obligation to "prescribe rules and regulations establishing reasonable limits on the number of cable subscribers a person is authorized to reach through cable systems owned by such a person, or in which such a person has an attributable interest" as set forth by Section 613 of the Communications Act.

Under this Third Report and Order adopting new horizontal ownership rules, cable operators will be permitted to have a 30 percent share of nationwide cable, DBS and other MVPD subscribers. This ownership limit is effectively equal to 36.7 percent of current cable subscribers. The FCC said it was more relevant to include the competitors to cable that have emerged as a result of deregulation and market-based solutions in the industry. Other than increased competition, which the MVPD change takes into account, the Commission found no changes in the marketplace that merited amending the 30 percent limit and also found that MSOs (multiple system operators) continue to have significant market power.

The FCC said the attribution rules seek to identify those corporate, financial, partnership, ownership and other business relationships that confer on their holders a degree of ownership or other economic interest, or influence or control over an entity engaged in the provision of communications services such that the holders should be subject to the Commission's regulation.

The Report and Order adopted today for the cable attribution rules:

  • closely tracks the changes in the broadcast attribution rules that the Commission adopted during the Broadcast Attribution Proceeding in August 1999, with some exceptions;
  • defines the term "affiliate" as applied to the effective competition test and the cable-telco buyout prohibition; and
  • eliminates the single majority shareholder exemption.
For the purpose of the horizontal and channel occupancy limits rules adopted under Section 613 and directed at protecting diversity of programming, the Report and Order also:
  • modifies the provision that defined a "limited partnership" as attributable if the partner is involved in "media activities" and now requires attribution only if the "limited partner" is involved specifically in "video programming" activities;
  • modifies the directors and officers attribution rule to allow a waiver if they are not involved in the video programming activities of either company involved.
The equity/debt rule will operate as an exception to the nonvoting stock and insulated limited partner exemptions. This new rule will capture interests that confer on their holder a significant amount of influence over an entity that heretofore was not captured.

The FCC said that in order to meet its obligation to ensure diversity in video programming, changes were necessary in the definition of the "insulated limited partner exemption." The more precise definition will assist companies in complying with the rules and limits while permitting activities that do not harm programming diversity.

The FCC said it would continue its voluntary stay on the horizontal ownership rules pending the judicial resolution from the District of Columbia Circuit Court (Daniels v. U.S., Time Warner v. FCC), which is scheduled to hear oral arguments in December 1999 on the constitutionality of the statute and rules. The Commission stated that all parties must comply with the rules within 180 days if the District of Columbia Circuit Court issues a mandate upholding Section 613(f)(1)(A) and the rules.

Actions by the Commission October 8, 1999, by Report and Order (FCC 99-288) and by Third Report and Order (FCC 99-289). Chairman Kennard, Commissioners Ness and Powell, with Commissioner Furchtgott-Roth concurring in part, dissenting in part and issuing a statement and Commissioner Tristani approving in part, dissenting in part and issuing statements.

Report No. CS 99-13
MM Docket No. 92-264 (Cable Horizontal Ownership Rule)
CS Docket No. 98-82 (Cable Attribution Rules)
-FCC-
Cable Services Bureau Contacts: William Johnson, To-Quyen Truong at (202) 418-7200


CABLE HORIZONTAL OWNERSHIP RULES SUMMARY:

Cable operators will be permitted to have a 30 percent share of cable, DBS and other multi- channel video programming distributors (MVPDs) subscribers, which is effectively equal to 36.7 percent of current cable subscribers.

Total Horizontal Ownership = Company's MVPD subscribers (cable, DBS, etc.)
Nationwide MVPD subscribers (cable, DBS, etc.)

Additional Information:

Section 613 and the FCC's Cable Television and Horizontal Rules

  1. 1992 Cable Act required the FCC to set a horizontal ownership limit for cable.
  2. Daniels Cablevision challenged the constitutionality of the statute in District Court.
  3. District Court agreed that the statute was unconstitutional.
  4. FCC appealed to the District of Columbia Circuit Court.
  5. FCC adopted 30% as the ownership limit, but stayed enforcement of the rule because of the District Court's ruling.
  6. Time Warner challenged the 30% rule as unconstitutional in the D.C. Circuit Court.
  7. D.C. Circuit Court consolidated the challenge to the statute (Daniels) and the challenge to the rules (Time Warner).
  8. The D.C. Circuit Court is scheduled to hear oral arguments in December 1999. Briefs have been filed on both sides.
  9. Time Warner has moved to delay the Court hearing arguments until the FCC issues its new rules.


CABLE ATTRIBUTION RULES SUMMARY:
Note: There are two sets of rules for attribution standards: "general" cable attribution rules (based on the broadcast attribution standard) and those relating to "program access."

Revisions tracked from the Broadcast Attribution Proceeding (August 1999):

New "Equity/Debt" Rule: Adoption of definitions for the term "affiliate": Modification of "limited partner insulation exemption": Directors and Officers Attribution Rule:


CHANGES TO THE CABLE ATTRIBUTION RULES - SUMMARY CHART

 

Old "general" cable rules

New "general" cable rules1

Old "program access" type rules

New "program access" type rules2

Voting Equity

5% or more is attributable

5% or more is attributable

5% or more is attributable

5% or more is attributable

Non-voting Equity

Not attributable, regardless of amount

Not attributable, regardless of amount

5% or more is attributable

5% or more is attributable

Equity (nonvoting and voting) plus debt ("ED")

Rule did not exist

Attributable if own over 33% of total assets of a company

Rule did not exist

Attributable if own over 33% of total assets of a company

Single Majority Shareholder Exception

This exception is allowed where qualified

This exception is eliminated

This exception does NOT apply

This exception is eliminated

Passive (Institutional) Investor

10% or more voting equity is attributable

20% or more voting equity is attributable

10% or more voting equity is attributable

20% or more voting equity is attributable

Officers and Directors

Attributable

Attributable

(see amendment)

Attributable

Attributable

(see amendment)

Trustees

Attributable

Attributable

Attributable

Attributable

De Facto Control

Attributable

Attributable

Attributable

Attributable

Limited Partner Insulation Exemption

This exception is allowed where qualified

This exception is allowed where qualified (see amendments), unless ED

This exception does NOT apply

This exception does NOT apply



1 These rules apply to the following cable rules: horizontal ownership limits, 47 C.F.R. 76.503; and channel occupancy limits, 47 C.F.R. 76.504; cable/SMATV cross-ownership, 47 C.F.R. 76.501(d); cable-telco buyout prohibition 47 C.F.R. 76.505; and the effective competition test 47 C.F.R. 76.905.

2 These rules apply to the following cable rules: commercial leased access, 47 C.F.R. 76.970; program access, 47 C.F.R. 76.1000; carriage discrimination, 47 C.F.R. 76.1300; open video systems, 47 C.F.R. 76.1500; asset transfers between a cable operator and affiliate, 47 C.F.R. 76.924(i); and rate pass-throughs for programming services between a cable operator and an affiliated programmer, 47 C.F.R. 76.922(f)(6).