FCC rules that cable operators can buy local phone carriers

The agency relaxes rules against acquisitions contained in the 1996 Telecom Act at the request of cable operators

The U.S. Federal Communications Commission has waived restrictions that prevented cable operators from acquiring local telephone carriers, saying those mergers could lead to stronger competition to large telecom carriers for business customers.

The FCC on Monday approved a request by trade group the National Cable & Telecommunications Association (NCTA) to relax rules in the Telecommunications Act of 1996 that prohibited cable firms from acquiring more than a 10 percent stake in any local exchange carrier within the cable firm's franchise area, with some exceptions.

The '96 Act, as the law is called, attempted to preserve competition between cable providers and telecom carriers, the FCC noted in its ruling. But relaxing the rules for cable firms to acquire some local telecom carriers, called competitive local exchange carriers or CLECs, could create competition for the dominant, incumbent carriers, often called ILECs.

The decision to allow the acquisitions "will likely speed the entry of cable operators into the market for telecommunications services provided to business customers," FCC staff wrote in the ruling. "Alliances between competitive LECs and cable operators can merge these entities' complementary capabilities, resulting in increased facilities-based competition."

The NCTA argued the prohibition does not make competitive sense. The trade group argued that the '96 Act did not prohibit cable operators from acquiring CLECs, but only incumbent telecom providers. The FCC rejected that argument, and denied the NCTA's request for the agency to permanently overturn the rules, but the FCC decided to suspend the rule.

The ruling should lead to more competition, said Robert McDowell, a commissioner at the FCC. "Consumers will benefit from the increased efficiencies springing from strategic combinations between cable companies and competitive local telecom companies," he said in a statement. "This forbearance order promotes good public policy because it should spur competition in the telecommunications marketplace."

The NCTA praised the decision, saying it removed "outdated obstacles that have historically deterred pro-competitive transactions" between cable firms and CLECs. The NCTA's request for the change was prompted by one proposed merger that was rejected by a local cable franchising authority, a spokesman said.

Other groups said they were disappointed in the decision. After the FCC's August approval of a deal allowing Verizon Communications to buy wireless spectrum from a group of cable operators, "it's disappointing to see the commission scaling back these protections, too," said Matt Wood, policy director for Free Press, a digital rights group.

"We need real competition policies to spur the deployment and adoption of affordable broadband services," Wood added in an email. "We hope this so-called streamlining of the agency's review process will not merely transplant the duopolies we already see in the residential broadband market into the business market, which until now has been one of the few places that competitive carriers maintain a foothold and offer an alternative to big phone and cable."

The Independent Telephone and Telecommunications Alliance (ITTA), a trade group representing midsized telecom carriers, also raised concerns about the FCC's action.

The NCTA's request for the relaxed rules "in order to be able to compete more effectively against the 'big bad' ILECs, is a gross mischaracterization of the current communications marketplace," Genny Morelli, president of ITTA, said in an email. "In many markets, large, nationwide, vertically-integrated cable conglomerates have come to dominate the market for the bundled service packages favored by most consumers today."

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantGross. Grant's e-mail address is grant_gross@idg.com.

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