DC Circ. Strikes Down Cable Market-Share Cap

By Jessica Dye

Law360, New York (August 28, 2009) -- The U.S. Court of Appeals for the District of Columbia Circuit on Friday scrapped the Federal Communications Commission's subscriber-share limit for cable providers, handing cable challengers led by Comcast Corp. a hard-fought victory in a 16-year effort to scrap the ownership cap.

Judge Douglas Ginsberg, joined in the majority opinion by Judge Brett M. Kavanaugh, wrote that the FCC had clearly failed to take into account growing competition for video programming from satellite and fiber optics providers when limiting cable providers to the 30 percent subscriber-share limit, despite the D.C. Circuit's clear instructions to do so in a 2001 order remanding the rule for revision.

“The 30 percent subscriber cap has limited the ability of cable operators to communicate with the public for some 16 years, despite our determination eight years ago that a prior version of the rule was unconstitutional,” Judge Ginsberg wrote. “To leave the rule in place while the commission tries yet again to justify it would be to ignore this crucial fact about the nature of the video industry.”

The court seemed struck by déjà vu in Comcast Corp.'s challenge to the limit, which echoed two other objections lodged since the rule was instated.

Congress passed the Cable Television Consumer Protection and Competition Act in 1992, requiring the FCC to set horizontal ownership limits to protect video market competition.

Cable companies immediately challenged an FCC rule made under the new authority — setting a cable company's single-market share to 30 percent of subscribers — calling it an unconstitutional content-based restriction of speech. The D.C. Circuit upheld the rule in its 1993 decision in Daniels Cablevision Inc. v. United States.

In 2001, Time Warner Entertainment Co. again challenged the limit, contending new competition from satellite television providers made the rule unnecessary. The D.C. Circuit agreed, remanding the rule for reconsideration by the FCC in light of the changing market.

In 2007, FCC commissioners voted 3-2 to keep the cap at 30 percent. Shortly afterward, Comcast filed its objection.

The FCC relied on data between 1984 and 2001 in calculating its minimum viable scale determination— assessing how many cable operators need to carry a particular channel to give it a chance at survival — and left out mention of direct satellite companies' market share, which had grown from 18 percent to 33 percent in the six-year gap, as well as the rise of fiber optics providers, Comcast said.

The court agreed. “The commission's dereliction in this case is particularly egregious,” the ruling stated. “The commission failed to heed our direction, and we are again faced with the same objections to the rationale for the cap.”

The ruling vacates the limit, saying cable companies remain subject to applicable antitrust laws, which should keep them in check.

In a concurring opinion, Judge Arthur Raymond Randolph suggested vacateur was the appropriate court response to any unlawful statute.

Comcast Executive Director of Corporate Communications Sena Fitzmaurice said the company was pleased its position had been vindicated, and that the ruling had recognized the “changing realities of the dynamic video marketplace.”

FCC Chairman Julius Genachowski said his staff would review the court's decision and would take it fully into account in future actions.

FCC Commissioner Robert M. McDowell said that the ruling justified his 2007 vote against the limit.

“Despite the commission staff's best efforts to provide post hoc empirical support for the chosen outcome, the court recognized that the 2007 analysis' aging data and questionable assumptions sat oddly against the facts about new — and successful — competitors to cable systems in the multichannel video marketplace,” he said in a statement.

“It should go without saying that, in the future, outcomes in our proceedings should be driven by the facts and law, rather than the other way around,” McDowell added.

Comcast was represented in this case by Gibson Dunn & Crutcher LLP.

The case is Comcast Corp. v. FCC, case number 08-1114, in the U.S. Court of Appeals for the District of Columbia Circuit.