Comcast wins appeal of 30% market rule

In a big victory today for Comcast Corp., a federal appeals court in Washington overturned a controversial regulation that capped the cable giant's business at 30 percent of the pay-TV market.

Wall Street analyst Craig Moffett called the decision a "moral" victory for Comcast, which contended that the market-cap rule was politically motivated by the Federal Communications Commission and wouldn't overcome a court challenge. The rule was passed under former FCC Chairman Kevin Martin.

The court decision could green-light acquisitions at the Philadelphia company, which has been steadily losing cable-TV customers. The Philadelphia company now controls about 25 percent of the pay-TV market with about 24 million cable-TV subscribers.

One potential acquisition target, analysts say, is Time Warner Cable, which was recently spun out of the media conglomerate Time Warner. Time Warner Cable has about 13 percent of the pay-TV market, so a Comcast-Time Warner deal would have violated the now-defunct cap.

On a day that the market closed modestly lower, Comcast shares rose 16 cents to close at $15.71, and Time Warner Cable rose 43 cents to close at $37.36.

Other targets, Moffett said in a report, could be Cablevision or Charter Communications, although he doesn't think a quick acquisition is likely.

Comcast was privately jubilant about the court action but muted in its public response to the 21-page decision. Said spokeswoman Sena Fitzmaurice: "We are pleased the court has vindicated our position. This important decision affirms that rules must reflect the changing realities of the dynamic video marketplace where today consumers have more choice in video providers and channels than ever before."

Comcast foes in this dispute said they were disappointed in the court decision. They say that Comcast's "bottleneck power" in the pay-TV business leads to high cable bills and fewer entertainment choices and that the company has to be restrained.

"This is not the end of the fight," Andrew Jay Schwartzmann, president and chief executive officer of the Media Access Project, a nonprofit policy advocacy group, said in a statement. "Big cable's anti-competitive ownership structure has increased prices and limited choices for the American public. Therefore, we will consult with the FCC on whether Supreme Court review is feasible. If not, we'll be asking Congress to pass new legislation to ensure more choice and lower prices for cable TV service."

This marks the second time that the courts have struck down the 30 percent limit. The last time was in 2001. Comcast had said it didn't think that the rule would survive a second court challenge.

Martin, the former FCC chairman, seemed unconvinced and ushered the market-cap regulation through the Washington bureaucracy over objections of fellow Republican legislators and FCC commissioners.

FCC Commissioner Robert McDowell, a Republican who voted against the market-cap rule, was critical today of the agency for apparently ignoring the fact that there were new competitors in the pay-TV business.

Current FCC Chairman Julius Genachowski said that Congress required the FCC to set a market cap for cable companies as part of the 1992 Cable Act. The FCC will consider the court's decision on the 30 percent level when developing a new cap in the future, he said.