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ACA To FCC: Eliminate Barriers Hindering Pro-Competitive Cable-CLEC Mergers

The American Cable Association urged the Federal Communications Commission to eliminate regulatory impediments to cable operators and competitive local exchange carriers (CLECs) merging, arguing that these combinations serve the public interest because they foster greater facilities-based competition with established incumbent phone companies long dominant in their regions.

"Mergers between cable companies and CLECs promote competition, putting downward pressure on rates, increasing the offering of innovative services,-and enhancing service quality," ACA President and CEO Matthew M. Polka said. "As a result, the FCC should conclude that cable-CLEC combinations fall outside cross-ownership prohibitions found in Section 652 of federal communications law."

ACA addressed the Sec. 652 merger provisions in comments filed Aug. 22 with the FCC in support of two petitions filed by the National Cable & Telecommunications Association asking the FCC to prevent or limit application of Sec 652 to mergers and acquisitions between CLECs and cable operators. Added by the Telecommunications Act of 1996, Sec. 652 is designed to prohibit mergers between cable and incumbent telephone companies in the same local market. The FCC may grant waivers with the approval of local franchising authorities (LFAs) that oversee cable system operations.

"Ideally, the FCC should approve either of NCTA's petitions, which will provide the legal clarity necessary for cable-CLEC mergers to proceed virtually unimpeded.  Should only NCTA's request for expedited treatment be adopted, then at least cable-CLEC mergers will be reviewed in a streamlined fashion that prevents third parties from delaying approval based on concerns unrelated to the specific transaction," Polka said.

In its comments, ACA explained that Sec. 652's purpose was to ban local mergers between established cable and phone providers, not to ban or restrict mergers between cable operators and newly formed local telecommunications carriers, which entered the market to take advantage of market-entry provisions in the 1996 Telecom Act. ACA noted that cable-CLEC mergers will produce none of the anti-competitive harms addressed by Sec. 652 because cable operators typically service residential customers while CLECs offer telecommunications to the enterprise or business market.  Further, any competitive concerns can be addressed in regular reviews by the FCC and antitrust agencies.

"The pro-competitive features of cable-CLEC combinations are as important as they are obvious," Polka said. "Giving a CLEC access to a cable network's facilities can reduce the CLEC's operational costs, while cable companies can benefit from access to the CLEC's back-office infrastructure and established relationships with business customers.  Consumers and business customers are the ultimate beneficiaries in terms of improved network reliability, innovative new services, lower prices, and increased options."

ACA stressed that the approval process at the local level triggered when cable-CLEC combinations go before the FCC for Sec. 652 waiver treatment has created uncertainty in the market. Without an FCC ruling that cable-CLEC combinations are lawful in all forms, ACA said that lack of regulatory clarity will have a chilling effect on a dynamic marketplace. ACA cited the Comcast-CIMCO and NTELOS-Fibernet acquisitions as examples where FCC regulatory clarity would have provided all parties, including LFAs, with certainty about the scope of their roles in these merger reviews.

"At the very least, the FCC should limit the grounds of an LFA's objection to a cable company-CLEC merger to transaction-specific reasons.  Any exercise of an LFA's veto power over a transaction should be based on the rationale underlying Section 652 -- namely, to preserve facilities-based competition between the incumbent cable and telephone companies in a community," Polka said.

 

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