Cable Operators Don’t Need Waivers to Purchase CLECs, FCC Order Says

The commission agreed with NCTA’s core argument that transactions between CLECs and cable operators “generally are pro-competitive.” Alliances between cable and CLECs “can merge these entities’ complementary capabilities, resulting in increased facilities-based competition,” the order said. And mergers among non-dominant providers in a specific market are unlikely to raise competitive concerns, the order said. The order reflects the commission’s commitment to streamline processes and promote competition, Chairman Julius Genachowski said.

Section 652(b) is unnecessary to protect consumers, the order said. “Acquisitions of competitive LECs by cable operators often will strengthen facilities-based competition for telecommunications services, which will in turn provide customers with better service and functionality and lower prices.” By forbearing, the commission can reduce regulatory uncertainty that NCTA contended created a “chilling effect” on pro-competitive deals, the order said. Any cable acquisition of a CLEC remains subject to a “public interest” review under Section 214, the order said. “The Commission welcomes LFA participation in these proceedings and values the insights LFAs might have on how a transaction may affect consumers."

The order “promotes good public policy because it should spur competition in the telecommunications marketplace,” said Commissioner Robert McDowell. He called for the commission to be “even more energetic in finding additional regulatory underbrush to clear out of the way of competitive markets,” and undertake more forbearance on its own accord rather than waiting for outside parties to file petitions. Commissioner Ajit Pai called it a “modest but important step towards eliminating regulatory barriers to infrastructure investment.” Genachowski said that by “bringing the review of cable-CLEC transactions in line with that of other similar transactions, while maintaining our own review and an important role for local authorities, we ensure that transactions that promote competition and expand broadband service deliver benefits to consumers more quickly."

The commission found strong evidence that forbearance was consistent with congressional intent in enacting Section 652. Congress’s main concern was “preventing an incumbent LEC from acquiring a cable operator and thereby eliminating its only competitor with last-mile facilities,” the commission wrote. It said mergers between cable operators and CLECs do not present the same risks as those between cable operators and ILECs, which “would have short-circuited competition.” The main concerns that motivated Congress to adopt Section 652 don’t apply to CLECs, the commission said. “In contrast to an incumbent LEC’s acquisition of a cable operator, a cable operator’s acquisition of a competitive LEC likely will not lead to one entity controlling all of the last-mile facilities, or reduce incentives to upgrade existing transmission facilities to enable carriage of new services."

Cable associations praised the order. “We commend the Commission for removing outdated obstacles that have historically deterred pro-competitive transactions between cable operators and competitive local phone companies,” said NCTA President Michael Powell. “The cable industry provides millions of American businesses and consumers with competitive digital voice services and today’s decision will help ensure that more Americans can benefit from the savings and convenience that cable offers.” American Cable Association President Matthew Polka said the forbearance will enable transactions that “have the potential to bring substantial benefits to consumers and further the public interest, including in smaller markets served by smaller providers."

Not everyone was happy. National Association of Telecommunications Officers and Advisors Executive Director Steve Traylor said he was “disappointed,” and that he didn’t really see a need for it. There was only one documented case in which a cable company had even sought a waiver from Section 652, he told us. Traylor would like to see the FCC follow up on some of the orders it’s issued that affect LFAs, such as a cable franchising order from about five years ago and recent tower siting orders, he said. “We're all for competition. But like I say, are these orders really having the effect that they're supposed to have?” But Traylor said he liked several things about the order: That the commission emphasized LFAs will still have a role to play in the Section 214 review process, and that it only involves the CLECs and not ILECs.

"Everyone wins when there is more competition in the market,” said former Rep. Chip Pickering, spokesman for the Broadband Coalition. The decision will make broadband providers better able compete with ILEC services, he said. Free State Foundation President Randolph May commended the commission for taking action that would allow cable operators to more easily acquire CLECs. “This is an example of a deregulatory action that makes sense,” he told us. “I've said for many years that the FCC has not used its forbearance authority nearly as robustly as it should. But, today, I'm happy just to give Chairman Genachowski credit for taking this step.”