Cable Operator Purchase of CLECs Wouldn’t Need FCC Waivers Under Draft Order

Cable operators would be able to buy CLECs in the same geographic area without getting both FCC permission and approval of the deals by sometimes multiple local franchise authorities, under a draft commission order, agency and industry officials said. They said the order would forbear from subjecting cable/CLEC combinations to the waiver process under Section 652(b) of the 1996 Telecom Act. The draft grants NCTA’s petition for forbearance, and if not approved by the middle of next month forbearance would automatically take effect because it would be considered to have been deemed granted (CD June 1 p19), commission and industry officials said.

Such a scenario is unlikely with the draft Wireline Bureau order because it appears straightforward as a matter of law and may not prove to be controversial among FCC members, agency and industry officials predicted. They said the order may instead be approved by commissioners, though it’s unclear how they each will vote. By contrast, AT&T and Windstream pricing flexibility petitions to escape special access rules were deemed granted this summer because not all commissioners voted on it by a June 25 deadline (CD June 26 p4). A bureau spokesman declined to comment.

Action on the NCTA forbearance petition is due Sept. 19, according to a bureau order extending by 90 days the one year it initially had to act before NCTA’s June 21, 2011, forbearance petition was automatically granted (http://xrl.us/bm9xv9). The draft order that circulated last Thursday (http://xrl.us/bmxdnu) denies NCTA’s petition for declaratory ruling that was filed simultaneously with the forbearance petition, since that latter request was granted, agency and industry officials said. An association spokesman declined to comment.

Cable operators still would need to seek and get FCC permission to buy CLECs in the same local franchise area, under Section 214 of the Telecom Act, if the draft forbearance order is approved, FCC and industry officials said. That means LFAs still could comment on the deals during a comment period, which agency and industry officials said would begin as it does now after a public notice set a pleading cycle. Unlike with waivers under the commission’s current interpretation of Section 625(b), after FCC forbearance is granted, LFAs would not be able to block a cable/CLEC deal in an area by not approving it, industry officials said. NCTA’s petition was opposed by NATOA and NASUCA, in replies in docket 11-118 (http://xrl.us/bnms8c). The heads of those two municipal groups had no comment Wednesday.

Cable operators and CLECs contended in interviews Wednesday and in filings in the docket the LFA approval process delays deals, and makes them harder to achieve. Having to get LFA okay is a “cloud” that “adds one more degree of complexity to these deals,” a cable lawyer said. Such complexity concerned CLEC Cimco and its buyer, Comcast, as those companies in 2009 awaited an FCC waiver for that deal, said CompTel CEO Jerry James. He cited conversations with the CLEC’s CEO and that CEO’s relaying Comcast’s concerns. A Comcast spokeswoman declined to comment.

Comcast/Cimco was one of the few cable acquisitions of CLECs to seek and get cross-ownership waivers, with Time Warner Cable’s purchase of Insight Communications for about $3 billion also getting one (CD Dec 19 p4) this year. Cimco was concerned that LFA approval was taking a while when it was being bought by Comcast, James recalled. And “the buyer was concerned about is this going to go on for a long, extended time, can we do that,” he said. “Once companies start down the road of an acquisition, they generally want to get it completed as soon as possible.” So “anything that acts as a roadblock to that becomes a factor” in weighing whether to do a deal, James said. “Our members were concerned about this being a delay.” Getting “clarity will help people know what they have to go through, what the process will be,” James said of any forthcoming order, a draft of which he said he hasn’t seen. “We'll be appreciative if the FCC moves forward,” he said. “That’s good for the industry."

Lobbying to end the FCC cable/CLEC cross-ownership ban occurred this summer by CompTel, NCTA and Bright House Networks, while NATOA opposed it, disclosures show. NCTA asked the agency to “act quickly to grant the requested relief,” in association executives’ meeting with an aide to Commissioner Ajit Pai, an ex parte filing said (http://xrl.us/bnmtan). Bright House CEO Steve Miron said in meetings with Commissioners Mignon Clyburn and Pai and with an aide to Commissioner Jessica Rosenworcel that ending the waiver process “will allow cable operators to acquire in-market CLECs without the uncertainty and delay possible with the existing waiver process.” “BHN’s ability to expand in the enterprise space, with the potential acquisition of CLECs, will provide a more competitive market for communications services to small and medium businesses,” a filing said (http://xrl.us/bnmtap).

Congress didn’t intend to allow cable/CLEC combinations in the same area, NATOA’s head told Chief Julie Veach and others in the bureau earlier this summer, a filing said (http://xrl.us/bnmtav). “Had Congress intended to exclude competitive LECs from the statute’s prohibition, it would not have used the word ‘any’ or could have provided an express exemption for CLECs. Since the language of the statute is unambiguous, there is simply no reason to look at legislative history to ‘interpret’ or ‘clarify’ the clear meaning of the statute.” The bureau shouldn’t “consider negating the rights of local franchising authorities in these types of transactions” through forbearance from requiring LFA approval, NATOA said. “Nothing to date appears to support NCTA’s position that the waiver and LFA approval process is even necessary in that there appears to be only one documented case in which a cable company has even sought a waiver from Section 652. Furthermore, the complaint that cable companies may need to get the approval of hundreds of LFAs for a single transaction ignores the fact that many states have statewide franchising schemes with a single, state-level franchising authority.”