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Cap Could Stop Adelphia Deal

Under 1992 Law, Comcast Would Be Too Big

By Frank Ahrens
Washington Post Staff Writer
Saturday, April 9, 2005; Page E01

The joint bid by Time Warner Cable Inc. and Comcast Corp. to buy bankrupt Adelphia Communications Corp.'s cable system could face hurdles if the government's top regulators take up a long-dormant cable ownership limit.

Time Warner and Comcast presented their stock-and-cash offer -- valued between $17.6 billion and $18 billion, according to sources familiar with the proposed deal -- to a bankruptcy court judge on Wednesday.

Some consumer advocates are uncomfortable about Comcast growing. (Matt Staver -- Bloomberg News)

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After some complex territory-swapping connected to the deal, Adelphia's 5.3 million cable subscribers would be divvied up between the two cable giants, with Time Warner increasing its 11-million-subscriber base by a little more than 3 million new customers and Comcast adding 2 million to its industry-leading 21.5 million subscribers.

The proposed deal would be subject to approval by the Federal Communications Commission and either the Justice Department or the Federal Trade Commission.

The additional new customers could place Comcast in danger of exceeding a national ownership cap, if the FCC reestablishes an earlier limit thrown out by the federal courts. This could give Comcast too much power in deciding which shows make it to cable, consumer advocates say.

Currently, Comcast services about 29 percent of all U.S. homes paying for basic cable, according to industry statistics.

The 1992 Cable Act directed the FCC to set a limit on cable ownership. No single company could own cable systems reaching more than 30 percent of the nation's customers, the FCC decided. But a federal court threw out the 30 percent limit four years ago, saying the FCC had not adequately justified the cap, leaving the industry without an ownership limit.

At the annual cable industry trade show in San Francisco this week, FCC regulators said they would soon move on fixing the rules rejected by the federal courts, including those dealing with cable and media ownership.

Comcast, Time Warner and Adelphia would not comment on the proposed deal yesterday.

"Comcast is right at the limit of what the FCC would have adopted," said Andrew J. Schwartzman, president of the Media Access Project. "This deal would be impermissible under those rules."

If the FCC does not adopt a new ownership limit soon, Schwartzman said his group will sue to prohibit cable mergers until rules are passed.

Then there is the issue of Comcast's clout.

New cable channels fight to get on Comcast's system because its wide distribution allows them to charge advertisers higher rates. In recent years, Comcast has moved toward a model of trading distribution on its network in exchange for an equity stake in new channels, such as with TV One, the cable channel launched by Lanham-based Radio One Inc. and partially owned by Comcast.

The proposed Adelphia deal would only increase Comcast's ability to influence programming, said Gene Kimmelman, senior director of public policy and advocacy at Consumers Union, the nonprofit group that publishes Consumer Reports.

"If Comcast picks up another 2 million subscribers, they will control 44 percent of all cable households, by my calculations," Kimmelman said. "They're in a position to make or break any programmer in the country."

Under the proposed deal, Time Warner would pay Adelphia about $10.5 billion with Comcast kicking in about $2 billion, said the source familiar with the offer. The rest of the value would come from stock.

Time Warner Cable would also buy back the 21 percent of its shares owned by Comcast for $1.5 billion, the source said. The two companies will geographically divide Adelphia's system -- based largely in the East -- each taking Adelphia systems contiguous to Comcast and Time Warner systems, where possible. The proposed deal would help Time Warner's plan to spin off its cable system.

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