FCC Could Pave Way for CLEC-Cable Mergers

The Federal Communications Commission is expected to make it easier for cable companies and competitive local exchange carriers to merge.

Christopher C. King, an analyst with the regional brokerage and investment banking firm Stifel Nicolaus, expects the agency to grant the companies relief from a section of a law that prohibits non-rural cable operators and local exchange carriers from purchasing more than 10 percent ownership interests in each other within their regions.

That decision could give cable companies a greater incentive to try to acquire or merge with business-oriented CLECs like tw telecom inc.  

Last summer, the National Telecommunications & Cable Association asked the FCC to find that cross-ownership prohibitions contained in the Telecommunications Act of 1996 do not apply to cable operators and CLECs. NCTA, which is led by former FCC Chairman Michael Powell, also filed a separate petition that asked the agency to “forbear from enforcing Section 652 of the Act to mergers, acquisitions, and other transactions between cable operators and” CLECs.

The FCC must act by Sept. 19, according to King in a research note Friday.

King believes the FCC would approve NTCA’s request for forbearance from Section 652, although he pointed out the FCC would still review cable/CLEC deals to determine whether they are in the public interest. Such agreements would possibly be subject to state regulatory reviews as well, he said.

“We can’t rule out that some critic would challenge the FCC’s decision in court,” the analyst wrote, “but our sense is the prospects would be uphill, leaving cable and the CLECs with a less-stringent review process.”

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