Cable Operators Get the Go-Ahead to Buy Local Exchange Competitors

Brian Washburn

Summary Bullets:

• FCC forbearance paves the way for cable providers to acquire CLECs operating in the same footprint. For business services, cable providers could blanket entire markets instead of dealing with patchworks of franchise territories.
• The survival tactics honed by CLECs in the last 15 years of competition could be a big marketing, sales and customer service/support shot in the arm for cable operators’ business services practices.

As of September 2012, the FCC will no longer prevent cable companies and competitive local exchange carriers (CLECs) from owning each other. That prohibition goes back to the Telecommunications Act of 1996: cable operators and local exchange carriers serving the same footprint could not own more than 10% interest in each other, or have any management control over the other. Fifteen years ago, the idea made sense. Cable and Bell companies had started to square off in competition that benefited consumers; the prohibition kept competitors in the same footprint from merging to become utterly dominant. In this case, the law of unintended consequences prevented cable providers from getting into the telco business by buying CLECs, or telcos from getting into the video business by buying a cable overbuilder. Comcast managed acquisitions of providers Cimco and New Global Telecom, but had to go through detailed regulatory reviews.