As the cable industry faces new competitive challenges on the consumer video front from over the top (OTT) and IPTV players, it`s no surprise cable MSOs are anxious to get a greater piece of the business services market by acquiring other CLECs to reach that endgame.
However compelling their business service desires are, a provision in the Telecommunications Act of 1996 known as Section 652 restricts a cable operator`s ownership in a local exchange carrier (LEC) to 10 percent. Likewise, LECs face the same restrictions when they purchase a cable operator that resides in their own voice service area.
Matt Polka, President, ACA: "The pro-competitive features of cable-CLEC combinations are as important as they are obvious"
And as more major cable operators, including the likes of Cablevision (NYSE: CVC), Comcast (Nasdaq: CMCSA), Charter (Nasdaq: CHTR), Cox and Time Warner Cable (NYSE: TWC) expand their respective business and wholesale offerings, the National Cable & Telecommunications Association (NCTA) petitioned the FCC this summer to rule that the CLECs and cable operators should not be subject to the Telecom Act`s cross-ownership prohibitions.
More recently, the NCTA has asked the FCC in a new petition to "forbear from enforcing Section 652 of the Act to mergers, acquisitions, and other transactions between cable operators" and CLECs.
"The pro-competitive features of cable-CLEC combinations are as important as they are obvious," American Cable Association (ACA) President and CEO Matthew Polka said in a statement. "Giving a CLEC access to a cable network`s facilities can reduce the CLEC`s operational costs, while cable companies can benefit from access to the CLEC`s back-office infrastructure and established relationships with business customers."
Other cable and competitive telecom industry associations, including the ACA, Citizens Against Government Waste, COMPTEL and the Taxpayers Protection Alliance, filed comments with the FCC in support of the NCTA`s proposal.
Of course, now the NCTA and the cable industry will have to wait for the FCC to rule on the matter.
Evidence of cable operators expanding their business reach through M&A came into full swing in 2010 when Comcast completed its acquisitions of both the former Chicago-based CLEC Cimco and later NGT Telecom.
But CLECs are only one part of cable`s M&A business strategy. Cable operators are also seeing value in the cloud services arena as evidenced by Time Warner Cable`s $230 million purchase of Navisite.
