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

Brian Washburn
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.

Now those cross-ownership prohibitions have been lifted, thanks to a request that was filed back in June 2011 by the National Cable & Telecommunications Association (NCTA), joined by the American Cable Association (ACA). The request to lift cable-CLEC restrictions clearly didn’t come out of the blue: some cable providers must have had some ideas in mind to prompt their associations to move. The FCC ruling could be a catalyst for widespread rumors and speculation on cable-CLEC dream team combinations.

There’s no telling what cable-CLEC pair might move first, now that the way has been cleared. But cable providers could get some big benefits even from snapping up small CLECs. The obvious goal is to fill the holes of cable’s patchwork of franchise coverage. By adding a CLEC, a cable operator could mix on-net fiber and coax broadband with off-net telco-based options, to blanket their territories with comprehensive business services coverage. But importing CLECs’ culture could be just as vitalizing. CLECs for the past 15 years have had to market themselves as offering cheaper, better service, with responsive customer service. They have built strategies that let them succeed (or at least survive) competing directly against much bigger incumbent operators that offer similar product sets. The right CLEC match, integrated properly, could add sales, customer service and support, marketing, management and operations expertise, building onto the in-house business services efforts by the cable operator.

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