Cable Cuts a Clearer Path to CLEC Buys

The Federal Communications Commission (FCC) on Monday streamlined a set of rules that should make it easier for cable operators to flesh out their business service plans by acquiring Competitive Local Exchange Companies (CLECs).

The Commission didn’t outright kill a rule that made the CLEC-buying process a bear for cable operators, but instead agreed to “forebear” the rule (section 652 of the Communications Act), essentially meaning that the Commission would not enforce it. The rule already allowed CLECs to acquire cable operators in the same local market, but generally did not allow the opposite — at least not without requiring MSOs to go through a bunch of regulatory red tape.

The FCC’s action on Monday harmonizes the rules for both the CLECs and the cable operators. The National Cable & Telecommunications Association (NCTA) originally filed petitions that sought to loosen those rules, a stance that also was supported by the American Cable Association (ACA) , an organization that represents many independent U.S. cable operators.

Among recent examples, Comcast Corp. (Nasdaq: CMCSA, CMCSK) did go through the time-consuming process of obtaining a waiver that eventually allowed it to buy Cimco Communications Inc. , a CLEC that operated near the MSO’s network in the Chicago area. For that deal, closed in 2010, the FCC had to create a special process so the local franchise authority could approve or disapprove Comcast’s pursuit of the waiver. (See Comcast Seals Up Cimco .)

But that deal was a rare exception. The FCC noted in the order that Bright House Networks , another operator that’s been active in the business services market, had entered merger discussions with a CLEC but ultimately pulled out because it was uncertain that it could obtain a waiver, and that the delays involved in the process would negatively affect the purchase price and other “material deal terms.”

The FCC, which will still put any future cable-CLEC M&A activity under its public interest microscope, went along with the NCTA’s argument that streamlining those rules for cable operators will beef up competition between facilities-based service providers that target business customers.

Why this matters
Big and small cable operators have shown interest in buying local and regional CLECs to help them go up-market with business services, but the FCC’s stodgy rules have prevented many from pulling the trigger.

A loosening of the rules could now embolden MSOs to pursue such deals and possibly set off a wave of CLEC M&A activity as cable operators look to enhance or kick-start their business services strategies. (See US Cable Firms to Bank $6B in Biz Services.)