The United States Court of Appeals for the DC Circuit has just thrown out the Federal Communications Commission's (FCC) rule limiting each cable provider to no more than 30 percent of the overall video marketplace. In the words of the justices (PDF), the rule was "arbitrary and capricious," and the FCC's "dereliction in this case is particularly egregious."

This "30 percent" rule goes back to 1992, when Congress passed the Cable Television Consumer Protection and Competition Act. The law directed the FCC to write rules that would "ensure that no cable operator or group of cable operators can unfairly impede... the flow of video programming from the video programmer to the consumer."

In other words, Congress wanted to keep any one cable company from getting so large that it could single-handedly cause a TV channel to fail by refusing to carry it.

So the FCC went to work, and in 1993 decided that cable operators should be capped at controlling no more than 30 percent of all subscribers. The 30 percent limit stayed fixed over the years, even as the FCC changed the underlying formulas it used to make these calculations. It looked like the agency had settled on the number and wasn't going to change it based on anything so pedestrian as the facts.

(Such, at least, is the view of the Court of Appeals, which included a snarky aside incorporating both French and Latin: "Based on the present record, however, the Commission concluded that no cable operator could safely be allowed to serve—mirabile dictu—more than 30% of all subscribers. Plus ca change, plus c'est le meme chose?" Federal judges, if there is any way to stop writing like this, please do it.)

What really galled the cable industry was the growth of satellite, which eventually came to serve about one-third of all pay TV subscribers. More recently, telcos like Verizon and AT&T have also gotten into the pay TV game—but the FCC has never included either when calculating the 30 percent thresholds.

The Court of Appeals actually ordered the FCC to take satellite into account some years ago; the agency never did, leading to the court's charge of "dereliction." Given the changing market realities and failure of the FCC to heed the court, Comcast and the NCTA (cable's trade group in Washington) asked the court to toss the entire rule.

The court did so today, vacating the FCC's 30 percent subscriber limit and leaving the new, Julius Genachowski-led FCC the decision about whether to pursue such ownership caps or let the issue fade away.

Free market groups praised the ruling, calling the court "a backstop of rationality" and warning that the FCC shouldn't let "any 'ideological blinders' concerning mythical 'media concentration' get in the way of the actual marketplace realities."

Groups like Media Access Project, which supported the FCC, were predictably disappointed. "I'm disappointed, but not surprised," said CEO Andrew Schwartzman. "Although Congress directed the FCC to establish limits on cable ownership in 1992, the D.C. Circuit Court of Appeals has been disinclined to approve such regulations. It is hard to imagine that any rule the FCC could devise would ever withstand review under the standards established in today’s decision."