Time Warner Cable 2012 Annual Report Download - page 23

against the programming vendor on the basis of its non-affiliation in the selection, terms or conditions for carriage. In August
2011, the FCC issued an order, which, among other things, established rules regarding what a complaint must demonstrate to
establish a prima facie case of a program carriage violation and established procedures for consideration by the FCC’s Media
Bureau of a complainant’s request for a temporary standstill of the price, terms and other conditions of an existing
programming contract pending the FCC’s resolution of a complaint proceeding. TWC and the National Cable and
Telecommunications Association (“NCTA”) appealed the FCC’s order to the U.S. Court of Appeals for the Second Circuit,
which remains pending. The August 2011 order also contained a notice of proposed rulemaking that sought comment on
several procedural and substantive program carriage issues. The rulemaking proceeding remains pending before the FCC.
Tax. Under the Telecommunications Act of 1996, DBS providers benefit from federal preemption of locally imposed or
administered taxes and fees on video services, including those borne by the Company and its customers. Several states have
enacted or are considering parity tax measures to equalize the tax and fee burden imposed on DBS and cable video services.
DBS providers have been challenging such parity efforts in the courts, Congress and, increasingly, state legislatures in an
effort to maintain their competitive pricing advantage and preclude states from implementing such parity tax measures. Thus
far, the states have prevailed in the federal and state courts with respect to legal challenges to such tax parity statutes.
However, there can be no assurance as to the outcome with respect to cases still pending and ongoing legislative efforts.
Franchising. Cable operators generally operate their systems under non-exclusive franchises. Franchises are awarded,
and cable operators are regulated, by state franchising authorities, local franchising authorities, or both.
Franchise agreements typically require payment of franchise fees and contain regulatory provisions addressing, among
other things, upgrades, service quality, cable service to schools and other public institutions, insurance and indemnity bonds.
The terms and conditions of cable franchises vary from jurisdiction to jurisdiction. The Communications Act provides
protections against many unreasonable terms. In particular, the Communications Act imposes a ceiling on franchise fees of
five percent of revenue derived from cable service. TWC generally passes the franchise fee on to its subscribers, listing it as a
separate item on the bill.
Franchise agreements usually have a term of ten to 15 years from the date of grant, although some renewals may be for
shorter terms. Franchise agreements usually are terminable only if the cable operator fails to comply with material
provisions. TWC has not had a franchise terminated due to breach. After a franchise agreement expires, a local franchising
authority may seek to impose new and more onerous requirements, including requirements to upgrade facilities, to increase
channel capacity and to provide various new services. Federal law, however, provides significant substantive and procedural
protections for cable operators seeking renewal of their franchises. In addition, although TWC occasionally reaches the
expiration date of a franchise agreement without having a written renewal or extension, TWC generally has the right to
continue to operate, either by agreement with the local franchising authority or by law, while continuing to negotiate a
renewal. In the past, substantially all of the material franchises relating to TWC’s systems have been renewed by the relevant
local franchising authority, though sometimes only after significant time and effort.
In June 2008, the U.S. Court of Appeals for the Sixth Circuit upheld regulations adopted by the FCC in December 2006
intended to limit the ability of local franchising authorities to delay or refuse the grant of competitive franchises (by, for
example, imposing deadlines on franchise negotiations). The FCC has applied most of these rules to incumbent cable
operators which, although immediately effective, in some cases may not alter existing franchises prior to renewal.
At the state level, several states have enacted statutes intended to streamline entry by additional video competitors, some
of which provide more favorable treatment to new entrants than to existing providers. Similar bills are pending or may be
enacted in additional states. Despite TWC’s efforts and the protections of federal law, it is possible that some of TWC’s
franchises may not be renewed, and TWC may be required to make significant additional investments in its cable systems in
response to requirements imposed in the course of the franchise renewal process.
High-speed Internet Access Services
TWC provides high-speed Internet access services over its existing cable facilities. In 2002, the FCC determined that
cable-provided high-speed Internet access service is an interstate “information service” rather than a “cable service” or a
“telecommunications service,” as those terms are defined in the Communications Act. That determination was sustained by
the U.S. Supreme Court. The “information service” classification means that the service is not subject to regulation as either
a cable service or a telecommunications service under federal, state or local law, and any FCC regulation must be done
pursuant to Title I of the Communications Act. Nonetheless, TWC’s high-speed Internet access service is subject to a number
of regulatory requirements, including the Communications Assistance for Law Enforcement Act (“CALEA”), which requires
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