Washington Post 2012 Annual Report Download - page 28

“Over-the-Top” Video Programming. The continued proliferation of broadband services in the U.S., and related
increases in broadband capacities and speeds, have enabled cable programmers and broadcast television stations to
“stream” their video content to consumers over the Internet. Although the Company has benefited generally from the
growth in broadband due to its role as a provider of broadband services, the continued and growing availability of
cable programming and broadcast television content on the Internet may result in less demand for the Company’s cable
service offering. Some providers of cable service are marketing their own version of “over-the-top” video programming,
thus enabling their subscribers to access cable programming outside of their home or business. The Company cannot
predict how widespread these practices may become or the extent to which the integrated functionality and ease of use
of the cable television platform will continue to appeal to the majority of its subscribers. Cable ONE will be purchasing
set-top devices that will allow its customers to access Internet content on their televisions.
Wireless Services. At various times over the past decade, the FCC has taken steps to facilitate the use of certain
frequencies, notably the 2.5 GHz and 3.1 GHz bands, to deliver over-the-air multichannel video programming services
to subscribers in competition with cable television systems. However, those services generally were not deployed
commercially in any significant way. Beginning in 2004, the FCC adopted rule changes that allowed the 2.5 GHz band
to be used for nonvideo services and permitted transmitters to be deployed in cellular patterns. As a result of these rule
changes, the 2.5 GHz and other frequency bands, including the 1.7 GHz and 2.1 GHz bands in which the FCC
auctioned spectrum in 2006, are now being adopted for the delivery of two-way broadband digital data and high-speed
Internet access services capable of covering large areas.
In December 2006, Cable ONE purchased in the FCC’s Advanced Wireless Service auction approximately 20 MHz of
spectrum in the 1.7 GHz and 2.1 GHz frequency bands in areas that cover more than 85% of the homes passed by
Cable ONE’s systems. This spectrum can be used to provide a variety of advanced wireless services, including fixed and
mobile high-speed Internet access using WiMAX and other digital transmission systems. Licenses for this spectrum have an
initial 15-year term and 10-year renewal terms. Licensees will be required to show that they have provided substantial
service by the end of the initial license term to be eligible to renew, but there are no interim construction or service
requirements. Cable ONE is evaluating how best to utilize its spectrum.
In 2008, the FCC auctioned additional spectrum in the 700 MHz band, which historically has been used for television
broadcasting, and it is expected that this additional spectrum will be used to deliver broadband, video and other services
to mobile devices. Although it is not yet clear what effect, if any, the increased availability of mobile video services will
have on the cable television industry, these developments likely will increase the number of competitive alternatives to
Cable ONE’s services.
The FCC is in the process of establishing rules to auction additional spectrum. In February 2012, Congress authorized the
reallocation of spectrum currently in the television broadcast band for use by wireless broadband providers. In October
2012, the FCC initiated a rulemaking proceeding regarding implementation of this legislation, which includes both the
auction of spectrum and a “repacking,” whereby the FCC would require certain broadcast stations to move to new
channel allotments so as to free up a nationwide block of spectrum for wireless broadband use. The repacking and
incentive auction process could have an adverse effect on cable systems. The repacking may impose costs on cable
systems, certain of which are subject to reimbursement from auction proceedings. The availability of more spectrum to
enable video services over time will create additional competitive alternatives to cable services. The Company cannot
predict when the auction and repacking will occur or the effect they may have on Cable ONE.
Horizontal and Vertical Ownership Limits. In September 2009, a reviewing court struck down and remanded the
FCC’s horizontal cable ownership rule, which provided that a single company could not serve more than 30% of
potential cable subscribers (or “homes passed” by cable) nationwide. Although the reviewing court’s decision authorizes
the FCC to seek to justify the rule, it is not clear whether the FCC will attempt to do so. Separately, the FCC has
proposed reinstating vertical ownership restrictions that would cap the percentage of a cable system’s channel capacity
that could be used to carry channels in which the operator has an ownership interest, but it has taken no action to
implement such restrictions. There currently is no restriction on the ownership of both a television broadcast station and a
cable television system in the same market.
Historically, cable operators were prohibited from acquiring a greater than 10% financial interest, or any management
interest, in a local exchange carrier providing telephone exchange service within that cable operator’s franchise area,
except with regard to acquisitions of certain very small local exchange carriers or pursuant to a waiver from the FCC. In
2012, the FCC agreed to forbear from applying this prohibition to cable acquisitions or investments in competitive local
exchange carriers. The Company cannot predict whether or the extent to which this development will affect its business.
16 THE WASHINGTON POST COMPANY