Washington Post 2003 Annual Report Download - page 27

The 1992 Cable Act requires or authorizes the imposition of a wide range of regulations on cable television operations.
The three major areas of regulation are (i) the rates charged for certain cable television services, (ii) required carriage
(""must carry'') of some local broadcast stations, and (iii) retransmission consent rights for commercial broadcast
stations.
Among other things, the Telecommunications Act of 1996 altered the preexisting regulatory environment by expanding the
definition of ""effective competition'' (a condition that precludes any regulation of the rates charged by a cable system),
terminating rate regulation for some small cable systems, and sunsetting the FCC's authority to regulate the rates charged
for optional tiers of service (which authority expired on March 31, 1999). Since very few of the cable systems owned by
the Company fall within the effective-competition or small-system exemptions, monthly subscription rates charged by most
of the Company's cable systems for the basic tier of cable service ( i.e. , the tier that includes the signals of local over-the-
air stations and any public, educational or governmental channels required to be carried under the applicable franchise
agreement), as well as rates charged for equipment rentals and service calls, may be regulated by municipalities, subject
to procedures and criteria established by the FCC. However, rates charged by cable television systems for tiers of service
other than the basic tier, for pay-per-view and per-channel premium program services, and for advertising are all exempt
from regulation.
In April 1993 the FCC adopted a ""freeze'' on rate increases for regulated services ( i.e. , the basic and, prior to March
1999, optional tiers). Later that year the FCC promulgated benchmarks for determining the reasonableness of rates for
such services. The benchmarks provided for a percentage reduction in the rates that were in effect when the benchmarks
were announced. Pursuant to the FCC's rules, cable operators can increase their benchmarked rates for regulated services
to offset the effects of inflation, equipment upgrades, and higher programming, franchising and regulatory fees. Under the
FCC's approach cable operators may exceed their benchmarked rates if they can show in a cost-of-service proceeding
that higher rates are needed to earn a reasonable return on investment, which the Commission established in March 1994
to be 11.25%. The FCC's rules also permit franchising authorities to regulate equipment rentals and service and installation
rates on the basis of a cable operator's actual costs plus an allowable profit, which is calculated from the operator's net
investment, income tax rate and other factors.
As discussed in the preceding section, under the ""must-carry'' requirements of the 1992 Cable Act, a commercial
television broadcast station may, subject to certain limitations, insist on carriage of its signal on cable systems located within
the station's market area. Similarly, a noncommercial public station may insist on carriage of its signal on cable systems
located within either the station's predicted Grade B signal contour or 50 miles of the station's transmitter. As a result of
these obligations (the constitutionality of which has been upheld by the U.S. Supreme Court), certain of the Company's
cable systems have had to carry broadcast stations that they might not otherwise have elected to carry, and the freedom
the Company's systems would otherwise have to drop signals previously carried has been reduced.
Also as explained in the preceding section, at three-year intervals beginning in October 1993 commercial broadcasters
have had the right to forego must-carry rights and insist instead that their signals not be carried without their prior consent.
The Company's cable systems have been able to continue carrying virtually all of the stations insisting on retransmission
consent without having to agree to pay any stations for the privilege of carrying their signals. However, some commitments
have been made to carry other program services offered by a station or an affiliated company, to provide advertising
availabilities on cable for sale by a station and to distribute promotional announcements with respect to a station.
As has already been noted, in January 2001 the FCC determined that, pending further inquiry, only television stations
broadcasting in a DTV-only mode could require local cable systems to carry their DTV signals. The FCC currently is
conducting another inquiry to decide whether it should require cable systems to carry both the analog and the DTV signals
of local television stations. Such an extension of must-carry requirements could result in the Company's cable systems being
required to delete some existing programming to make room for broadcasters' DTV channels.
Various other provisions in current federal law may significantly affect the costs or profits of cable television systems. These
matters include a prohibition on exclusive franchises, restrictions on the ownership of competing video delivery services,
restrictions on transfers of cable television ownership, a variety of consumer protection measures, and various regulations
intended to facilitate the development of competing video delivery services. Other provisions benefit the owners of cable
systems by restricting regulation of cable television in many significant respects, requiring that franchises be granted for
reasonable periods of time, providing various remedies and safeguards to protect cable operators against arbitrary
refusals to renew franchises, and limiting franchise fees to 5% of gross revenues.
Apart from its authority under the 1992 Cable Act and the Telecommunications Act of 1996, the FCC regulates various
other aspects of cable television operations. Since 1990 cable systems have been required to black out from the distant
broadcast stations they carry syndicated programs for which local stations have purchased exclusive rights and requested
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