Washington Post 2004 Annual Report Download - page 23

The Company is unable to determine what impact the various rule changes and other matters described in this section may
ultimately have on the Company's television broadcasting operations.
Cable Television Operations
At the end of 2004 the Company (through its Cable One subsidiary) provided cable service to approximately 709,100
basic video subscribers (representing about 54% of the 1,307,000 homes passed by the systems) and had in force
approximately 219,200 subscriptions to digital video service (which number does not include approximately 4,000 free
trials of that service then being offered by Cable One) and 178,300 subscriptions to cable modem service. Digital video
and cable modem services are each currently available in markets serving virtually all of Cable One's subscriber base.
Among the digital video services offered by Cable One is the delivery of certain premium, cable network and local over-
the-air channels in HDTV.
The Company's cable systems are located in 19 Midwestern, Southern and Western states and typically serve smaller
communities: Thus 13 of the Company's current systems pass fewer than 10,000 dwelling units, 18 pass 10,000-25,000
dwelling units, and 19 pass more than 25,000 dwelling units. The two largest clusters of systems (which each serve about
75,000 subscribers) are located on the Gulf Coast of Mississippi and in the Boise, Idaho area.
Regulation of Cable Television and Related Matters
The Company's cable operations are subject to various requirements imposed by local, state and federal governmental
authorities. The franchises granted by local governmental authorities are typically nonexclusive and limited in time and
generally contain various conditions and limitations relating to payment of fees to the local authority, determined generally
as a percentage of revenues. Additionally, franchises often regulate the conditions of service and technical performance
and contain various types of restrictions on transferability. Failure to comply with such conditions and limitations may give
rise to rights of termination by the franchising authority.
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.
In 1993 the FCC adopted a ""freeze'' on rate increases 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) and for optional tiers (although the freeze on rate increases for optional tiers expired in
1999). Later that year the FCC promulgated benchmarks for determining the reasonableness of rates for regulated
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 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.
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 in 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, 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, for digital video and cable modem services, and for advertising are all currently exempt from regulation.
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 either within the station's predicted Grade B signal contour or within 50 miles of a reference point in a station's
2004 FORM 10-K 7