Washington Post 2004 Annual Report Download - page 26

by a single cable operator and may have resulted in more consolidation in the cable industry. In 2001 the U.S. Court of
Appeals for the D.C. Circuit voided the FCC's revised rule on constitutional and procedural grounds and remanded the
matter to the FCC for further proceedings. The FCC has since opened a proceeding to determine what the ownership limit
should be, if any. If the FCC eliminates the limit or adopts a new rule with a higher percentage of nationwide subscribers a
single cable operator is permitted to serve, that action could lead to even greater consolidation in the industry.
In 1996 Congress repealed the statutory provision that generally prohibited a party from owning an interest in both a
television broadcast station and a cable television system within that station's Grade B contour. However Congress left the
FCC's parallel rule in place, subject to a congressionally mandated periodic review by the agency. The FCC, in its
subsequent review, decided to retain the prohibition for various competitive and diversity reasons. However in 2002 the
U.S. Court of Appeals for the District of Columbia Circuit struck down the rule, holding that the FCC's decision to retain the
rule was arbitrary and capricious. Thus there currently is no restriction on the ownership of both a television broadcast
station and a cable television system in the same market.
In 2002 the FCC issued a declaratory ruling classifying cable modem service as an ""interstate information service.''
Concurrently, the FCC issued a notice of proposed rulemaking to consider the regulatory implications of this classification.
Among the issues to be decided are whether local authorities can require cable operators to provide competing Internet
service providers with access to the cable operators' facilities, the extent to which local authorities can regulate cable
modem service, and whether local authorities can impose fees on the provision of cable modem service. In 2003 the U.S.
Court of Appeals for the Ninth Circuit, on an appeal from the FCC's declaratory ruling noted above, ruled that cable
modem service is partly an ""information service'' and partly a ""telecommunications service.'' After the Ninth Circuit denied
petitions requesting that it reconsider this decision, appeals were filed with the U.S. Supreme Court and, in November
2004, the Court agreed to hear the case. If the Ninth Circuit's ruling is affirmed, the characterization of cable modem
service as partly a ""telecommunications service'' will likely affect the FCC's decision on many of the issues in its pending
rulemaking. Moreover, the Pole Attachment Act permits utilities to charge significantly higher rates for attachments made by
entities that are providing a ""telecommunications service.'' The Company's Cable One subsidiary currently offers Internet
access on virtually all of its cable systems and is the sole Internet service provider on those systems. Thus, depending on the
outcome, these judicial and regulatory proceedings have the potential to interfere with the Company's ability to deliver
Internet access on a profitable basis.
Consumers with cable modem or other broadband Internet connections are increasingly using a technology known as voice
over Internet protocol (VoIP) to make telephone calls over the Internet. Depending on their equipment and service
provider, such consumers can use a regular telephone (connected to an adaptor) to make their calls and can complete
calls to anyone who has a telephone number. During 2004 some states sought to regulate this activity pursuant to their
common carrier jurisdiction, but VoIP providers challenged these actions before the FCC. Later in 2004, the FCC ruled that
VoIP services are interstate services subject exclusively to the FCC's federal jurisdiction. This decision, if upheld on appeal
(consumer groups and some state regulatory commissions have filed an appeal), is significant because it includes VoIP
offered by cable systems as within the scope of activities that are not subject to state regulation. Legislation also has been
introduced in Congress to accomplish the same objective, though the prospect for passage of such legislation is uncertain.
Litigation also is pending in various courts in which various franchise requirements are being challenged as unlawful under
the First Amendment, the Communications Act, the antitrust laws and on other grounds. Depending on the outcomes, such
litigation could facilitate the development of duplicative cable facilities that would compete with existing cable systems,
enable cable operators to offer certain services outside of cable regulation or otherwise materially affect cable television
operations.
The regulation of certain cable television rates pursuant to the authority granted to the FCC has negatively impacted the
revenues of the Company's cable systems. The Company is unable to predict what effect the other matters discussed in this
section may ultimately have on its cable television business.
Education
Kaplan, Inc., a subsidiary of the Company, provides an extensive range of educational services for children, students and
professionals. Kaplan's historical focus on test preparation has been expanded as new educational and career services
businesses have been acquired or initiated. The Company divides Kaplan's various businesses into two categories:
supplemental education, which consists of the Test Preparation and Admissions Division, the Professional Division, Score!
Educational Centers, and The Financial Training Company; and higher education, which consists of Kaplan's Higher
Education Division and the Dublin Business School.
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