Washington Post 2005 Annual Report Download - page 25

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 in 1993 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). Although the FCC has confirmed that some of the cable
systems owned by the Company fall within the effective-competition exemption and the Company believes that other of its
systems also qualify for that exemption, monthly subscription rates charged by many of the Company's cable systems for
the basic tier of cable service, as well as rates charged for equipment rentals and service calls, are still subject to
regulation 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 previously discussed in the section titled ""Television Broadcasting,'' 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 community designated by the FCC. 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 that 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 by cable systems without their prior
consent. Under legislation enacted in 1999, Congress barred broadcasters from entering into exclusive retransmission
consent agreements through 2006. In November 2004 Congress extended the ban on exclusive retransmission consent
agreements until the end of 2010. The Company's cable systems are currently carrying all of the stations that insisted on
retransmission consent. In doing so, no agreements have been made to pay any station for the privilege of carrying its
signal. However, in a limited number of cases commitments have been made to carry other program services offered by a
station or an affiliated company, to purchase advertising on a station, or to provide advertising availabilities on cable to a
station.
As has already been noted, the FCC has determined that only television stations broadcasting in a DTV-only mode can
require local cable systems to carry their DTV signals and that if a DTV signal contains multiple video streams only a single
stream of video is required to be carried. The imposition of additional must-carry obligations, either by the FCC or as a
result of legislative action, 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, 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 a cable system's gross revenues from the provision of cable service (which for this purpose includes digital video
service but does not include cable modem service).
2005 FORM 10-K 9