Washington Post 2006 Annual Report Download - page 30

The Company's cable systems on the Gulf Coast of Mississippi continue to feel the effects of Hurricane Katrina, which hit
the area in August 2005. Service has been restored in all areas that include habitable dwellings, but due to the destruction
caused by the storm the number of homes passed by those systems is approximately 29,800 homes less than it was before
the storm. Initially, those systems lost approximately 21,400 basic video subscribers (with comparable proportionate
reductions in the number of subscriptions to other services), but at the end of 2006 basic video subscriptions were only
about 9,600 subscribers below the pre-Katrina level.
Cable One began the system-by-system launch of its VoIP (digital telephone) service in May 2006 (with most of the
2006 launches occurring in the fourth quarter) and by the end of the year had approximately 2,900 digital telephone
customers. The rollout of this service will continue in 2007.
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 but there are no interim construction or service requirements. Cable One is
evaluating how best to utilize its spectrum but has no plans to offer any wireless services in the immediate future.
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. As a condition to their ability to operate, the Company's cable systems have been required to obtain franchises
granted by local governmental authorities. Those franchises typically are nonexclusive and limited in time, contain various
conditions and limitations and provide for the payment of fees to the local authority, determined generally as a percentage
of revenues. Additionally, those franchises often regulate the conditions of service and technical performance and contain
various types of restrictions on transferability. Failure to comply with all of the terms and conditions of a franchise may give
rise to rights of termination by the franchising authority.
The Cable Television Consumer Protection and Competition Act of 1992 (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 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 may 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
14 THE WASHINGTON POST COMPANY