Washington Post 2007 Annual Report Download - page 35

spectrum currently used for analog television broadcasting. The precise use of that spectrum has not yet been
determined; however, it could be used to deliver content and services that could compete with Cable ONE’s content
and services.
Ownership Limits. In December 2007, the FCC reinstated its horizontal cable ownership rule, which governs the
number of subscribers an owner of cable systems may reach on a national basis, providing that a single company
couldnotservemorethan30%ofpotentialcablesubscribers (or “homes passed” by cable) nationwide. The revised
rule is virtually identical to the prior restriction that was invalidated on constitutional and procedural grounds by the
U.S. Court of Appeals for the District of Columbia Circuit in 2001.
In 1996, Congress repealed the statutory provision that generally prohibited a party from owning an interest in both a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.
Set-Top Boxes. In the interests of trying to promote competition in the market for set-top converter boxes, effective
July 1, 2007, FCC rules require cable operators to support converter boxes and digital television tuners designed to
accept plug-in cards (known as “CableCARDs”) that provide the descrambling and other security features that
traditionally have been included in the integrated set-top converter boxes leased by cable operators to their customers.
During 2007, the FCC denied a waiver request by the National Cable & Telecommunications Association asking the
FCC to delay the rule’s effectiveness until after the transition to digital broadcasting in 2009. This rule has the potential
to increase the capital costs of cable operators (because of the need to provide CableCARDs to customers and
becausethenewtypeofconverterboxistypicallymoreexpensive than the traditional integrated box) and, to the extent
subscribers decide to buy their own boxes, to reduce the revenues cable operators receive from leasing converter
boxes (although in the case of the Company’s Cable ONE subsidiary, that revenue is not material).
Other Requirements. 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. For example, the FCC’s program carriage rules
govern disputes between cable operators and programming services over the terms of carriage. Cable operators may
not require a programming service to grant it a financial interest or exclusive carriage rights as a condition of its
carriage on a cable system, and a cable system may not discriminate against a programming service in the terms and
conditions of carriage on the basis of its affiliation or nonaffiliation with such cable system. Moreover, in November
2007, the FCC issued rules voiding existing and prohibiting future exclusive service contracts for services to multiple
dwelling unit or other residential developments. 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 or digital telephony
service).
In February of 2008, the FCC issued revised leased access rules that could substantially reduce the rates for parties
desiring to lease from 10% to 15% of the capacity on cable systems. The regulations also impose a variety of leased
access customer service, information and reporting standards. These changes will likely increase Cable ONE’s costs
and could cause additional leased access activity on Cable ONE’s cable systems. As a result, Cable ONE may find it
necessary to either discontinue other channels of programming or opt not to carry new channels of programming or
other services that may be more desirable to its customers.
In November 2007, the FCC Chairman announced an intent to collect information from cable operators to determine
whether cable systems with 36 or more activated channels are available to 70% of households in the United States and
whether 70% of those households subscribe to cable. Upon such a finding, the Cable Communications Policy Act of
1984 (“1984 Cable Act”) authorizes the FCC to promulgate “any additional rules necessary to promote diversity of
information sources.” It is unclear whether this provision applies solely to the FCC’s leased access rules or more
broadly. Although Cable ONE does not believe that this measure has been satisfied, it cannot predict whether the FCC
will reach the same conclusion. Any additional regulations on Cable ONE’s business could have a negative impact.
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