Washington Post 2009 Annual Report Download - page 22

Regulation of Cable Television and Related Matters
Cable ONE’s cable, Internet and voice operations are subject to various requirements imposed by local, state and
federal governmental authorities. The regulation of certain cable television rates pursuant to procedures established by
Congress has negatively affected Cable ONE’s revenue. Certain other legislative and regulatory matters discussed in this
section also have the potential to adversely affect Cable ONE’s cable television, Internet and voice businesses.
Cable Television
Federal law requires or authorizes the imposition of a wide range of regulations on cable television operations.
Franchising. Cable ONE’s cable systems are required to obtain franchises from state or local governmental authorities
to operate. 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 Federal Communications Commission (“FCC”) has adopted rules designed to
expedite the process of awarding competitive franchises and relieving applicants for competing franchises of some
locally-imposed franchise obligations. The FCC also has extended certain of these “reforms” to incumbent cable
operators. Separately, a number of states (including Iowa, Kansas, Louisiana, Missouri, Tennessee and Texas—all states
in which Cable ONE operates cable systems) have enacted laws to permit video service providers to secure statewide
franchises, thereby relieving these providers of the need to seek multiple authorizations from various local franchising
authorities within a state. This development, which is especially beneficial to new entrants, is expected to continue to
accelerate the competition Cable ONE is experiencing in the marketplace for video service.
Rate Regulation. FCC regulations prohibit local franchising authorities or the FCC to regulate the rates that cable
systems charge for certain levels of video cable service, equipment and service calls when those cable systems are
subject to “effective competition.” The FCC has confirmed that some of the cable systems owned by the Company fall
within the effective-competition exemption, and the Company believes, based on an analysis of competitive conditions
within its systems, that other of its systems may also qualify for that exemption. Nevertheless, monthly subscription rates
charged for the basic tier of cable service, as well as rates charged for equipment rentals and service calls for many of
Cable ONE’s cable systems, remain subject to regulation by local franchise authorities in accordance with FCC rules.
However, rates charged by cable systems for tiers of service other than the basic tier—such as pay-per-view and
per-channel premium program services, digital video, cable modem and digital telephone services—and for advertising
currently are exempt from regulation.
“Must-Carry” and Retransmission Consent. Federal law provides that 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, certain of Cable ONE’s cable systems must carry broadcast stations that they
might not otherwise have elected to carry, and their freedom to drop signals previously carried has been reduced.
Commercial broadcasters have the right to elect at three-year intervals to forego must-carry rights and insist instead that
their signals not be carried by cable systems without their prior consent. The next three-year election cycle begins
October 1, 2011, with the elections effective January 1, 2012, through December 31, 2014. In some cases, Cable
ONE has been required to provide consideration to broadcasters to obtain retransmission consent, such as commitments
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. More recently, some broadcasters have begun to seek cash
payment from cable systems such as Cable ONE for the right to carry their signals. This development results in increased
operating costs for cable systems that ultimately increase the rates cable systems charge subscribers.
Digital Television (“DTV”). FCC regulations require cable systems to ensure that all local must-carry broadcast stations
are “viewable” by all subscribers. Moreover, where a must-carry broadcast station’s signal is transmitted in high-definition
television (“HDTV”) format, cable operators generally are required to carry the signal in HDTV format. Although certain
smaller cable systems are not subject to these requirements, satisfaction of the generally applicable obligation could
increase Cable ONE’s costs by requiring it to expand the capacity of its cable systems or to delete some existing
programming to make room for all of the video streams included in broadcasters’ DTV signals.
8THE WASHINGTON POST COMPANY