Washington Post 2011 Annual Report Download - page 27

Pole Attachments. U.S. Federal law requires most telephone and power utilities to charge reasonable rates to cable
operators for utilizing space on utility poles or in underground conduits. The FCC has adopted two separate formulas for
calculating such rates: one for attachments by cable operators generally and a higher rate for attachments used to
provide “telecommunications services.” Several cable operators, including Cable ONE, are using their cable systems to
provide not only television programming, but also Internet access and digital voice. In 2002, the U.S. Supreme Court
held that the lower pole attachment rates apply not only to attachments used to provide traditional cable services, but also
to attachments used to provide Internet access services. Subsequently, in May 2010, the FCC adopted new requirements
relating to pole access and construction practices that were expected to improve the ability of cable operators to attach to
utility poles on a timely basis. More recently, in April 2011, the FCC adopted additional rules intended to improve such
access. Those rules established a specific timeline for securing access to poles for both wireline and wireless attachments;
required pole owners to provide specific explanations for rejecting pole attachment requests; reduced the disparity in pole
attachment rates for cable and telecommunications services, and made changes to the FCC’s enforcement process to
encourage negotiated resolutions of pole attachment disputes, among other things. The Company cannot predict the
extent to which these and other rule changes will affect its ability over time to secure timely access to poles at reasonable
rates. As a general matter, changes to Cable ONE’s pole attachment rate structure could significantly increase its annual
pole attachment costs.
U.S. Federal Copyright Issues. The U.S. Federal Copyright Act of 1976, as amended, gives cable television systems
the ability, under certain terms and conditions and assuming that any applicable retransmission consents have been
obtained, to retransmit the signals of television stations pursuant to a compulsory copyright license. Those terms and
conditions require all cable systems that retransmit broadcast signals to pay semiannual royalty fees, generally based on
the systems’ gross revenues from basic service and, in certain instances, the number of “distant” broadcast signals carried.
The compulsory license fees have been increased on several occasions since this act went into effect. Since 1989, a
separate compulsory copyright license for distant signal retransmissions has applied to DBS, and in 1999, Congress
provided DBS with a royalty-free compulsory copyright license for distribution of the signals of local television stations to
satellite subscribers in the markets served by such stations. The cable compulsory license for local and distant signals and
the DBS local signal compulsory license are permanent, while the DBS distant signal compulsory license is scheduled to
sunset at the end of 2014, although it is possible that, as in the past, the DBS distant signal compulsory license will be
extended. In addition, the cable and DBS compulsory licenses employ different methodologies for calculating royalties,
with cable using a percentage of revenues approach and DBS using a flat, per-subscriber, per-signal payment approach.
The U.S. Federal Copyright Office is considering requests for clarification and revisions of certain cable compulsory
copyright license reporting requirements. Cable ONE cannot predict the outcome of any such inquiries; however, it is
possible that changes in the rules or copyright compulsory license fee computations or compliance procedures could have
an adverse effect on its business by increasing copyright compulsory license fee costs or by causing Cable ONE to
reduce or discontinue carriage of certain broadcast signals that it currently carries on a discretionary basis.
In August 2011, the U.S. Federal Copyright Office released a report assessing possible mechanisms for eliminating the
cable and satellite statutory licenses. In November 2011, the Government Accountability Office released a report on the
effect that elimination of the compulsory licenses would have on the industry and viewers. These reports could be the basis
for future legislative or regulatory developments on these issues. The Company cannot predict if or how the copyright
regime may change, nor can the Company predict the net effect that changes to this regime would have on the
Company’s cable and broadcast operations or on the Company overall.
Telephone Company Competition. U.S. Federal law permits telephone companies to offer video programming
services. Over the past decade, telephone companies have pursued multiple strategies to enter the market for the delivery
of multichannel video programming services. Initially, some telephone companies partnered with DBS operators to resell a
DBS service to their telephone customers. Some telephone companies still do this, but other telephone companies have
entered into traditional franchise agreements with local and state franchising authorities and have constructed their own
video programming delivery systems. Still other telephone companies have developed other methods to deliver video
programming that, depending on the technology employed, may be regulated in a manner similar to the Company’s
cable systems. Some telephone companies have taken the position that the specific technology employed in delivering
video programming dictates whether a local franchise is required. The theory is that because the provider is not delivering
a “cable service,” as that term is defined in U.S. Federal law, but rather is delivering an “information service,” which by
law is not subject to regulation by state and local governments, no local franchise is required. Neither the FCC nor the
courts have addressed this issue definitively, but in the meantime, most major telephone companies are entering into
franchise agreements to provide their video programming distribution services to consumers. Increased competition from
telephone companies that provide competing services could have a material effect on Cable ONE’s business.
2011 FORM 10-K 15