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S-4
AVALON CABLE OF MICHIGAN INC/ filed this Form S-4 on 04/01/1999
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                                   REGULATION
 
Overview
 
   We face regulation from federal, state and local governments because we own
and operate cable television systems. Most of the federal laws governing our
cable systems arise from the 1984 Cable Act, the 1992 Cable Act and the
Telecommunications Act of 1996 (the "1996 Telecom Act"). These statutes amended
the federal Communications Act of 1934 (the "Communications Act") and added
provisions specific to cable television. Many of the cable television
provisions of the Communications Act require the FCC to adopt and enforce
regulations. The FCC has done so and regulates many aspects of our cable
systems and our business. Local franchise authorities also regulate our cable
systems through local cable franchise agreements and ordinances and, in some
municipalities, through the local rate regulation process. In some
jurisdictions, state agencies also regulate our cable systems. The substantial
regulation of our cable systems adds additional costs and risks to our
business.
 
   We provide in this section a summary of federal laws and regulations that
could materially affect our cable systems and the cable industry. We also
describe certain state and local laws.
 
Rate regulation
 
   Rate regulation under the 1992 Cable Act. The 1992 Cable Act establishes
cable rate regulation at two levels. Local franchise authorities can obtain
authority to regulate rates for equipment and basic service (the lowest tier of
service usually including broadcast signals, public access programming and some
cable satellite services). The FCC regulates rates for cable programming
services tiers, typically the next levels of cable service after basic service.
The 1992 Cable Act directs the FCC to promulgate regulations to govern the rate
regulation process at both the federal and local level. The 1992 Cable Act also
deregulates rates for any cable system subject to effective competition,
meaning that the cable system faces specified thresholds of competition in
their franchise areas. Generally, the rate regulation process imposes
substantial administrative burdens and costs on regulated systems and reduces
cable rate increases. Rate regulation has forced some cable systems to reduce
rates and make refunds to subscribers.
 
   Changes under the 1996 Telecom Act. The 1996 Telecom Act makes several
significant changes to cable rate regulation. The 1996 Telecom Act:
 
  . deregulates rates for cable programming services tiers after March 31,
    1999;
 
  . deregulates all rates for certain small cable systems;
 
  . allows non-predatory, bulk discount rates for service to commercial
    residential developments;
 
  . allows aggregation of costs for regulated equipment rates at the
    franchise, system, regional or company level;
 
  . eliminates individual subscriber rate complaints to the FCC;
 
  . authorizes local franchise authorities to file complaints with the FCC
    concerning cable programming services tier rates after receiving multiple
    subscriber complaints within prescribed time frames; and
 
  . permits certain cable operators to include prior year losses occurring
    before September 1992 in rate calculations.
 
   The changes to cable rate regulation resulting from the 1996 Telecom Act
provide cable systems some relief from the administrative burdens and costs of
rate regulation.
 
   FCC regulations. Following the 1992 Cable Act, the FCC adopted detailed
regulations governing cable service and equipment rates and the rate regulation
process. Those regulations have undergone significant changes since 1993. The
FCC will likely continue to modify its rate regulations. Principal components
of FCC rate regulation include:
 
 
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