Print Page  Close Window

SEC Filings

Entire Document
<PAGE>   85
of our regions, we have instituted a "perpetual audit" whereby each technician
is required to check at least four other nearby residences during each service
call to determine if there are any obvious signs of piracy, namely, a drop line
leading from the main cable line into other homes. Addresses where the
technician observes drop lines are then checked against our customer billing
records. If the address is not found in the billing records, a sales
representative calls on the unauthorized user to correct the "billing
discrepancy" and persuade the user to become a formal customer. In our
experience, approximately 25% of unauthorized users who are solicited in this
fashion become customers. Billing records are then closely monitored to guard
against these new customers reverting to their status as unauthorized users.
Unauthorized users who do not convert are promptly disconnected and, in certain
instances, flagrant violators are referred for prosecution. In addition, we have
prosecuted individuals who have sold cable converters programmed to receive our
signals without proper authorization.
     As of December 31, 1998, our systems operated pursuant to an aggregate of
1,161 franchises, permits and similar authorizations issued by local and state
governmental authorities. Each franchise is awarded by a governmental authority
and is usually not transferable unless the granting governmental authority
consents. Most franchises are subject to termination proceedings in the event of
a material breach. In addition, most franchises require us to pay the granting
authority a franchise fee of up to 5.0% of gross revenues generated by cable
television services under the franchise (i.e., the maximum amount that may be
charged under the Communications Act).
     Our franchises have terms which range from 4 to more than 32 years. Prior
to the scheduled expiration of most franchises, we initiate renewal proceedings
with the granting authorities. This process usually takes three years but can
take a longer period of time and often involves substantial expense. The
Communications Act provides for an orderly franchise renewal process in which
granting authorities may not unreasonably withhold renewals. If a renewal is
withheld and the granting authority takes over operation of the affected cable
system or awards it to another party, the granting authority must pay the
existing cable operator the "fair market value" of the system. The
Communications Act also established comprehensive renewal procedures requiring
that an incumbent franchisee's renewal application be evaluated on its own merit
and not as part of a comparative process with competing applications. In
connection with the franchise renewal process, many governmental authorities
require the cable operator make certain commitments, such as technological
upgrades to the system, which may require substantial capital expenditures.
There can be no assurance, however, that any particular franchise will be
renewed or that it can be renewed on commercially favorable terms. Our failure
to obtain renewals of the franchises, especially those in major metropolitan
areas where we have the most customers, would have a material adverse effect on
our business, results of operations and financial condition. See "Risk
Factors--Risks Associated with Regulation of the Cable