REGULATION AND LEGISLATION
The following summary of regulatory developments and legislation does not
purport to describe all present and proposed federal, state and local
legislation and regulations affecting the cable television industry. Other
existing federal, state and local legislation and regulations currently are the
subject of judicial proceedings, legislative hearings, and administrative
proposals which could change, in varying degrees, the manner in which this
industry operates. Neither the outcome of these proceedings, nor their impact
upon the cable industry or the Company can be predicted at this time.
The operation of a cable system is extensively regulated by the FCC, some
state governments and most local governments. The 1996 Telecom Act has altered
the regulatory structure governing the nation's communications providers. It
removes barriers to competition in both the cable television market and the
local telephone market. Among other things, it also reduces the scope of cable
rate regulation and encourages additional competition in the video programming
industry by allowing local telephone companies to provide video programming in
their own telephone service areas.
The 1996 Telecom Act requires the FCC to undertake a host of implementing
rulemakings. Moreover, Congress and the FCC have frequently revisited the
subject of cable regulation. Future legislative and regulatory changes could
adversely affect the Company's operations, and there have been calls in Congress
and at the FCC to maintain or even tighten cable regulation in the absence of
widespread effective competition.
CABLE RATE REGULATION. The 1992 Cable Act imposed an extensive rate
regulation regime on the cable television industry. Under that regime, all cable
systems are subject to rate regulation, unless they face "effective competition"
in their local franchise area. Federal law now defines "effective competition"
on a community-specific basis as requiring either: (1) low subscriber
penetration (less than 30%) by the incumbent cable operator; (2) appreciable
subscriber penetration (more than 15%) by competing multichannel video providers
("MVPs"); (3) a municipally-affiliated MVP offering service to 50% of the
community; or (4) a competing MVP affiliated with a local telephone company
offering service to the community.
Although the FCC has established the underlying regulatory scheme, local
government units (commonly referred to as local franchising authorities or
"LFAs") are primarily responsible for administering the regulation of the lowest
level of cable -- the basic service tier ("BST"), which typically contains local
broadcast stations and public, educational, and government ("PEG") access
channels. Before an LFA begins BST rate regulation, it must certify to the FCC
that it will follow applicable federal rules. Many LFAs have voluntarily
declined to exercise their authority to regulate BST rates. LFAs also have
primary responsibility for regulating cable equipment rates. Under federal law,
charges for various types of cable equipment must be unbundled from each other
and from monthly charges for programming services.
The FCC itself directly administers rate regulation of any cable
programming service tier ("CPST"), which typically contains satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only if
an LFA first receives at least two rate complaints from local subscribers and
then files a formal complaint with the FCC. When new CPST rate complaints are
filed, the FCC considers only whether the incremental increase is justified and
will not reduce the previously established CPST rate. We currently have 45 rate
complaints relating to approximately 400,000 subscribers pending at the FCC.
Significantly, the FCC's authority to regulate CPST rates expired on March 31,
1999. The FCC has taken the position that it will still adjudicate CPST