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SEC Filings

S-4/A
AVALON CABLE OF MICHIGAN INC/ filed this Form S-4/A on 07/22/1999
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regulations have undergone significant changes since 1993. The FCC will likely
continue to modify its rate regulations. Principal components of FCC rate
regulation include:
 
  . Benchmark method. Cable systems subject to rate regulation can use the
    FCC's benchmark method to set rates. In 1994, the FCC's benchmark
    regulations required operators to implement rate reductions of up to 17%
    for regulated services. Cable systems can adjust benchmark rates under
    the FCC's comprehensive and restrictive regulations allowing quarterly or
    annual increases or decreases for changes in the number of regulated
    channels, inflation and increases in certain costs.
 
  . Cost-of-service method. Cable operators subject to rate regulation can
    elect to use the FCC's cost-of-service method to set rates. Cost-of-
    service permits a cable operator to set rates higher than permitted under
    the benchmark method, if costs allowable under the FCC regulations
    support the higher rate. The cost-of-service method generally requires
    more administrative and professional resources for a cable system. The
    FCC cost-of-service rules also require exclusion from the rate base up to
    one-third of acquisition costs attributed to tangible and intangible
    assets related to providing regulated cable service. The FCC's cost-of-
    service regulations also presume an industry-wide 11.25% after tax rate
    of return on an operator's allowable rate base. The FCC has initiated a
    rulemaking to consider using an operator's actual debt cost and capital
    structure for cost-of-service calculations.
 
  . Small cable system abbreviated cost-of-service method. In 1995, the FCC
    adopted for qualified small systems a generally less restrictive and more
    streamlined method to compute regulated rates.
 
  . Equipment rate regulation. Where franchising authorities have the
    authority to regulate basic service rates, they may also regulate the
    rates for additional outlets, installation, and subscriber equipment used
    to receive the basic cable service tier, such as converter boxes and
    remote control units. FCC regulations require franchising authorities to
    regulate these rates on the basis of actual cost plus a reasonable
    profit, as defined by the FCC.
 
   The FCC currently has several changes to its rate regulations under
consideration. We cannot predict the impact of any changes on our cable
systems.
 
   Current rate regulation status of our cable systems. In many of the
communities where we provide cable service and in many of the systems we plan
to acquire, local franchising authorities actively regulate rates for basic and
related services. At the FCC, it remains possible that complaints remain
pending against cable programming services tier rates charged by some of our
cable systems and by some of the cable systems we propose to acquire. In
addition, a franchising authority has filed a petition for special relief
relating to our limited tier of programming.
 
   The FCC has ordered reductions in certain cable programming services tier
rates charged by Cable Michigan. The FCC based those decisions, in part, on the
finding that Cable Michigan did not qualify for small cable system rate relief
under the FCC's 1995 small system rules. The FCC concluded that Cable Michigan
did not qualify as a "small system" because all affiliated companies served
more than 400,000 subscribers (due to RCN Corporation's investment in Mexican
cable systems). Cable Michigan challenged those decisions on the basis that
certain of its systems should qualify as "small cable systems" under the FCC's
rules, or, in the alternative, that its rates are justified under the FCC's
benchmark method. On July 15, 1998, the FCC permitted Cable Michigan to
withdraw its challenge of the FCC's decision. Because Cable Michigan is no
longer affiliated with RCN Corporation, we anticipate that certain of our
smaller systems will qualify as small cable systems.
 
"Anti-Buy Through" Provisions
 
   The Cable Television Consumer Protection and Competition Act requires cable
systems to permit subscribers to purchase video programming on a per channel or
a per program basis without the necessity of subscribing to any tier of
service, other than the basic cable service tier. Cable systems without the
technological capability to offer programming in this manner benefit from a
statutory exemption. The
 
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