Charter 2005 Annual Report Download - page 36

CHARTER COMMUNICATIONS, INC. 2005 FORM 10-K
amount of our existing net operating loss carryforwards. As of franchises are terminable if the franchisee fails to comply with
December 31, 2005, the issuance of shares associated with the significant provisions set forth in the franchise agreement
share lending agreement did not result in our experiencing an governing system operations. Franchises are generally granted
ownership change. However, future transactions and the timing for fixed terms and must be periodically renewed. Local
of such transactions could cause an ownership change. Such franchising authorities may resist granting a renewal if either
transactions include additional issuances of common stock by us past performance or the prospective operating proposal is
(including but not limited to issuances upon future conversion of considered inadequate. Franchise authorities often demand
our 5.875% convertible senior notes or as issued in the concessions or other commitments as a condition to renewal. In
settlement of derivative class action litigation), reacquisitions of some instances, franchises have not been renewed at expiration,
the borrowed shares by us, or acquisitions or sales of shares by and we have operated and are operating under either temporary
certain holders of our shares, including persons who have held, operating agreements or without a license while negotiating
currently hold, or accumulate in the future five percent or more renewal terms with the local franchising authorities. Approxi-
of our outstanding stock (including upon an exchange by mately 11% of our franchises, covering approximately 13% of
Mr. Allen or his affiliates, directly or indirectly, of membership our analog video customers, were expired as of December 31,
units of Charter Holdco into our Class A common stock). Many 2005. Approximately 7% of additional franchises, covering
of the foregoing transactions are beyond our control. approximately an additional 9% of our analog video customers,
will expire on or before December 31, 2006, if not renewed
Risks Related to Regulatory and Legislative Matters prior to expiration.
Our business is subject to extensive governmental legislation and We cannot assure you that we will be able to comply with
regulation, which could adversely affect our business. all significant provisions of our franchise agreements and certain
of our franchisors have from time to time alleged that we have
Regulation of the cable industry has increased cable operators’ not complied with these agreements. Additionally, although
administrative and operational expenses and limited their reve- historically we have renewed our franchises without incurring
nues. Cable operators are subject to, among other things: significant costs, we cannot assure you that we will be able to
(rules governing the provision of cable equipment and renew, or to renew as favorably, our franchises in the future. A
compatibility with new digital technologies; termination of or a sustained failure to renew a franchise in one
or more key markets could adversely affect our business in the
(rules and regulations relating to subscriber privacy; affected geographic area.
(limited rate regulation; Our cable systems are operated under franchises that are non-
(requirements governing when a cable system must carry a exclusive. Accordingly, local franchising authorities can grant addi-
particular broadcast station and when it must first obtain tional franchises and create competition in market areas where none
consent to carry a broadcast station; existed previously, resulting in overbuilds, which could adversely affect
results of operations.
(rules for franchise renewals and transfers; and
(other requirements covering a variety of operational areas Our cable systems are operated under non-exclusive franchises
such as equal employment opportunity, technical standards granted by local franchising authorities. Consequently, local
and customer service requirements. franchising authorities can grant additional franchises to compet-
itors in the same geographic area or operate their own cable
Additionally, many aspects of these regulations are cur- systems. In addition, certain telephone companies are seeking
rently the subject of judicial proceedings and administrative or authority to operate in local communities without first obtaining
legislative proposals. There are also ongoing efforts to amend or a local franchise. As a result, competing operators may build
expand the federal, state and local regulation of some of our systems in areas in which we hold franchises. In some cases
cable systems, which may compound the regulatory risks we municipal utilities may legally compete with us without
already face. Certain states and localities are considering new obtaining a franchise from the local franchising authority.
telecommunications taxes that could increase operating Different legislative proposals have been introduced in the
expenses. United States Congress and in some state legislatures that would
Our cable systems are operated under franchises that are subject to greatly streamline cable franchising. This legislation is intended
non-renewal or termination. The failure to renew a franchise in one or to facilitate entry by new competitors, particularly local tele-
more key markets could adversely affect our business. phone companies. Such legislation has already passed in at least
one state but is now subject to court challenge. Although
Our cable systems generally operate pursuant to franchises, various legislative proposals provide some regulatory relief for
permits and similar authorizations issued by a state or local incumbent cable operators, these proposals are generally viewed
governmental authority controlling the public rights-of-way. as being more favorable to new entrants due to a number of
Many franchises establish comprehensive facilities and service varying factors including efforts to withhold streamlined cable
requirements, as well as specific customer service standards and franchising from incumbents until after the expiration of their
monetary penalties for non-compliance. In many cases, existing franchises. To the extent incumbent cable operators are
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