Charter 2006 Annual Report Download - page 36

CHARTER COMMUNICATIONS, INC. 2006 FORM 10-K
Our inability to respond to technological developments and meet compatibility among set-top box operating systems has slowed
customer demand for new products and services could limit our ability the industry’s development and deployment of digital set-top
to compete effectively. box applications.
Our business is characterized by rapid technological change and Malicious and abusive Internet practices could impair our high-speed
the introduction of new products and services, some of which Internet services.
are bandwidth-intensive. We cannot assure you that we will be
able to fund the capital expenditures necessary to keep pace Our high-speed Internet customers utilize our network to access
with technological developments, or that we will successfully the Internet and, as a consequence, we or they may become
anticipate the demand of our customers for products and victim to common malicious and abusive Internet activities, such
services requiring new technology or bandwidth beyond our as unsolicited mass advertising (i.e., ‘‘spam’’) and dissemination
expectations. Our inability to maintain and expand our upgraded of viruses, worms, and other destructive or disruptive software.
systems and provide advanced services in a timely manner, or to These activities could have adverse consequences on our
anticipate the demands of the marketplace, could materially network and our customers, including degradation of service,
adversely affect our ability to attract and retain customers. excessive call volume to call centers, and damage to our or our
Consequently, our growth, financial condition and results of customers’ equipment and data. Significant incidents could lead
operations could suffer materially. to customer dissatisfaction and, ultimately, loss of customers or
revenue, in addition to increased costs to service our customers
We depend on third party suppliers and licensors; thus, if we are and protect our network. Any significant loss of high-speed
unable to procure the necessary equipment, software or licenses on Internet customers or revenue, or significant increase in costs of
reasonable terms and on a timely basis, our ability to offer services serving those customers, could adversely affect our growth,
could be impaired, and our growth, operations, business, financial financial condition and results of operations.
results and financial condition could be materially adversely affected.
We could be deemed an ‘‘investment company’’ under the Investment
We depend on third party suppliers and licensors to supply Company Act of 1940. This would impose significant restrictions on
some of the hardware, software and operational support us and would be likely to have a material adverse impact on our
necessary to provide some of our services. We obtain these growth, financial condition and results of operation.
materials from a limited number of vendors, some of which do
not have a long operating history. Some of our hardware, Our principal assets are our equity interests in Charter Holdco
software and operational support vendors represent our sole and certain indebtedness of Charter Holdco. If our membership
source of supply or have, either through contract or as a result interest in Charter Holdco were to constitute less than 50% of
of intellectual property rights, a position of some exclusivity. If the voting securities issued by Charter Holdco, then our interest
demand exceeds these vendors’ capacity or if these vendors in Charter Holdco could be deemed an ‘‘investment security’’ for
experience operating or financial difficulties, or are otherwise purposes of the Investment Company Act. This may occur, for
unable to provide the equipment we need in a timely manner example, if a court determines that the Class B common stock is
and at reasonable prices, our ability to provide some services no longer entitled to special voting rights and, in accordance
might be materially adversely affected, or the need to procure or with the terms of the Charter Holdco limited liability company
develop alternative sources of the affected materials or services agreement, our membership units in Charter Holdco were to
might delay our ability to serve our customers. These events lose their special voting privileges. A determination that such
could materially and adversely affect our ability to retain and interest was an investment security could cause us to be deemed
attract customers, and have a material negative impact on our to be an investment company under the Investment Company
operations, business, financial results and financial condition. A Act, unless an exemption from registration were available or we
limited number of vendors of key technologies can lead to less were to obtain an order of the Securities and Exchange
product innovation and higher costs. For these reasons, we Commission excluding or exempting us from registration under
generally endeavor to establish alternative vendors for materials the Investment Company Act.
we consider critical, but may not be able to establish these If anything were to happen which would cause us to be
relationships or be able to obtain required materials on favorable deemed an investment company, the Investment Company Act
terms. would impose significant restrictions on us, including severe
For example, each of our systems currently purchases set- limitations on our ability to borrow money, to issue additional
top boxes from a limited number of vendors, because each of capital stock, and to transact business with affiliates. In addition,
our cable systems uses one or two proprietary conditional access because our operations are very different from those of the
security schemes, which allow us to regulate subscriber access to typical registered investment company, regulation under the
some services, such as premium channels. We believe that the Investment Company Act could affect us in other ways that are
proprietary nature of these conditional access schemes makes extremely difficult to predict. In sum, if we were deemed to be
other manufacturers reluctant to produce set-top boxes. Future an investment company it could become impractical for us to
innovation in set-top boxes may be restricted until these issues continue our business as currently conducted and our growth,
are resolved. In addition, we believe that the general lack of
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