Charter 2006 Annual Report Download - page 39

CHARTER COMMUNICATIONS, INC. 2006 FORM 10-K
Our cable system franchises are subject to non-renewal or termination. facilitate entry by new competitors, particularly local telephone
The failure to renew a franchise in one or more key markets could companies. Such legislation has passed in several states, includ-
adversely affect our business. ing states where we have significant operations. Although
certain of these states have provided some regulatory relief for
Our cable systems generally operate pursuant to franchises, incumbent cable operators, these proposals are generally viewed
permits, and similar authorizations issued by a state or local as being more favorable to new entrants due to a number of
governmental authority controlling the public rights-of-way. factors, including efforts to withhold streamlined cable franchis-
Many franchises establish comprehensive facilities and service ing from incumbents until after the expiration of their existing
requirements, as well as specific customer service standards and franchises, and the potential for new entrants to serve only
monetary penalties for non-compliance. In many cases, higher-income areas of a particular community. To the extent
franchises are terminable if the franchisee fails to comply with incumbent cable operators are not able to avail themselves of
significant provisions set forth in the franchise agreement this streamlined franchising process, such operators may con-
governing system operations. Franchises are generally granted tinue to be subject to more onerous franchise requirements at
for fixed terms and must be periodically renewed. Local the local level than new entrants. At least two additional states
franchising authorities may resist granting a renewal if either where we have cable systems have issued regulations that will
past performance or the prospective operating proposal is facilitate telephone company provision of video services by
considered inadequate. Franchise authorities often demand eliminating or reducing the application of franchising require-
concessions or other commitments as a condition to renewal. In ments to the telephone companies. A proceeding is pending at
some instances, franchises have not been renewed at expiration, the FCC to determine whether local franchising authorities are
and we have operated and are operating under either temporary impeding the deployment of competitive cable services through
operating agreements or without a license while negotiating unreasonable franchising requirements and whether such imped-
renewal terms with the local franchising authorities. Approxi- iments should be preempted. We are not yet able to determine
mately 12% of our franchises, covering approximately 15% of what impact such proceeding may have on us.
our analog video customers, were expired as of December 31, The existence of more than one cable system operating in
2006. Approximately 8% of additional franchises, covering the same territory is referred to as an overbuild. These
approximately an additional 11% of our analog video customers, overbuilds could adversely affect our growth, financial condition,
will expire on or before December 31, 2007, if not renewed and results of operations by creating or increasing competition.
prior to expiration. As of December 31, 2006, we are aware of traditional overbuild
We cannot assure you that we will be able to comply with situations impacting approximately 7% of our estimated homes
all significant provisions of our franchise agreements and certain passed, and potential traditional overbuild situations in areas
of our franchisors have from time to time alleged that we have servicing approximately an additional 4% of our estimated
not complied with these agreements. Additionally, although homes passed. Additional overbuild situations may occur in
historically we have renewed our franchises without incurring other systems.
significant costs, we cannot assure you that we will be able to
renew, or to renew as favorably, our franchises in the future. A Local franchise authorities have the ability to impose additional
termination of or a sustained failure to renew a franchise in one regulatory constraints on our business, which could further increase our
or more key markets could adversely affect our business in the expenses.
affected geographic area.
In addition to the franchise agreement, cable authorities in some
Our cable system franchises are non-exclusive. Accordingly, local jurisdictions have adopted cable regulatory ordinances that
franchising authorities can grant additional franchises and create further regulate the operation of cable systems. This additional
competition in market areas where none existed previously, resulting in regulation increases the cost of operating our business. We
overbuilds, which could adversely affect results of operations. cannot assure you that the local franchising authorities will not
impose new and more restrictive requirements. Local franchising
Our cable system franchises are non-exclusive. Consequently, authorities also generally have the power to reduce rates and
local franchising authorities can grant additional franchises to order refunds on the rates charged for basic services.
competitors in the same geographic area or operate their own
cable systems. In addition, certain telephone companies are Further regulation of the cable industry could cause us to delay or
seeking authority to operate in local communities without first cancel service or programming enhancements, or impair our ability to
obtaining a local franchise. As a result, competing operators may raise rates to cover our increasing costs, resulting in increased losses.
build systems in areas in which we hold franchises. In some
Currently, rate regulation is strictly limited to the basic service
cases municipal utilities may legally compete with us without
tier and associated equipment and installation activities. How-
obtaining a franchise from the local franchising authority.
ever, the FCC and the U.S. Congress continue to be concerned
Legislative proposals have been introduced in the United
that cable rate increases are exceeding inflation. It is possible
States Congress and in state legislatures that would greatly
that either the FCC or the U.S. Congress will again restrict the
streamline cable franchising. This legislation is intended to
ability of cable system operators to implement rate increases.
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