Charter 2010 Annual Report Download - page 22

                                         
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with the video product. In order to mitigate reductions of our
operating margins due to rapidly increasing programming costs,
we continue to review our pricing and programming packaging
strategies, and we plan to continue to migrate certain program
services from our basic level of service to our digital tiers. As we
migrate our programming to our digital tier packages, certain
programming that was previously available to all of our customers via
an analog signal may only be part of an elective digital tier package
offered to our customers for an additional fee. As a result, we expect
that the customer base upon which we pay programming fees will
proportionately decrease, and the overall expense for providing that
service will also decrease. However, reductions in the size of certain
programming customer bases may result in the loss of specific volume
discount benefits.
We have programming contracts that have expired and others that
will expire at or before the end of 2011. We will seek to renegotiate
the terms of these agreements. ere can be no assurance that these
agreements will be renewed on favorable or comparable terms.
To the extent that we are unable to reach agreement with certain
programmers on terms that we believe are reasonable, we have been,
and may in the future be, forced to remove such programming
channels from our line-up, which may result in a loss of customers.

As of December 31, 2010, our systems operated pursuant to a
total of approximately 3,000 franchises, permits, and similar
authorizations issued by local and state governmental authorities.
Such governmental authorities often must approve a transfer
to another party. Most franchises are subject to termination
proceedings in the event of a material breach. In addition, most
franchises require us to pay the granting authority a franchise fee of
up to 5.0% of revenues as defined in the various agreements, which
is the maximum amount that may be charged under the applicable
federal law. We are entitled to and generally do pass this fee through
to the customer.
Prior to the scheduled expiration of most franchises, we generally
initiate renewal proceedings with the granting authorities. is
process usually takes three years but can take a longer period
of time. e Communications Act of 1934, as amended (the
“Communications Act”), which is the primary federal statute
regulating interstate communications, provides for an orderly
franchise renewal process in which granting authorities may not
unreasonably withhold renewals. In connection with the franchise
renewal process, many governmental authorities require the cable
operator to make certain commitments, such as building out certain
of the franchise areas, customer service requirements, and supporting
and carrying public access channels. Historically we have been able
to renew our franchises without incurring significant costs, although
any particular franchise may not be renewed on commercially
favorable terms or otherwise. Our failure to obtain renewals of our
franchises, especially those in the major metropolitan areas where
we have the most customers, could have a material adverse effect on
our consolidated financial condition, results of operations, or our
liquidity, including our ability to comply with our debt covenants.
See “— Regulation and Legislation — Video Services — Franchise
Matters.”

We face competition for both residential and commercial customers
in the areas of price, service offerings, and service reliability. We
compete with other providers of video, high-speed Internet access,
telephone services, and other sources of home entertainment. We
operate in a very competitive business environment, which can
adversely affect the results of our business and operations. We cannot
predict the impact on us of broadband services offered by our
competitors.
In terms of competition for customers, we view ourselves as a
member of the broadband communications industry, which
encompasses multi-channel video for television and related
broadband services, such as high-speed Internet, telephone, and
other interactive video services. In the broadband communications
industry, our principal competitor for video services throughout
our territory is direct broadcast satellite (“DBS”) and our principal
competitor for high-speed Internet services is DSL service provided
by telephone companies. Our principal competitors for telephone
services are established telephone companies, other telephone service
providers, and other carriers, including VoIP providers. Based on
telephone companies’ entry into video service and the upgrades of
their networks, they have become significant competitors for both
high-speed Internet and video customers. At this time, we do not
consider other cable operators to be significant competitors in our
overall market, as overbuilds are infrequent and geographically spotty
(although in any particular market, a cable operator overbuilder
would likely be a significant competitor at the local level).