Charter 2011 Annual Report Download - page 27

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must obtain music rights for locally originated programming and advertising from the major music performing rights organizations.
These licensing fees have been the source of litigation in the past, and we cannot predict with certainty whether license fee disputes
may arise in the future.
Franchise Matters. Cable systems generally are operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity in order to utilize and cross public rights-of-way. Although some state franchising laws grant
indefinite franchises, cable franchises generally are granted for fixed terms and in many cases include monetary penalties for
noncompliance and may be terminable if the franchisee fails to comply with material provisions. The specific terms and conditions
of cable franchises vary significantly between jurisdictions. Cable franchises generally contain provisions governing cable
operations, franchise fees, system construction, maintenance, technical performance, customer service standards, and changes in
the ownership of the franchisee. A number of states subject cable systems to the jurisdiction of centralized state government
agencies, such as public utility commissions. Although local franchising authorities have considerable discretion in establishing
franchise terms, certain federal protections benefit cable operators. For example, federal law caps local franchise fees and includes
renewal procedures designed to protect incumbent franchisees from arbitrary denials of renewal. Even if a franchise is renewed,
however, the local franchising authority may seek to impose new and more onerous requirements as a condition of renewal.
Similarly, if a local franchising authority's consent is required for the purchase or sale of a cable system, the local franchising
authority may attempt to impose more burdensome requirements as a condition for providing its consent.
The traditional cable franchising regime is undergoing significant change as a result of various federal and state actions. In a
series of rulemakings, the FCC has adopted rules that streamlined entry for new competitors (particularly those affiliated with
telephone companies) and reduced certain franchising burdens for these new entrants. The FCC adopted more modest relief for
existing cable operators.
At the same time, a substantial number of states have adopted new franchising laws. Again, these laws were principally designed
to streamline entry for new competitors, and they often provide advantages for these new entrants that are not immediately available
to existing cable operators. In many instances, these franchising regimes do not apply to established cable operators until the
existing franchise expires or a competitor directly enters the franchise territory. The exact nature of these state franchising laws,
and their varying application to new and existing video providers, will impact our franchising obligations and our competitive
position.
Internet Service
On December 21, 2010, the FCC adopted new “net neutrality” rules that it deemed necessary to ensure continuation of an “open”
Internet that is not unduly restricted by network “gatekeepers,” which went into effect on November 20, 2011. The new rules are
based on three core principles of: (1) transparency, (2) no blocking, and (3) no unreasonable discrimination. The rules permit
broadband service providers to exercise “reasonable network management” for legitimate management purposes, such as
management of congestion, harmful traffic, and network security. The rules also permit usage-based billing, and permit broadband
service providers to offer additional specialized services such as facilities-based IP voice services, without being subject to
restrictions on discrimination. Although the rules encompass both wireline providers (like us) and wireless providers, the rules
are less stringent with regard to wireless providers. Verizon and other parties have filed for additional FCC review, as well as
filing an appeal challenging the FCC's authority to issue such rules, which will be heard by the U.S. Court of Appeals for the D.C.
Circuit. For now, the FCC will enforce these rules based on case-by-case complaints. Because many of the requirements are vague
and because the FCC has not provided clear guidance on implementation, it is unclear how the FCC will enforce its rules and
adjudicate any related complaints. The FCC's new rules, if they withstand challenges, as well as any additional legislation or
regulation, could impose new obligations and restraints on high-speed Internet providers. Any such rules or statutes could limit
our ability to manage our cable systems to obtain value for use of our cable systems and respond to operational and competitive
challenges.
As the Internet has matured, it has become the subject of increasing regulatory interest. Congress and federal regulators have
adopted a wide range of measures directly or potentially affecting Internet use, including, for example, consumer privacy, copyright
protections, defamation liability, taxation, obscenity, and unsolicited commercial e-mail. Content owners are now seeking
additional legal mechanisms to combat copyright infringement over the Internet. Pending and future legislation in this area could
adversely affect our operations as an Internet service provider and our relationship with our Internet customers. Additionally, the
FCC and Congress are considering subjecting Internet access services to the Universal Service funding requirements. These
funding requirements could impose significant new costs on our high-speed Internet service. State and local governmental
organizations have also adopted Internet-related regulations. These various governmental jurisdictions are also considering
additional regulations in these and other areas, such as privacy, pricing, service and product quality, and taxation. The adoption
of new Internet regulations or the adaptation of existing laws to the Internet could adversely affect our business.