Charter 2012 Annual Report Download - page 24

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Traditional Overbuilds
Cable systems are operated under non-exclusive franchises historically granted by state and local authorities. More than one cable
system may legally be built in the same area. Franchising authorities may grant a second franchise to another cable operator that
may contain terms and conditions more favorable than those afforded us. Well-financed businesses from outside the cable industry,
such as public utilities that already possess fiber optic and other transmission lines in the areas they serve, have in some cases
become competitors. There are a number of cities that have constructed their own cable systems, in a manner similar to city-
provided utility services. There also has been interest in traditional cable overbuilds by private companies not affiliated with
established local exchange carriers. Constructing a competing cable system is a capital intensive process which involves a high
degree of risk. We believe that in order to be successful, a competitor’s overbuild would need to be able to serve the homes and
businesses in the overbuilt area with equal or better service quality, on a more cost-effective basis than we can. Any such overbuild
operation would require access to capital or access to facilities already in place that are capable of delivering cable television
programming. We cannot predict the extent to which additional overbuild situations may occur.
Broadcast Television
Cable television has long competed with broadcast television, which consists of television signals that the viewer is able to receive
without charge using an “off-air” antenna. The extent of such competition is dependent upon the quality and quantity of broadcast
signals available through “off-air” reception, compared to the services provided by the local cable system. Traditionally, cable
television has provided higher picture quality and more channel offerings than broadcast television. However, the recent licensing
of digital spectrum by the FCC now provides traditional broadcasters with the ability to deliver HD television pictures and multiple
digital-quality program streams, as well as advanced digital services such as subscription video and data transmission.
Internet Delivered Video
Internet access facilitates the streaming of video, including movies and television shows, into homes and businesses. Increasingly,
content owners are using Internet-based delivery of content directly to consumers, some without charging a fee to access the
content. Further, due to consumer electronic innovations, consumers are able to watch such Internet-delivered content on
televisions, personal computers, tablets, gaming boxes connected to televisions and mobile devices. We believe some customers
have chosen to receive video over the Internet rather than through our VOD and premium video services, thereby reducing our
video revenues. We can not predict the impact that Internet delivered video will have on our revenues and adjusted EBITDA as
technologies continue to evolve.
Private Cable
Additional competition is posed by satellite master antenna television systems, or SMATV systems, serving MDUs, such as
condominiums, apartment complexes, and private residential communities. Private cable systems can offer improved reception
of local television stations, and many of the same satellite-delivered program services that are offered by cable systems. Although
disadvantaged from a programming cost perspective, SMATV systems currently benefit from operating advantages not available
to franchised cable systems, including fewer regulatory burdens and no requirement to service low density or economically
depressed communities. The FCC previously adopted regulations that favor SMATV and private cable operators serving MDU
complexes, allowing them to continue to secure exclusive contracts with MDU owners. This regulatory disparity provides a
competitive advantage to certain of our current and potential competitors.
Other Competitors
Local wireless Internet services operate in some markets using available unlicensed radio spectrum. Various wireless phone
companies are now offering third and fourth generation (3G and 4G) wireless high-speed Internet services. In addition, a growing
number of commercial areas, such as retail malls, restaurants and airports, offer Wi-Fi Internet service. Numerous local governments
are also considering or actively pursuing publicly subsidized Wi-Fi and WiMAX Internet access networks. Operators are also
marketing PC cards and “personal hotspots” offering wireless broadband access to their cellular networks. These service options
offer another alternative to cable-based Internet access.
Regulation and Legislation
The following summary addresses the key regulatory and legislative developments affecting the cable industry and our three
primary services for both residential and commercial customers: video service, Internet service, and telephone service. Cable
system operations are extensively regulated by the federal government (primarily the FCC), certain state governments, and many
local governments. A failure to comply with these regulations could subject us to substantial penalties. Our business can be