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10-K
GRAHAM HOLDINGS CO filed this Form 10-K on 03/29/1994
Entire Document
 
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REGULATION OF CABLE TELEVISION AND RELATED MATTERS

      The Company's cable operations are subject to various requirements
imposed by local, state and federal governmental authorities.  The franchises
granted by local governmental authorities are typically nonexclusive and
limited in time and generally contain various conditions and limitations
relating to payment of fees to the local authority, determined generally as a
percentage of revenues.  Additionally, franchises often regulate the conditions
of service and technical performance, and contain various types of restrictions
on transferability.  Failure to comply with such conditions and limitations may
give rise to rights of termination by the franchising authority.

      The Cable Television Consumer Protection and Competition Act of 1992 (the
"1992 Cable Act"), requires or authorizes the imposition of a wide range of
regulations on cable television operations.  The three major areas of
regulation are (i) the rates charged for certain cable television services,
(ii) required carriage ("must carry") of some local broadcast stations, and
(iii) retransmission consent rights for commercial broadcast stations.

      Except in relatively rare instances of "effective competition" (defined
in the 1992 Cable Act as the presence of another cable operator or another
multichannel video service serving specified levels of customers in the same
community), monthly subscription rates for the basic tier of cable service may
be regulated by municipalities, subject to procedures and criteria established
by the FCC, and the FCC may regulate the rates charged for optional tiers of
service.  Rates charged by cable television systems for pay- per-view service,
for per-channel premium program services and for advertising are all exempt
from regulation under the 1992 Cable Act.  In April 1993 the FCC announced a
"freeze" on rate increases for regulated services (i.e. the basic and optional
tiers), which currently is due to expire on May 15, 1994, and promulgated
benchmarks for determining the reasonableness of rates for such services.  The
FCC expected that its benchmarks, which took effect on September 1, 1993, would
produce an overall average reduction of 10% in the rates charged for regulated
services.  The Company estimates that the combined effect of compliance with
the benchmarks and the rate freeze reduced its 1993 revenue from cable
operations by approximately $3 million.  The FCC's benchmarks were widely
criticized by some for being too stringent and by others for being too
permissive.  On February 22, 1994, acting on petitions to reconsider the
original benchmarks, the FCC adopted revisions designed to reduce overall rates
for regulated services by, on average, an additional 7%.  Although the Company
anticipates some further negative impact from these revisions, it is unable to
estimate the amount of that impact since the details of the rules implementing
the latest FCC action are not yet available.  Under the FCC's approach, cable
operators may exceed the benchmarks if they can show in a cost-of-service
proceeding that higher rates are needed to earn a reasonable return on
investment.  Also on February 22, 1994, the FCC announced the adoption of rules
to implement the cost-of-service standard; among other things the new rules
establish an interim industry-wide rate of return of 11.25%.  Various parties
have indicated they will seek judicial review of the FCC's rate regulation
decisions.

      Pursuant to the "must-carry" rules a commercial television broadcast
station may, under certain circumstances, insist on carriage of its signal on
cable systems located within the station's market area, while a noncommercial
public station may insist on carriage of its signal on cable systems located
within either the station's predicted Grade B contour or 50 miles of the
station's transmitter.  As a result of these obligations (the constitutionality
of which is presently under review in the United States Supreme Court) certain
of the Company's cable systems have had to add broadcast stations that they
might not otherwise have elected to carry, and the freedom the Company's
systems would otherwise have to drop signals previously carried has been
reduced.





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