| CSC HOLDINGS INC Item 1A Risk Factors We have substantial indebtedness and we are highly leveraged, which reduces our capability to withstand adverse developments or business conditions |
| We have incurred substantial amounts of indebtedness to finance operations, to upgrade our cable plant and acquire other cable television systems, programming networks, sources of programming and other businesses |
| We also have incurred indebtedness in order to offer our new services to our current and potential customers |
| We have also incurred substantial debt to pursue activities outside our core businesses such as our acquisitions of the Wiz, Clearview Cinemas and our development of Rainbow DBS We may continue to incur substantial amounts of debt in the future for these and other purposes, including possibly for a special dividend as discussed below |
| Because of our substantial indebtedness, we are highly leveraged and we will continue to be highly leveraged |
| This means that our payments on our borrowings are significant in relation to our revenues and cash flow |
| This leverage exposes us to significant risk in the event of downturns in our businesses (whether through competitive pressures or otherwise), in our industries or in the economy generally, because although our cash flows would decrease in this scenario, our required payments in respect of indebtedness will not |
| Our financial statements reflect substantial losses from continuing operations and a significant stockholders’ deficiency, and we expect that our net losses, absent one-time gains, may continue and remain substantial for the foreseeable future, which may reduce our ability to raise needed capital |
| We reported losses from continuing operations of dlra120dtta9 million, dlra469dtta6 million and dlra274dtta8 million for the years ended December 31, 2005, 2004 and 2003, respectively |
| Our losses from continuing operations primarily reflect our high interest expense, our preferred stock dividends (through May 2004) and depreciation and amortization charges, which may continue to be significant |
| Our continuing losses may limit our ability to raise needed financing, or to do so on favorable terms, as those losses are taken into account by the organizations that issue investment ratings on our indebtedness |
| Our Board of Directors may decide to declare a special dividend, all of the funding for which will come from additional indebtedness, which will increase our leverage |
| The Board of Directors of Cablevision has announced that it expects to begin reconsideration of a special dividend at its regularly scheduled meeting in March 2006 |
| There can be no assurance that the Board will decide to move forward with a special dividend |
| If the Board of Directors of Cablevision declares a special dividend, all of the funds to pay that dividend will come to Cablevision from CSC Holdings as a dividend |
| CSC Holdings would need to raise those funds through the incurrence of additonal debt |
| We are already highly leveraged |
| The incremental borrowings associated with a special dividend would substantially increase our leverage |
| In addition, these additional borrowings would increase our interest expense and our other debt service requirements, which are already substantial, and would reduce our borrowing capacity and financial flexibility |
| Accordingly, we may continue to incur losses from 24 ______________________________________________________________________ continuing operations and net losses for the foreseeable future |
| A special dividend would also increase our stockholders’ deficiency |
| A lowering or withdrawal of the ratings assigned to our debt securities by ratings agencies may further increase our borrowing costs and reduce our access to capital |
| Our debt ratings are below the “investment grade” category, which results in higher borrowing costs as well as a reduced pool of potential purchasers of our debt as some investors will not purchase debt securities that are not rated in an investment grade rating category |
| In addition, there can be no assurance that any rating assigned will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency, if in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant |
| A lowering or withdrawal of a rating may further increase our borrowing costs and reduce our access to capital |
| Our financial performance may be harmed by the significant and credible risks of competition in our cable television, high-speed data and voice businesses |
| Competition in our various business segments could adversely affect our business and financial results and our ability to service our debt |
| We compete with a variety of video programming distribution systems, including: • broadcast television stations, • direct broadcast satellite systems, • multichannel multipoint distribution services, • satellite master antenna television systems, and • private home dish earth stations |
| For example, two major direct broadcasting satellite, or DBS, services, EchoStar and DirecTV, are available to the vast majority of our customers |
| DBS services have attracted large subscriber bases, a significant portion of which are persons who were, or would have been, cable television subscribers |
| News Corporation’s acquisition of a controlling interest in DirecTV in 2003 significantly increased its competitive position |
| Federal laws also permit DBS systems to retransmit local broadcast television signals to their customers |
| This has also enhanced the competitive position of DBS Our ability to compete with these DBS services is also affected by the quality and quantity of programming available to us and to them |
| One of these services, DirecTV, has exclusive arrangements with the NFL that gives them access to programming that we cannot offer |
| Another source of competition is incumbent telephone companies such as Verizon and AT&T Verizon and AT&T Inc |
| are constructing systems designed to provide video programming as well as voice and data services to residential customers in parts of our service area, and have announced plans for construction in additional parts |
| Verizon has obtained authorizations to provide video programming in several localities in New York and has begun doing so in some areas |
| AT&T has announced its intent to provide video programming services in Connecticut and is seeking an exemption from the state’s cable franchise and other cable regulatory requirements |
| The existence of a new, broadly-deployed network with the capability of providing video, voice and data services, particularly one subject to a lesser regulatory burden, could present a significant competitive challenge to the Company |
| Actual or potential video competition to cable systems is also possible from wireless LMDS and MVDDS In addition, competitive service providers that utilize the public rights-of-way can operate an open video system, or OVS RCN Corporation is currently operating OVS systems that compete with us in portions 25 ______________________________________________________________________ of New York City |
| Cable systems also compete with the entities that make videotaped movies and programs available for home rental or sale |
| Our high-speed data offering to consumers faces intense competition from other providers of high-speed Internet access including DSL service offered by local telephone providers |
| These lines may also be used to offer video programming in competition with our cable systems |
| In addition, DBS providers have tested the use of certain spectrum to offer satellite-based high-speed data services and are offering broadband data services via partnerships and marketing arrangements with other DSL providers such as Verizon, AT&T and Earthlink |
| The FCC has allocated spectrum for use by licensed and unlicensed providers of wireless broadband service, including LMDS and MVDDS, which, if offered within Cablevision’s service area, could compete with our high-speed data offering |
| Our voice service offerings to consumers face intense competition from other providers of voice services, including local exchange carriers such as Verizon and other competitive providers of voice services, as well as VoIP providers like Vonage |
| Our ability to meet our obligations under our indebtedness may be restricted by limitations on our subsidiaries’ ability to send us funds |
| Our principal subsidiaries include various entities that own cable television systems or own interests in programming networks |
| Our ability to pay interest on and repay principal of our outstanding indebtedness is dependent primarily upon the operations of our subsidiaries and the distributions or other payments of the cash they generate to us in the form of dividends, loans or advances |
| Our subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due on our public indebtedness or to make any funds available to us to do so |
| Rainbow National Services LLC, is a party to a credit agreement and indentures that contain various financial and operating covenants that restrict the payment of dividends or other distributions |
| In addition, our subsidiaries’ creditors, including trade creditors, in the event of a liquidation or reorganization of any subsidiary, would be entitled to a claim on the assets of such subsidiaries, including any assets transferred to those subsidiaries, prior to any of our claims as a stockholder |
| Creditors of our subsidiaries are likely to be paid in full before any distribution is made to us |
| To the extent that we are a creditor of a subsidiary, our claims would be subordinated to any security interest in the assets of that subsidiary and/or any indebtedness of that subsidiary senior to that held by us |
| Our ability to incur debt and the use of our funds are limited by significant restrictive covenants in financing agreements |
| Our credit facilities and debt instruments contain various financial and operating covenants that, among other things, require the maintenance of financial ratios and restrict the relevant borrower’s ability to incur debt from other sources and to use funds for various purposes, including investments in some subsidiaries |
| Violation of these covenants could result in a default that would permit the parties who have lent money under such credit facilities and such other debt instruments to: • restrict the ability to borrow undrawn funds under such credit facilities, and • require the immediate repayment of the borrowings thereunder |
| These events would be likely to have a material adverse effect on the value of our debt and equity securities |
| We will need to raise significant amounts of funding over the next several years to fund capital expenditures, repay existing obligations and meet other obligations and the failure to do so successfully could adversely affect our business |
| Our business is very capital intensive |
| Operating and maintaining our cable television plant requires significant amounts of cash payments to third parties |
| Capital expenditures for our businesses were 26 ______________________________________________________________________ dlra769dtta3 million, dlra697dtta5 million, dlra832dtta1 million in 2005, 2004 and 2003, respectively, and primarily include payments for consumer premises equipment, such as new digital video cable boxes and modems, as well as infrastructure and maintenance expenditures on our cable and Lightpath telecommunications network, in addition to the capital requirements of our other businesses |
| We expect these capital expenditures to continue to be significant over the next several years, as we continue to market our video, high-speed data and voice services to our customers |
| Some of our subsidiaries have substantial future capital commitments in the form of long-term contracts that require substantial payments over a long period of time |
| For example, rights agreements with sports teams under which their games are carried on the networks of certain of our programming subsidiaries almost always involve multi-year contracts that are difficult and expensive to terminate |
| In addition, if we fail to spend the requisite amounts under our affiliation agreement with EchoStar, up to a maximum of dlra500 million during the 2005-2010 period in our VOOM HD Networks programming business, EchoStar may terminate the affiliation agreement |
| We also face the need to renovate our Madison Square Garden Arena in the next several years or pursue a relocation alternative either of which would require significant funding |
| Accordingly, if we are forced to cancel or scale back current and future spending programs as described above, our choice of which spending programs to cancel or scale back may be limited |
| We will not be able to generate sufficient cash internally to both meet these obligations and repay our indebtedness at maturity |
| Our funding needs will also increase if our Board of Directors decides to pay a special dividend as described above |
| Accordingly, we will have to do one or more of the following: • raise additional capital, through debt or equity issuances or both, • cancel or scale back current and future spending programs, or • sell assets or interests in one or more of our businesses |
| However, you should not assume that we will be able to raise any required additional capital or to do so on favorable terms |
| If we are unable to pursue our current and future spending programs, we may be forced to cancel or scale back those programs |
| Our choice of which spending programs to cancel or reduce may be limited |
| Failure to successfully pursue our capital expenditure and other spending plans could materially and adversely affect our ability to compete effectively |
| Government investigations relating to improper expense recognition and the timing of recognition of launch support, marketing and other payments under affiliation agreements are pending, the scope and outcome of which could have a negative impact on the price of our securities and our business |
| In June 2003, we reported that we had discovered certain improper expense accruals primarily at the national programming services of our Rainbow segment |
| Following that announcement, investigations were commenced by the SEC and the US Attorney’s Office for the Eastern District of New York |
| In addition, in July 2004, in connection with our response to comments of the staff of the Division of Corporation Finance of the SEC with respect to our filings under the Securities Exchange Act of 1934, we provided the SEC with information with respect to certain of our previous restatements/adjustments relating to the timing of recognition of launch support, marketing and other payments under affiliation agreements |
| The SEC is continuing to investigate the improper expense recognition matter and the timing of recognition of launch support, marketing and other payments under affiliation agreements |
| The matter has occupied and will continue to occupy the time and attention of our management team |
| We are cooperating fully and intend to continue to do so |
| Any adverse developments in connection with this matter, including a determination that we have acted improperly, could have a material adverse effect on our stock price, including increased stock price volatility and could negatively impact our business and our ability to raise additional funds in the future |
| Litigation is pending seeking to enjoin the payment of a special dividend |
| A shareholder class action was filed against Cablevision and its individual directors in, among other jurisdictions, the New York Supreme Court for Nassau County relating to the Dolan family group’s proposal to acquire the outstanding, publicly-held interests in Cablevision |
| On October 24, 2005, the 27 ______________________________________________________________________ Company received a letter from the Dolan family group withdrawing that proposal and recommending the consideration of a special dividend |
| On November 17, 2005, the plaintiffs filed a consolidated amended complaint in the New York Supreme Court action to relate to the special dividend proposed by the Dolan family group |
| The amended complaint sought, among other things, to enjoin the payment of the special dividend proposed by the Dolan family group |
| On February 9, 2006, the plaintiffs filed a second amended complaint adding allegations related to the December 19, 2005 announcement that the Board had decided not to proceed with the proposed special dividend, and the January 31, 2006 announcement that the Board is expected to begin reconsideration of a possible special dividend at its regularly scheduled meeting in March 2006 |
| On December 28, 2005, a purported shareholder derivative complaint was filed in the US District Court for the Eastern District of New York alleging that certain events during 2005, including those relating to the proposed special dividend, constitute breaches of fiduciary duty |
| The action is brought derivatively on behalf of Cablevision and names as defendants each member of the Board of Directors |
| The complaint seeks unspecified damages and contribution and indemnification by the defendants for any claims asserted against the Company as a result of the alleged breaches |
| The plaintiff in a patent infringement case pending in the US District Court for the Eastern District of New York, Rates Technology Inc |
| Cablevision Systems Corp, has requested permission from the court to file a supplemental complaint alleging that the special dividend would constitute a fraudulent conveyance and seeking to enjoin payment of any such dividend |
| The underlying patent infringement complaint, filed in July 2005, alleges that the Company’s Optimum Voice products infringe two patents owned by the plaintiff |
| Programming costs of our cable television systems are increasing and we may not have the ability to pass these increases on to our subscribers |
| Programming costs paid by our cable television systems have experienced a rapid increase, particularly with respect to costs for sports programming |
| Programming costs are now one of our largest categories of expenses |
| These increases are expected to continue, and we may not be able to pass programming cost increases on to our subscribers due to the increasingly competitive environment |
| If we are unable to pass these increased programming costs on to our subscribers, our operating results would be adversely affected |
| We also face financial and other demands by broadcasters to obtain the required consent for the retransmission of broadcast television signals to our subscribers |
| We may be unable to recoup these costs from our cable television subscribers |
| Moreover, we could lose subscribers if we are required to stop offering this programming |
| We face intense competition in obtaining content for our programming businesses |
| Rainbow Media Holdings’ programming businesses compete with other programming networks to secure desired programming |
| Most of Rainbow Media Holdings’ programming is obtained through agreements with other parties that have produced or own the rights to such programming |
| Competition for and choices of programming will increase as the number of programming networks increases |
| Other programming networks that are affiliated with programming sources such as movie or television studios, film libraries or sports teams may have a competitive advantage over Rainbow Media Holdings in this area |
| The success of our programming businesses depends upon the availability of programming that is adequate in quantity and quality, and our ability to obtain carriage of our programming |
| Rainbow Media Holdings’ programming networks compete in two highly competitive markets |
| First, our programming networks compete with other programming networks to obtain distribution on cable television systems and other multichannel video programming distribution services |
| Second, the success of our programming businesses depends upon the availability of programming that is adequate in quantity and quality |
| In particular, the national entertainment networks depend upon the availability of films, television programming and music in their niche markets and the regional sports networks depend upon the availability of local sports programming, especially professional sports programming |
| The national entertainment networks are parties to film rights agreements giving the networks the right to carry certain films during certain window periods |
| The regional sports networks are parties to sports rights agreements giving the networks the right to carry all or a portion of the games of local professional sports teams |
| These rights agreements expire at varying times, may be terminated by the other party if we are not in compliance with the terms of the agreement and, in the case of all sports rights agreements, are subject to league rules and regulations |
| In addition, our programming businesses are parties to affiliation agreements with distributors that require those programming businesses to deliver programming that meets certain standards as to quantity, quality or content |
| For example, certain affiliation agreements require that our regional sports networks deliver a certain minimum number of local professional sports 28 ______________________________________________________________________ games |
| We would not be able to satisfy those requirements if we did not have the rights to carry the prerequisite number of games from the local professional sports teams |
| In 2005, we settled litigation with Time Warner, which attempted to terminate its affiliation agreement with AMC, based on the allegation that AMC had changed its programming |
| To the extent that we do not or are not able to satisfy the quantity, quality or content standards set forth in our affiliation agreements, distributors may have the right to terminate those affiliation agreements |
| We cannot assure you that our programming businesses will ultimately be successful in negotiating renewals of their rights agreements or program supply agreements or in negotiating adequate substitute rights or program supply agreements in the event that their rights or program supply agreements expire or are terminated |
| A significant amount of our book value consists of intangible assets that may not generate cash in the event of a voluntary or involuntary sale |
| At December 31, 2005, we reported approximately dlra9dtta8 billion of consolidated total assets, of which approximately dlra2dtta6 billion were intangible |
| Intangible assets include franchises from city and county governments to operate cable television systems, affiliation agreements, and amounts representing the cost of some acquired assets and businesses in excess of their identifiable tangible and intangible assets |
| While we believe that the carrying value of our intangible assets are recoverable, you should not assume that we would receive any cash from the voluntary or involuntary sale of these intangible assets, particularly if we were not continuing as an operating business |
| We urge you to read carefully our consolidated financial statements contained herein, which provide more detailed information about these intangible assets |
| We are controlled by the Dolan family |
| As a result of their control of us, the Dolan family has the ability to prevent or cause a change in control or approve, prevent or influence certain actions by us |
| We have two classes of common stock: • Class B common stock, which is generally entitled to ten votes per share and is entitled collectively to elect 75prca of the Cablevision board of directors, and • Class A common stock, which is entitled to one vote per share and is entitled collectively to elect the remaining 25prca of the Cablevision Board of Directors |
| As of February 24, 2006, the Dolan family, including trusts for the benefit of members of the Dolan family, collectively owned all of Cablevisionapstas Class B common stock, less than 2prca of Cablevision’s Class A common stock and approximately 75prca of the total voting power of all the outstanding Cablevision common stock |
| Of this amount, our Chairman, Charles F Dolan, owned approximately 45prca of Cablevisionapstas Class B common stock, less than 1prca of Cablevisionapstas Class A common stock and approximately 33prca of the total voting power of all the outstanding Cablevision common stock |
| The Dolan family has executed a voting agreement that has the effect of causing the voting power of the Class B stockholders to be cast as a block with respect to the election of the directors elected by the Class B stockholders and any change of control transaction |
| The Dolan family is able to prevent a change in control of Cablevision and no person interested in acquiring Cablevision will be able to do so without obtaining the consent of the Dolan family |
| On June 19, 2005, Cablevision received a proposal from the Dolan family to acquire the outstanding publicly-held interests in Cablevision following a pro rata distribution of Rainbow Media Holdings, which was later withdrawn (in the withdrawal letter, the Dolan family recommended that the Companyapstas Board of Directors consider a one-time, special dividend payable pro rata to all stockholders as discussed in Item 5 below) |
| In the going private proposal, the Dolan family stated that they were only interested in pursuing their proposed transaction and would not sell their stake in Cablevision |
| This proposed transaction would have resulted in the incurrence by CSC Holdings of very substantial additional indebtedness |
| There can be no assurances that the Dolan family will not propose, undertake or consummate a similar transaction in the future |
| As a result of the Dolan family’s ownership of all of the Class B common stock, the Dolan family has the power to elect all the directors of Cablevision subject to election by holders of Class B common stock |
| In addition, Dolan family members may control stockholder decisions on matters in which holders of all classes of Cablevision common stock vote together as a single class |
| These matters could include the amendment of some provisions of Cablevisionapstas certificate of incorporation and the approval of fundamental corporate transactions |
| In addition, the affirmative vote or consent of the holders of at least 66-2/3prca of the outstanding shares of the Class B common stock, voting separately as a class, is required to approve the authorization or issuance of any additional shares of Class B common stock |
| Furthermore, the Dolan family members also have the power to prevent any amendment, alteration or repeal of any of the provisions of Cablevisionapstas certificate of incorporation that adversely affects the powers, preferences or rights of the Class B common stock |
| One purpose of the voting agreement referred to above is to consolidate Dolan family control of Cablevision |
| The Dolan family requested Cablevisionapstas Board of Directors to exercise Cablevisionapstas right, as a "e controlled company "e , to opt-out of the New York Stock Exchange listing standards that, among other things, require listed companies to have a majority of independent directors on their board and to have an independent corporate governance and nominating committee |
| Cablevisionapstas Board of Directors and the directors elected by holders of Class A common stock each approved this request on March 8, 2004 |
| 29 ______________________________________________________________________ Our business is subject to extensive government regulation and changes in current or future laws or regulations could restrict our ability to operate our business as we currently do |
| The FCC and state and local governments extensively regulate the basic rates we may charge our customers for certain of our video services |
| They also regulate us in other ways that affect the daily conduct of our video delivery and video programming businesses, our telephone business and, possibly in the future, our high-speed data services business |
| Our businesses are dependent upon FCC licenses to carry on their operations |
| Any action by the FCC, the states of New York, New Jersey or Connecticut, or concerted action by local regulators, the likelihood or extent of which we cannot predict, could have a material adverse financial effect on us |
| Pending FCC, Congressional and judicial proceedings may affect our businesses |
| Indecency and Obscenity Restrictions |
| Cable operators and broadcasters are prohibited from transmitting obscene programming, but only broadcasters currently are subject to restrictions on the transmission of indecent material |
| They may not transmit indecent programming when there is a reasonable risk of children in the audience (6 a |
| Some Members of Congress have proposed expanding the prohibitions on indecent programming to include cable and satellite programs, notwithstanding the availability of program blocking devices provided by cable and DBS operators |
| Penalties for violations of this restriction can be severe |
| We cannot predict the likelihood that such restrictions on cable programming can or will be imposed or the effect such restrictions would have on our cable television and cable programming businesses |
| Some members of Congress and the Chairman of the Federal Communications Commission have suggested that indecency restrictions for cable might be unnecessary if cable operators were to offer a separate tier of “family” programming or to offer programming services for purchase on an individual, “a la carte”, basis |
| We cannot predict whether the FCC or Congress would mandate such a tier or offering, or the effect of either such requirement on our cable television and cable programming businesses |
| National Franchising Standards |
| Congress is considering legislation that, for the telephone companies and other wireline video competitors, would relax or eliminate some or all of the local franchising requirements applicable to existing cable operators |
| The FCC is also considering whether to adopt standards for the award of additional competitive cable franchises, and whether such standards should also apply to the renewal of existing franchises |
| If adopted, these standards could make it easier for new entrants, including Verizon and AT&T, to obtain the authorizations necessary to provide service in competition with us |
| We cannot predict whether Congress will adopt such legislation or what form it would take, whether the FCC will impose any such standards, or the effect of either on our cable television or cable programming businesses |
| 30 ______________________________________________________________________ Diversity Requirements |
| The FCC has announced that it may open a proceeding to examine whether the so-called “70/70 test” in the Federal Cable Act has been satisfied |
| Under this provision, when cable systems with 36 or more activated channels are available to 70 percent of households within the United States, and when 70 percent of those households subscribe to them, the FCC may promulgate any additional rules necessary to promote diversity of information sources |
| We cannot predict whether the FCC will impose any such requirements, the nature of any such requirements, or the effect of such on our cable television or cable programming businesses |
| Ownership Limitations |
| Congress has required the FCC to set limits on the number of channels that we can program with programming services we control, and a national limit on the number of subscribers we can serve |
| In 2001, a federal appellate court held unconstitutional the FCC’s rules establishing a 30prca national multichannel subscriber limit and the 40prca limit on the number of cable channels that a cable operator like Cablevision could program with services in which it holds an attributable ownership interest |
| The FCC is reviewing the ownership rules in light of that decision |
| We cannot predict at this time how the FCC will rule on these matters |
| Must-Carry/Retransmission Consent |
| We are required by federal law to carry all local broadcast stations (“must-carry”), or, at the option of a local broadcaster, to obtain the broadcaster’s prior consent for retransmission of its signal |
| A substantial number of local broadcast stations currently carried by our cable television systems have elected to negotiate for retransmission consent |
| Our cable television systems have reached retransmission consent agreements with most broadcast stations they currently carry, but the potential remains for broadcast station carriage to be discontinued if such an agreement is not renewed following its expiration |
| Congress has established a “hard” date of February 17, 2009, as the deadline by which broadcasters must relinquish their analog spectrum |
| No later than February 18, 2009, they must transmit solely in digital format |
| When a broadcaster completes its transition from analog to digital transmission, only its primary digital video stream will be entitled to must-carry |
| The FCC has twice found that “dual must carry” rules (requiring cable systems to carry both the analog and digital broadcast signals) would be unconstitutional |
| The FCC has also ruled that broadcasters may not demand mandatory carriage for other than the primary digital video programming stream |
| The orders rejecting dual must carry and mandatory “multicasting” are currently subject to petitions for reconsideration pending for the FCC We cannot predict how the FCC will rule on those petitions or whether Congress will enact legislation modifying the FCC’s orders |
| Access Obligations |
| Some parties have proposed federal, state and local requirements that would force cable systems to provide access to third-party Internet service providers in addition to services the cable system itself provides, such as our Optimum Online cable modem service |
| In March 2002, the FCC determined that services like Optimum Online should be classified as “information services” for regulatory purposes, and the Supreme Court upheld that determination earlier this year |
| The FCC has traditionally subjected information services to a lesser degree of regulation than “telecommunications services,” which are offered to the public for a fee on a common carrier basis |
| The FCC has asked whether it should nonetheless require cable operators to provide transmission capacity to unaffiliated Internet service providers |
| The outcome of the FCC’s proceeding could affect the regulatory obligations imposed on Optimum Online, and the extent to which states and local authorities may regulate it or assess fees upon revenues generated by it |
| Relatedly, bills pending in the House and Senate would impose a so-called “net neutrality” requirement on cable operators and other broadband service providers barring them from “interfering” with subscriber access to Internet content |
| The FCC has adopted principles, but not rules, that similarly state that consumers are entitled to access all lawful Internet content using their broadband connections |
| We cannot predict whether the pending bills will become law or whether the FCC will adopt binding rules embodying these principles |
| Tiering/A La Carte |
| Federal law also requires cable operators to carry the signals of local broadcasters on the lowest priced tier of service and leased access programming on the most widely purchased tier, but does not otherwise dictate the number or nature of programming services carried by a cable operator on 31 ______________________________________________________________________ each service tier |
| Some members of Congress, however, have proposed requiring cable operators to offer programming services on an unbundled basis rather than as part of a tier or to provide a greater array of tiers to give subscribers the option of purchasing a more limited number of programming services |
| The FCC also has indicated an interest in requiring cable operators to offer programming services in this “a la carte” manner, and in February 2006 released a report finding “substantial benefits” in the a la carte model of delivering video programming |
| We cannot predict whether Congress or the FCC might adopt such a requirement, what form it would take, or the effect of such a requirement on our cable television business or Rainbow Media Holdings |
| Program Access |
| The “program access” provisions of federal law, which expire at the end of 2007, require us to make Rainbow Media Holdings’ satellite-delivered video programming services available to competing multichannel video programming providers, such as DBS providers and telephone companies |
| Rainbow Media Holdings cannot have exclusive contracts with cable operators for these services, nor can it discriminate in the prices, terms and conditions of sale or distribution of these services |
| The program access rules do not generally cover terrestrially-delivered programming created by cable-system affiliated programmers such as Rainbow Media Holdings |
| The FCC has declined to apply the program access rules to terrestrially-delivered programming services, but some members of Congress have suggested extending the requirements to these services |
| We cannot predict whether Congress or the FCC might adopt such an expansion of the program access rules in the future or what effect such an extension might have on Rainbow Media Holdings |
| VoIP Our rollout of Optimum Voice, a VoIP service that is offered via our cable modem service as an add-on to our Optimum Online service, could also be affected by FCC decisions |
| The regulatory treatment of VoIP services is uncertain |
| Congress and several state commissions are examining issues surrounding the provision of VoIP In February 2004, the FCC initiated a generic rulemaking proceeding concerning the legal and regulatory implications of IP-based services, including VoIP services |
| In November 2004, the FCC determined that VoIP services with certain characteristics, including cable-provided VoIP services, are interstate services subject to federal rather than state jurisdiction |
| The FCC’s determination has been appealed to a federal court of appeals |
| Congress and several state commissions also are reviewing the provision of VoIP services |
| We cannot predict what, if any, statutory or regulatory obligations will be imposed on VoIP services like Optimum Voice, including the application of various indirect taxes, and what, if any, role state and local authorities will have in regulating these services |
| Interconnection |
| The 1996 Telecommunications Act requires Lightpath to interconnect directly or indirectly with other telecommunications carriers |
| In some cases, interconnecting carriers must compensate each other for the transport and termination of calls on their network (ie, reciprocal compensation) |
| The FCC is exploring methods to unify intercarrier compensation and access charges and is considering a bill-and-keep approach (ie, no compensation is paid between carriers) as well as several other alternative approaches to modifying the existing intercarrier compensation regimes |
| We cannot predict how the FCC might rule on these issues |
| Any change to intercarrier compensation could affect Lightpath’ ;s operating results |
| Universal Service |
| Lightpath is subject to federal and state regulations that implement universal service support for access to telecommunications services and information services by rural, high-cost, and low-income markets at reasonable rates; and access to advanced telecommunications services by schools, libraries, and rural health care providers |
| Currently, the FCC assesses Lightpath for payments and other subsidies on the basis of a percentage of interstate revenue it receives from certain customers |
| The FCC adopted new rules regarding the assessment of universal service contributions in December 2002 |
| Instead of assessing universal service contributions based on revenues accrued six months prior, contributions now are based on projections of revenue |
| Also, the FCC placed limits on the mark-up carriers may place on the universal service line items on their customer bills |
| In addition, the FCC is considering assessing carriers’ universal service contributions based on a flat-fee charge, such as a per-line or per-number charge |
| The FCC is also reviewing whether to impose universal service obligations on additional types of providers, such as 32 ______________________________________________________________________ broadband providers or a VoIP service like Optimum Voice |
| States may also assess such payments and subsidies for state universal service programs |
| We cannot predict how the FCC and states may rule on these matters |
| Any changes to the assessment and recovery rules for universal service may affect Lightpath’s and Optimum Voice’s financial results |
| Access Charges |
| Like ILECs, CLECs may assess interstate access charges on interexchange carriers whose customers access the ILEC or CLEC’s local network |
| The FCC has issued an order implementing a benchmark for decreasing access rates that CLECs can charge, moving such rates in alignment with lower ILEC access rates |
| This decision may be modified further by the FCC’s ongoing review of intercarrier compensation as discussed above |
| We cannot predict how the FCC might rule on these matters |
| Any changes to the current access charge regime may affect Lightpath’s revenues |
| Unbundled Network Elements |
| In August 2003, the FCC reduced the number of network elements ILECs must offer to competitors |
| The FCC’s August 2003 action was appealed and in March 2004 was vacated and remanded by a federal court of appeals |
| In response to the remand, the FCC issued new rules in February 2005 regarding the network elements ILECs are required to make available |
| Those rules currently are being challenged before the same federal court of appeals |
| The FCC has also initiated a comprehensive review of its rules setting the price that competitors pay for ILEC network elements |
| Although Lightpath does not rely principally on the network elements purchased from ILECs, the ultimate outcome of the appeal or any subsequent FCC action could affect Lightpath’s and other competitors’ ability to obtain access to elements of the ILECs’ networks they require to provide service to their customers |
| In addition, any changes to the pricing scheme for network elements may affect Lightpath’s operating results |
| 33 ______________________________________________________________________ Our current franchises are non-exclusive and our franchisors need not renew our franchises |
| Our cable television systems are operated primarily under non-exclusive franchise agreements with state or municipal government franchising authorities, in some cases with the approval of state cable television authorities |
| Consequently, our business is dependent on our ability to obtain and renew our franchises |
| Although we have never lost a franchise as a result of a failure to obtain a renewal, our franchises are subject to non-renewal or termination under some circumstances |
| In some cases, franchises have not been renewed at expiration, and we operate under temporary authority from the state while negotiating renewal terms with the franchise authorities |
| At December 31, 2005, one of our ten largest franchises had expired and we are currently operating in this area under temporary authority |
| cablevision |
| We make available through our Website links to our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file or furnish those reports to the Securities and Exchange Commission |