| The pay television industry is highly competitive. Wireless cable television systems face or may face competition from several sources, such as traditional hard-wire cable companies, Satellite Receivers, Direct Broadcast
Satellites ("DBS") and other alternative methods of distributing and receiving
television transmissions. Further, premium movie services offered by cable
television systems have encountered significant competition from the home video cassette recorder industry. In areas where several local off-air VHF/UHF
broadcast signals can be receiving without the benefit of cable television,
cable television systems have also experienced competition from the
availability of broadcast signals generally and have found market penetration
more difficult. Wireless cable programming is transmitted through the air via microwave frequencies that generally require a direct "line-of-sight" from the
transmitter facility to the subscriber's receiving antenna. In communities with
dense foliage, hilly terrain, tall buildings or other obstructions in the transmission path, transmission is blocked at certain locations. Traditional
hard-wire cable systems deliver the signal to a subscriber's location through a
network of coaxial cable and amplifiers and do not require a direct line-of-sight for transmission. Therefore, those systems may have a competitive advantage over the Company in those areas where the reception of wireless cable
transmissions is difficult or impossible. In addition, in limited circumstances, extreme adverse weather could damage wireless cable transmission
and receiving antennas as well as transmission site equipment. Such conditions would not similarly affect hard-wire cable systems. Wireless cable programming can only be transmitted on the frequencies made available for wireless cable by the FCC. Currently, the number of channels of cable television programming that can be provided to subscribers of wireless
cable systems is limited to 33. The Company plans to utilize the proceeds of
the offering to implement digital compression technology to allow it to expand
the number of channels it makes available to subscribers to 56, and thereby
compete more effectively with hard-wire cable systems. Current hard wire cable companies in the Company's market area offer between 20 and 60 channels to their subscribers compared to the 23 channels the Company currently offers through its Mount Mansfield System. Satellite Receivers and D.S. have the capability of delivering over 100 channels of programming. The Company expects to be capable of delivering over 100 channels of programming through digital technology. Unlike hard-wire operations, wireless cable operators like the Company generally have to lease the wireless cable channels on which they transmit their programming from channel license holders. Leases generally require the Company to pay the lessor a fee based on a percentage of subscription revenues, averaging approximately 5%, or, if greater, a minimum monthly fee. Although hard-wire operators do not have to lease channels, they do have to pay franchise fees generally on all gross revenues from cable system operations and leasing fees for cables on telephone poles (as compared to only subscription
revenues in the case of wireless cable), typically in the range of 3% to 5%, an
expense that is not incurred by wireless operators. Programming is generally
available to traditional hard-wire and wireless operators on comparable terms,
although operators that have a smaller number of subscribers often are required to pay higher per subscriber fees. Accordingly, operators in the initial
operating stage generally pay higher programming fees on a per subscriber
basis. Certain hard-wire cable operators have announced their intention to
develop interactive features for use by their subscribers, such as shopping via
video catalogs and playing video games with neighbors. Interactive services are not currently available for wireless cable. The Company believes that the same manufacturers who have developed digital compression converters for both hard-wire and wireless cable will also make new developments in interactivity available to both industry segments. The FCC has designated a return path channel for use in connection with interactive services which may be offered by wireless cable operators. The Company believes that, if it is economically feasible to do so, wireless cable systems can include two-way interactivity. There can be no assurance that interactive services will be made available for wireless cable systems and, therefore, to the extent such services are available on hard-wire cable systems, the Company could be at a competitive disadvantage. Legislative, regulatory, and technological developments may result in additional and significant new competition, including competition from local telephone companies. Many actual and potential competitors have greater financial, marketing, and other resources than the Company. No assurance can be given that the Company will compete successfully with hard-wire cable and other pay television systems, or other companies engaged in providing the media services provided by the Company. |