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aq<r�oaN�P City Council Staff Report
DATE: November 15, 2006 Consent Calendar
SUBJECT: APPROVE AN EXTENSION OF THE CABLE TELEVISION FRANCHISE
AGREEMENT WITH TIME WARNER THROUGH JANUARY 2, 2008
FROM: David H. Ready, City Manager
BY: Assistant City Manager—Administrative Services
SUMMARY
The City has heretofore entered into two separate franchise agreements for cable
television services. These agreements, which cover two separate areas of the City, were
both for 17 year terms expiring in late 2004 and early 2005, respectfully. The cable
operator, Time Warner, has filed timely notice of its intent to renew both franchise
agreements pursuant to Federal law. In light of this notice, the City Council agreed to
extend both agreements through December 31, 2006 to facilitate the renewal process and
to negotiate a new agreement with the cable operator. Although the City, through its cable
consultant, The Buske Group, has completed its compliance review of the cable operator
and is now prepared to commence negotiations, recent changes in State law (Assembly
Bill 2987), which creates a state-issued cable franchise, has created some uncertainty
concerning the renewal process and whether Time Warner will seek a state-issued
franchise or negotiate a renewal of the existing cable franchise. This action will extend the
existing cable franchise to January 2, 2008 to enable the City and Time Warner to discuss
the impacts of this legislation and other issues related to the renewal of the cable
franchise.
RECOMMENDATION:
1. Adopt Resolution No. _ Extending the Cable Television Franchise Granted to
Palmer Cablevision under Agreement 2792 through January 2, 2008; and
2. Adopt Resolution No. Extending the Cable Television Franchise Granted to
Warner Cable Communications under Agreement 2535 through January 2, 2008;
and
3. Authorize the City Manager to sign all documents necessary to effectuate this
action.
rMM Nao.
City Council Staff Report
November 15, 2006 -- Page 2
Extension of Cable Television Franchise
STAFF ANALYSIS'
On January 20, 1988, the City Council adopted Ordinance 1295 providing for the
establishment and granting franchises, or privileges, for the construction, maintenance,
and operation of a cable television system within the City. Pursuant to this Ordinance, the
City Council granted a franchise agreement on or about January 20, 1988 with Warner
Cable Communications. This agreement was for a 17 year term expiring January 20,
2005. On or about November 15, 1989, the City Council granted a separate franchise
agreement to Palmer Cablevision. This agreement was also for a 17 year term expiring on
November 15, 2004.
Over the years both franchise agreements have been sold and transferred to different
cable operators. In the mid-1990's, the franchises were finally consolidated under a single
cable operator, Time Warner.
On or about February 15, 2002, Time Warner gave formal notice to the City of its intent to
renew both franchises, pursuant to the provisions of the Cable Communications Policy Act
of 1984 as amended (47 U.S.C. § 546).
In March 2005, the City Council authorized the retention of a cable consultant to assist
staff with the renewal process. The City's cable consultant, The Buske Group, has been
working diligently with Time Warner on a number of issues. The City's consultant has
completed a compliance, franchise fee, and technical audit of the cable system. In
addition, extensive public outreach has been done, including a telephone survey, focus
groups, interviews, and individual meetings with stakeholder groups, including the
hospitality industry. A detailed report, which outlines the consultant's findings, the
community's perceptions about the cable system and the community's future cable-related
' needs, will be presented to the City Council under separate cover in the near future.
The current extension to the franchise agreements expires on December 31, 2006. In light
of Assembly Bill 2987, which creates a new paradigm for cable franchising in California,
any company that currently has a local franchise may seek a renewal of its existing
franchise or it may seek a state franchise under the following conditions:
1. when their local franchise expires; or
2, on a date that they mutually agree upon with the local franchising authority (e.g.,
City); or
3. when a competitive video service provider (e.g., AT&T or Verizon) receives a state
franchise and notifies the local franchising authority that it intends to begin providing
video services within all or part of the community.
' If the incumbent cable company seeks a state franchise, the franchise previously issued by
the local franchising authority is terminated and replaced by a state franchise. Obviously
this legislation has created a lot of uncertainty as it relates to the current renewal process.
For your information, an overview of the new legislation and its impact on the franchise
renewal process is attached.
City Council Staff Report
November 15, 2006 -- Page 3
Extension of Cable Television Franchise
Since staff does not know whether Time Warner is planning to apply for a state issued
franchise or to renew their existing cable franchise with the City, staff believes that it would
be prudent to extend both franchise agreements through January 2, 2008. Staff has
discussed this with Time Warner and they are they are in agreement with this extension.
In addition, staff has scheduled a meeting with Time Warner for early December to discuss
the impacts of the new legislation and whether they plan to pursue a state issued
franchise.
• Resolutions extending the term of both franchise agreements have been prepared and are
attached for your consideration.
FISCAL IMPACT: Finance Director Review:
The requested action does not have a fiscal impact on the City.
T L. Butzla i tant City Manager David H. Ready, City ager
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A ments:
Resolutions (2)
Overview of AB 2987 and Its Impact on Cable Franchising
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
PALM SPRINGS EXTENDING THE CABLE TELEVISION
FRANCHISE AGREEMENT WITH PALMER CABLE
COMMUNICATIONS
WHEREAS, the provision of cable services are a critical service for many
Palm Springs residents and the public at large; and
WHEREAS, provision of cable services necessitates an agreement for use of
public right-or-way between the City of Palm Springs ("Grantor") and all cable
providers; and
WHEREAS, Grantor entered in a cable franchise agreement ("Franchise
Agreement") with Palmer Cablevision on or about November 15, 1989; and
WHEREAS, the Franchise with Palmer Cablevision has transferred several
times to different cable operators throughout the years; and
WHEREAS, Time-Warner ("Grantee") is the current holder of the cable
television franchise; and
! WHEREAS, Grantee has filed timely notice of intent to renew its Franchise
Agreement with Grantor; and
WHEREAS, on or about December 15, 2004, the City Council adopted
Resolution No. 21159 extending the term of the Franchise Agreement through
December 31, 2005 to allow the parties to complete the renewal process and to
negotiate the terms and conditions of a new franchise; and
WHEREAS, on or about December 7, 2005 the City Council adopted
Resolution 21471 extending the term of the Franchise Agreement through
December 31, 2006 to allow the parties to continue the franchise renewal process
and to negotiate the terms and conditions of a new franchise; and
WHEREAS, a new state law dealing with cable communications, AB 2987,
was passed on August 31, 2006 and is effective on January 1, 2007; and
WHEREAS, certain aspects of the new law require action by certain state
agencies and will impact the City's franchise renewal process; and
WHEREAS: The City is willing to extend the franchise in order to continue to
consider the renewal request made by Time-Warner pursuant to 47 USC 546, to the
earlier of (a) January 2, 2008, (b) the date when Time-Warner is issued a renewed
local franchise, or (c) the effective date of any state franchise issued to Time-Warner
pursuant to AB 2987; and
WHEREAS, the City is willing to extend the franchise to the date as indicated
above so long as Time-Warner abides by the terms and conditions of all franchise
commitments during any such extension, and neither Time-Warner nor the City is
otherwise prejudiced by the extension.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF PALM SPRINGS, CALIFORNIA, as follows:
Section 1. Extension of the Term of the Franchise Agreement
The Grantor hereby agrees and consents to extend the current Franchise
Agreement, granted to Grantee pursuant to Agreement 2792, to the earlier of (a)
January 2, 2008, (b) the date when Time-Warner is issued a renewed local franchise,
or (a) the effective date of any state franchise issued to Time-Warner pursuant to AB
2987.
Section 2. Terms and Conditions of Extension of the Agreement.
The Grantor's consent to the extension, described above, is subject to, and
conditioned upon, the following terms and conditions, all of which are hereby
incorporated in the Franchise Agreement:
A. All terms and conditions of the existing Franchise Agreement shall remain in
full force and effect during the extension period.
B. The extension shall have no adverse effect on Grantee's compliance, nor shall
the extension be grounds for any change or modification in the remaining
terms, conditions and obligations of the Franchise Agreement. Further, the
extension of the franchise agreement will not affect, diminish, impair or
supercede the binding nature of the existing ordinances, resolutions and
agreements applicable to operation of the cable system.
C. The Grantor's consent to extend the Franchise Agreement, as set forth herein,
shall not be construed, in any manner whatsoever, to constitute a waiver or
release of any rights that the Grantor may have under the Franchise
' Agreement, whether those rights arose before or after the change in control to
Grantee, and the fact that such deficiencies may have existed prior to the
change in control shall not be a defense against correction of the deficiencies
or non-compliance.
D. Both parties hereby reserve all rights under applicable provisions of the Cable
Communications Policy Act of 1984 (The "Cable Act"), including, without
limitation, Sections 626 and 635. Nothing herein shall be deemed or
construed as a waiver, release or surrender of any right that either party may
have under the Cable Act or any applicable law.
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ADOPTED this day of 2006,
AYES:
NOES:
ABSENT:
ATTEST: CITY OF PALM SPRINGS, CALIFORNIA
By:
City Clerk City Manager
REVIEWED AND ADOPTED AS TO FORM:
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RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
PALM SPRINGS EXTENDING THE CABLE TELEVISION
FRANCHISE AGREEMENT WITH WARNER CABLE
COMMUNICATIONS
WHEREAS, the provision of cable services are a critical service for many
Palm Springs residents and the public at large; and
WHEREAS, provision of cable services necessitates an agreement for use of
public right-or-way between the City of Palm Springs ("Grantor") and all cable
providers; and
WHEREAS, Grantor entered in a cable franchise agreement ("Franchise
Agreement") with Warner Cable Communications ("Grantee") on or about January 20,
1988; and
WHEREAS, the term of the Franchise Agreement was for a 17 year period
expiring on January 20, 2005; and
WHEREAS, Grantee has filed timely notice of intent to renew its Franchise
Agreement with Grantor; and
WHEREAS, on or about December 15, 2004, the City Council adopted
Resolution No. 21159 extending the term of the Franchise Agreement through
December 31, 2005 to allow the parties to complete the renewal process and to
negotiate the terms and conditions of a new franchise; and
WHEREAS, on or about December 7, 2005 the City Council adopted
Resolution 21472 extending the term of the Franchise Agreement through
December 31, 2006 to allow the parties to continue the franchise renewal process
and to negotiate the terms and conditions of a new franchise; and
WHEREAS, a new state law dealing with cable communications, AB 2987,
was passed on August 31, 2006 and becomes effective on January 1, 2007; and
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WHEREAS, certain aspects of the new law require action by certain state
agencies and will impact the City's franchise renewal process; and
WHEREAS: The City is willing to extend the franchise in order to continue to
consider the renewal request made by Time-Warner, pursuant to 47 USC 546, to the
earlier of (a) January 2, 2008, (b) the date when Time-Warner is issued a renewed
local franchise, or (c) the effective date of any state franchise issued to Time-Warner
pursuant to AB 2987; and
WHEREAS, the City is willing to extend the franchise to the date as indicated
above so long as Time-Warner abides by the terms and conditions of all franchise
commitments during any such extension, and neither Time-Warner nor the City is
otherwise prejudiced by the extension.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF PALM SPRINGS, CALIFORNIA, as follows:
Section 1. Extension of the Term of the Franchise Agreement
The Grantor hereby agrees and consents to extend the current Franchise
Agreement, granted to Grantee pursuant to Agreement 2535, to the earlier of (a)
January 2, 2008, (b) the date when Time-Warner is issued a renewed local franchise,
or (c) the effective date of any state franchise issued to Time-Warner pursuant to AB
2987.
Section 2. Terms and Conditions of Extension of the Agreement.
The Grantor's consent to the extension described above is subject to, and
conditioned upon, the following terms and conditions, all of which are hereby
incorporated in the Franchise Agreement:
A. All terms and conditions of the existing Franchise Agreement shall remain in
full force and effect during the extension period.
B. The extension shall have no adverse effect on Grantee's compliance, nor shall
the extension be grounds for any change or modification in the remaining
terms, conditions and obligations of the Franchise Agreement. Further, the
extension of the franchise agreement will not affect, diminish, impair or
supercede the binding nature of the existing ordinances, resolutions and
agreements applicable to operation of the cable system.
C. The Grantor's consent to extend the Franchise Agreement, as set forth herein,
shall not be construed, in any manner whatsoever, to constitute a waiver or
release of any rights that the Grantor may have under the Franchise
Agreement, whether those rights arose before or after the change in control to
Grantee and the fact that such deficiencies may have existed prior to the
change in control shall not be a defense against correction of the deficiencies
or non-compliance.
D. Both parties hereby reserve all rights under applicable provisions of the Cable
Communications Policy Act of 1984 (The "Cable Act"), including, without
limitation, Sections 626 and 635. Nothing herein shall be deemed or
construed as a waiver, release or surrender of any right that either party may
have under the Cable Act or any applicable law-
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ADOPTED this day of 2006.
AYES:
NOES:
ABSENT:
ATTEST: CITY OF PALM SPRINGS, CALIFORNIA
By:
City Clerk City Manager
REVIEWED AND ADOPTED AS TO FORM:
i
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uske Grou
DATE: October 31, 2006
TO: Troy Butzlaff
Assistant City Manager
FROM: Sue Buske
The Buske Croup
OVERVIEW
The passage of AB 2987 completes a two-year process to create a new regulatory environment
for video/cable services in California. From its inception, this bill was written by and for the
telephone companies and mirrored legislation that they have attempted to pass in other states
and at the federal level.
It is critical to understand that since 1996 there have been no regulatory impediments to
telephone companies providing video/cable services in any community in California. The only
thing the telephone companies needed was to negotiate a franchise from the local government,
just as the incumbent cable operators have been doing for over 45 years.
The telephone companies argue that local franchises take too long to acquire, and thus
represent a barrier to competition and expanded customer choice. In fact, the telephone
companies really don't want to deal with local governments at all. What they want is a "one size
Fits all" license -- granted at the state or federal level -- that allows them quick access to local
public rights-of-way so they can deliver services, primarily to those customers they categorize
as "high value" (willing to pay over $150/month for phone/video/internet services, as stated in a
2004 presentation to Wall Street analysts).
For local governments, the discussions on AB 2987 have been difficult at times, but that can be
expected on an issue of this magnitude.
The process that led to the adoption of the bN was one-sided, done without the benefit of public
hearings around the state, and without the reasonable deliberation needed on legislation that is
this complex_ Throughout the legislative sessions regarding AB 2987, language for committee
amendments was not seen publicly until days after legislative hearings were held. During the
• final two weeks of the legislative session, key amendments had little (if any) public scrutiny.
During the last seven working days of the 2006 legislative session, over 300 amendments were
placed in the bill.
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The Senate co-author of the bill acknowledged on the floor of the Senate that the bill was not
complete and that future generations of the legislature would have to address problems in the
bill.
There have been changes to AB 2987 since it was introduced in its initial form that have
improved the bill. However, it still has many serious problems from a local government and
consumer perspective.
The City of Palm Springs finds itself in the middle of a cable franchise renewal process at the
same time that major changes to the regulatory structure that guides the renewal process have
been made at the state level (effective January 1, 2007). In addition, major changes are
proposed at the federal level to the regulatory structure that guides the renewal process. Palm
Springs is not alone in this situation. Many other cities in California and across the country are
also faced with the same shifting regulatory landscape.
The City has conducted the franchise renewal process in a manner consistent with federal law.
It has provided opportunities for the public to provide input to the process. All the tasks
i necessary to comply with the statutory process for franchise renewal have been completed
including franchise compliance audits (financial, technical) and community needs assessments
tasks (telephone survey, focus groups, and follow-up community meetings). The City has
i gathered the information necessary to proceed within in-depth negotiations pursuant federal
law.
In order to help assist the City in understanding the impact of AB 2987 on the franchise renewal
process in Palm Springs, we have prepared the following summary analysis of several key
sections of the bill. The analysis also attempts to address how certain aspects of AB 2987 will
impact the franchise renewal process in Palm Springs, the terms of the current (but dated)
franchise documents, revenue to the City, and support for PEG access and other franchise
benefits for the public. It should be noted that this analysis does not attempt to critique or
explain all of the problems with AB 2987. Instead, it has been prepared to help the City
navigate the next steps in its relationship with Time-Warner and potentially other video/cable
service providers.
It is very important to understand that local governments retain their rights to grant cable
franchises under AB 2987. However, the bill creates a new level of regulation by establishing
the rights of the state to grant a "state franchise" through action of the California Public Utilities
Commission ("CPUC"). This analysis attempts to provide some understanding of the interaction
between current law in effect today and the elements of AB 2987.
THE NEW PARADIGM FOR CABLE FRANCHISING IN CALIFORNIA
After January 1, 2007, a company (e.g. AT&T or Verizon) that wants to provide video service in
California within an area for which they have not already been issued a local franchise -- must
obtain a state franchise from the CPUC. AB 2987 makes the CPUC the sole franchising
authority for these situations.
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Any company that currently has a local franchise may seek a renewal of its existing franchise
with a local government -- or it may seek a state franchise for the area covered by their local
franchise. The incumbent cable operator may seek a stale franchise:
(1) when their local franchise expires, or
(2) on a date that they mutually agree upon with the local franchising authority ("LFA"), or
(3) when a competitive video service provider (e.g., AT&T or Verizon) receives a state
franchise and notifies the LFA that it intends to begin providing video service in all or
part of that jurisdiction.
If the incumbent cable company seeks a state franchise under this scenario, the franchise
previously issued by the LFA is terminated and replaced by a state franchise. However, PEG,
I-Net, cable service to community buildings, and emergency alert obligations contained in the
franchise previously issued by the LFA stay in place until the 'natural" expiration date of the
previously issued franchise.
If an LFA's existing cable franchise expired or will expire before January 2, 2008 (as is the case
for Palm Springs), it may extend that franchise with the same terms and conditions until January
1, 2008. This extension should be completed before January 1, 2007.
AB 2987 includes numerous clauses that are internally inconsistent. For example, the bill
includes a provision that states that renewal of a state franchise is to be consistent with federal
law. However, the bill in another section establishes procedures that are inconsistent with
federal law. Those procedures do not permit the CPUC to consider anything other than basic
criteria at renewal and provides no opportunity for public input or a process of identifying
community needs and interests. These two factors are required under the statutory
requirements for franchise renewal under federal law.
State franchises shall be valid for a period of ten years. Applicants for state franchises are
permitted to determine the areas of a city where they will provide service. In other words,
neither the City or State can require Verizon to offer and provide cable/video service to
everyone in Palm Springs. Later in this memo, we will provide more information on the specific
aspects of AB 2987.
The bill also permits holders of a state franchise to transfer ownership of the cable system, upon
14 days notice to the PUC and affected local governments. The transferee must submit to the
PUC the same types of information that must be provided by any applicant for a state franchise.
Recommendation: The City should extend its current franchise through January 1 2008. This
will allow the City to properly complete the federally-mandated franchise renewal process that is
now underway or take another action as may be consistent with law and in the best interests of
the community- It will also allow for follow-tip legislation to clarify the many inconsistencies in
AB 2987 and for the anticipated litigation to commence. This approach also permits Time-
Warner Verizon and the CitV to conduct any a ro riate negotiations. Further explanation with
regard to this matter is provided throughout the remainder of this memo-
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ANALYSIS OF KEY ASPECTS OF AB 2987
Following is an analysis of certain key aspects of AB 2987. At the end of the brief analysis of
each key aspect of the bill is a section dedicated very specifically to the impact on Palm Springs.
PEG (Public, Educational, and Government Access) FUNDING
A. Communities that currently require their cable operator(s) to provide PEG support funding
(in addition to franchise fees) in excess of 1% of gross revenues can require the cable
operator(s) and any holder or a state-issued franchise to continue providing the specified
PEG funding for the duration of the current cable franchise. When the franchise expires,
the LFA may enact an ordinance to continue the currently required PEG support funding
amount (but no more than that amount), as long as it does not exceed 3% of the cable
provider's gross revenues-
B. Communities that currently do not require ongoing PEG funding support, as is the case in
Palm Springs, may enact an ordinance at any time after an entity (Verizon) is issued a
state franchise, to establish such a fee to be paid by all video service providers in their
area, as long as the fee does not exceed 1% of a video service provider's gross
revenues.
Palm Springs Scenario: Palm Springs's expiring franchise documents (Ordinance and the two
franchises with TIN
) do not include any on-going financial obligations to support PEG access.
They do include an obligation to, at the request of the City, provide an initial and mid-term grant
for PEG access eguipment/facilities of a total of $433 000. The City cannot locate any records
indicating that it ever requested or received this cgrant. We would suggest that the City officially
request this grant.
The current federally-mandated franchise renewal process (which the City has followed) allows
the City to negotiate for and require the level of PEG funding support needed, based upon public
inRut through a community needs assessment process. This is the process that the City has and
is currently undertaking.. AB 2987 would restrict the level of PEG funding support that the City
could .receive to a level of 1% of gross revenues (about $184 000 annually based upon 2005
gross revenues).
PEG CHANNELS
A. Communities that currently have three or more PEG channels included in their franchises
with the incumbent cable operator and have activated those channels may keep all of
them, as long as each is programmed at least 8 hours per day. A state franchise holder
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must provide the same number of PEG channels as are activated on the incumbent cable
operator's cable system on December 31, 2006.
B. Communities that currently have less than three PEG channels may initially request up to
three channels, which must be activated within three months.
C. PEG channels required pursuant to AB2987 must be used at least 8 hours per day to
remain activated.
D. An additional PEG channel must be provided when more than 56 hours of locally
produced non-duplicated PEG programming (produced or provided by a local resident or
organization) is shown on a given channel, as measured quarterly-
E. All video service providers must place the PEG channels on the basic tier, locate them on
the same channel numbers, and group them together in the same portion of the cable
system that other basic tier channels are located. PEG channels cannot be moved
without local government approval, unless required by federal law.
F. Under AB2987 the PEG access channel capacity must be of equal quality and
functionality to that offered by commercial channels. PEG channel transmissions must
be receivable by all subscribers without the need for any equipment other than that
needed to receive the lowest cost tier of service.
Palm Springs Scenario: Under Palm Springs's expiring franchise documents, _Time-Warner is
provides one channel for government access. The public input received during the needs
assessment process conducted by the City as part of the statutory franchise renewal process
indicated a strong interest in having additional PEG access channels as well as a Community
Media Center available to Palm Springs. ^
Under AB 2987, the City could pass a ordinance requiring no more than 3 PEG channels. At
least one additional channel could be activated later, in accordance with the threshold described
by the language in item D above. The language contained in AB2987 could limit the number of
PEG channels in Palm Springs to four, which may be inadequate (based upon the very_
considerable level of interest in PEG that was documented in the needs assessment documents
and reports)-
IN-KIND SERVICES AND INSTITUTIONAL NETWORKS
' All existing franchise obligations regarding the support of PEG and I-Net facilities remain
until the expiration date of the current franchise.
Unfortunately, there are a number of issues in AB2987 related to in-kind services and
institutional networks that are major concerns. Those issues include:
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A. Existing obligations regarding the support of PEG and [-Net facilities only remain until the
specified expiration date of the current franchise. After that date, hNets (unless they are
provided through an agreement that is separate from the franchise) and in-kind services
(e.g., free transmission links between a PEG channel origination site and a video
services provider's head-end, free inclusion of PEG program information on a "TV Guide"
channel, free promotional spots inserted on local ad-supported cable network channels,
etc.) do not appear to be enforceable.
B. Communities that do not currently have PEG services but choose to add them by enacting
an ordinance to require one or more PEG channels and funding (as permitted by AB 2987)
would not be able to obtain any in-kind services, like a free transmission link between a
PEG channel origination site and a video services provider's head-end, etc.
Palm Sprinas Scenario: Under Palm Springs's expiring franchise documents there are no PEG
related in-kind services included in the franchise other than five live "origination" locations and
associated signal transmission equipment. Time-Warner is currently only partially complying
with this obligation and has been given formal written notice of franchise noncompliance
Under AB 2987, the City could lose the ability to obtain in-kind services such as those in the
current franchise agreement from any holder of a state franchise-
BUILD-OUT/NON-DISCRIMINATION REQUIREMENTS
A. For state franchise holders with more than 1 million telephone customers that are building
fiber-to-the-premises systems (Verizon), their obligation is to provide video service to at
least 25% of the customer households in the telephone service area within 2 years of
beginning to provide video service, and to 40% within 5 years.
B. For state franchise holders with more than 1 million telephone customers that are building
fiber-to-the-neighborhood (AM), the obligation is to provide video service to at least
35% of households in the holder's telephone service area within 3 years of beginning to
provide video service, and to 50% within 5 years.
C. AB 2987 contains numerous caveats in this area, including waivers to be almost
automatically issued by the CPUC, the overall effect of which is that it will be many years
(if ever) before these build-out requirements will actually be achieved.
D. An LFA may bring a complaint to the PUC concerning a holder's failure to meet the bill's
build-out and non-discrimination provisions, or the PUC may investigate on its own.
E. Nothing in AB 2987 requires a holder to extend video service outside its wire line
telephone service footprint or to match the existing franchise area of an incumbent cable
operator. [5890(k)]
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Palm Springs Scenario: Under the current law. the local government can determine the areas of
the City that will be served by a video%able service provider. AB 2987 removes the authority
' from the City to determine where a state franchise holder will be obligated to offer service in
Palrrn Springs. Thus a likely scenario could occur in which certain (more wealthy) parts of Palm
Springs could have multiple cable/video service providers, while other less affluent parts of the
community will not have that choice. The City has the authority o continue to establish service
area requirements for holders of franchises issued by the City_
Under Time-Warner's current franchise, cable/video service is available in all residential areas
i of Palm Springs. Time-Warner currently does not provide cable/video service to all commercial
areas of Palm Springs. This is another area where Time-Warner is noncompliant with its current
franchise agreement.
FRANCHISE FEES
A. The language in the incumbent franchise including items such as definition of gross
revenue and percentage stay in place and are enforceable, so long as their remains a
franchise between the incumbent cable provider and the local government-
B. The holder of a state franchise shall pay a state franchise fee equal to 5% of gross
revenues, or the percentage charged by the local government to the incumbent cable
operator(s), whichever is less. Upon expiration of the incumbent's franchise, the
franchise fee shall be 5% and shall be based on gross revenues for the provision of video
service within the jurisdiction-
C. The state franchise fee shall be paid on a quarterly basis to the local government by any
state franchise holder-
D. A local government may not demand any additional fees, other than those specifically set
forth in AB 2987. However, the bill does not limit a local government's ability to impose
utility user's taxes and other generally applicable taxes, fees and charges under other
provisions of state law, if applied on a nondiscriminatory and competitively neutral
manner.
E. Gross revenues for holders of state franchises are defined to include all revenue derived
from the operation of the network to provide video service within the jurisdiction that are
actually received, as determined in accordance with GAAP. This includes but is not
limited to all charges billed to subscribers for video service, franchise fees that are
passed through to subscribers, a pro-rats portion of advertising revenues, and home
shopping revenues.
F. Gross revenues do not include revenues not actually received by the holder, even if
billed, such as revenues from non-cable services, revenues paid by subscribers to home
shopping networks (NOTE: revenue actually received by the holder from the sale of
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products or services on home shopping networks are included), amounts collected from
subscribers to recover any taxes or fees other than franchise fees, and launch fees.
G. For bundled services, the gross revenues on video services shall be determined based
on "equal allocation" of the package discount, determined by comparing the total price of
the individual "classes of service" in the package at advertised rates with the package
price. Holders not offering the individual services in a package on a separate (a la carte)
basis shall declare a stated retail value for each component in the package based on
"reasonable" comparable prices.
Palm Springs Scenario: Under AS 2987. revenues for purposes of calculating franchise fees
for a state franchise holder must be calculated in accordance with GAAp and do not include
revenues such as launch fees or other items booked by the franchise holder as "contra
revenue."
The franchise fee definition in CitV Cable Ordinance 1295 that applies to the current franchise
agreement with Time-Warner is a definition of gross annual receipts Gross annual receipts are
defined as " the annual gross receipts received by the Grantee from all sources of operation of
the cable communications system in the franchise area except that any sales, excise or other
taxes collected for directjoassage through to local State or federal government shall not be
included."
The franchise fee audit conducted for the City found a underpayment of franchise fees by Time-
Warner. A part of that underpayment is TWC treatment of programming rebates and ad a enc
commissions as "contra-expenses".
The fact that the applicable City ordinance requires„payments based upon receipts (and not
revenue) would seem to reinforce the case that the proper basis for calculation of the franchise
fee is independent of how TWC rn ht choose to classify monies it has received. City staff is
pjjrsuing this matter with Time Warner.
COMMUNITIES CURRENTLY IN THE FRANCHISE RENEWAL PROCESS
The impact of the bill on local governments currently in the franchise renewal process is of
concern. Many local governments, including Palm Springs, have invested substantial time
and resources in seeking public input and conducting negotiations with the incumbent cable
operator for those community benefits, such as PEG access channels, facilities, and an
Institutional Network that are reflective of the public input received. This bill appears to
remove from local governments the rights they now have under Federal Law to negotiate
cable franchises if a state franchise is issued. However, those aspects of AB 2987 do not
take affect until either April 1, 2007 or January 1, 2008. (The bill is unclear with regard to
this matter.)
How to proceed with franchise renewal must be thought through very carefully and
strategically. It must be analyzed based upon the individual facts in place in a specific
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community. A key fact to remember is that the Federal renewal procedures are still in place
and do not change unless changed by Congress.
The franchise renewal process in Palm Springs has been and continues to be conducted in a
manner consistent with Federal law. Compliance, Franchise fee, and technical audits have
been conducted to determine the degree to which Time-Warner meets its current contract
i obligations. Extensive public input gathered through a telephone survey, focus groups,
interviews and meetings was analyzed and synthesized into a series of Needs Assessment
Reports.
It would be unwise for the City to take any action regarding franchise renewal that would vary
from procedures mandated by Federal law.
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