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HomeMy WebLinkAbout2006-07-05 STAFF REPORTS 2E OF 9 PAM S, iy u En a c44 1 FOR CITY COUNCIL STAFF REPORT DATE: July 5, 2006 CONSENT AGENDA SUBJECT: Resolution Opposing Assembly Bill 2987 and Supporting Fair Competition in Telecommunications Services FROM: David H. Ready, City Manager BY: Assistant City Manager -- Administration SUMMARY Assembly Bill 2987 (AB 2987), by Assembly Members Nunez and Levine, creates a mechanism for a state-issued franchise for the provision of cable and video services in California. AB 2987 provides that the Department of Consumer Affairs be established as the sole franchising authority for cable and video services and that any party that seeks to provide these services, after the effective date of the bill, shall file an application with the Department of Consumer Affairs for a state-issued franchise. This is a departure from the current regulatory framework which grants local government authority over cable and video services and places the oversight of video services directly in the hands of the state. RECOMMENDATION: 1. Adopt Resolution No. , A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, OPPOSING ASSEMBLY BILL 2987 AND SUPPORTING FAIR COMPETITION IN TELECOMMUNICATIONS SERVICES 2. Authorize the City Manager to sign all necessary documents. STAFF ANALYSIS: The Cable Communications Policy Act of 1984 granted local governments the right and responsibility to govern access to their right of way for cabling through the issuance of a franchise. In addition to enabling local control, these franchise agreements contain provisions that support channel capacity for public, education, and government (PEG) cable access and may also mandate service levels. Item No. 2 . C . City Council Staff Report July 5, 2006 -- Page 2 Resolution Opposing Assembly Bill 2987 Recently, the telecommunications industry has launched a major campaign at both the federal and state level against local franchising arguing that these franchises take too long to acquire, and thus represent a significant barrier to competition and expanded customer choice. In California, the major telecommunication companies (e.g., Verizon and AT&T) have been successful in introducing legislation, Assembly Bill 2987 (AB 2987), that would create a new statewide franchise for cable and video service providers. AB 2987, which is .authored by Assembly Members Nunez and Levine, transfers authority for franchise approval from local governments to the State, specifically the Department of Corporations. This removes the right of local government to negotiate franchises with local providers, weakens local government's control over use of its own rights-of-way, threatens the funding and support for local public, educational and government access channels, and threatens the revenue currently received as franchise fees at the local level. The League of California Cities, California State Association of Counties, the National Association of Telecommunications Officers and Advisors, and many cities throughout the; state are OPPOSED to AB 2987 as currently written. Supporters of the bill argue that competition in video services is desperately needed. While most everyone agrees that competition is needed, it must be fair for all Californians, not just a few. Since the bill does not include "build out" provisions for a statewide franchise, telecommunication companies can "cherry pick" which neighborhoods they want to provide improved services in. As a result, rural communities and lower income neighborhoods, which often struggle under the current process to find service providers, could be left behind. The League of California Cities has proposed several revisions to AB 2987 that would protect both local governments and consumers. These revisions include providing for local execution of franchises, maintaining local management of rights-of-way, preserving local tax authority, and other measures to protect consumers. Unfortunately, the major telecommunication companies oppose these revisions and are aggressively lobbying the legislature to approve the bill as written. Unless the legislation is substantially modified, staff recommends that the City Council opposes AB 2987 in its current form and urge its State representatives to seek alternatives to fair competition in tellecommunication services. FISCAL IMPACT: IFinance Director Review: Q�4 i The City currently receives in excess of $800,000 in franchise fees from the franchised cable company. Although AB 2987 promises to pay local agencies a franchise fee, this fee could be dramatically reduced over current levels because of many "exceptions" written into the definitions of "gross revenues." In addition, the bill confuses the term "fetes," currently levied at the local level, with taxes, imposed at the state level. This City Council Staff Report July 5, 2006 -- Page 3 Resolution Opposing Assembly Bill 2987 ambiguity may result in future legal challenges which could further reduce, if not eliminate, this revenue source altogether. Tr . Butzla , As scant City Manager David H. Ready, City N era Attachments: 1. Resolution 2. League of California Telecom Reform Fact Sheet 3. AB 2987 Analysis Prepared by City's Cable Consultant Sue Buske RESOLUTION NO. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA, OPPOSING ASSEMBLY BILL 2987 AND SUPPORTING FAIR COMPETITION IN TELECOMMUNICATIONS SERVICES WHEREAS, public rights-of-way are to be managed by local government on behalf of the public; and WHEREAS, local governments engage in a variety of activities related to rights--of ways to protect the public safety and welfare, to prevent conflicts between public rights-of-way users thereby minimizing service disruptions to the public, to protect public investments in rights-of-way, to protect consumer interests and the needs of the community; and WHEREAS, the California State Legislature is considering legislation, Assembly Bill 2987, that would change the existing regulatory framework for delivering telecommunications services by establishing a statewide franchise for new entrants into the telecommunications market; and WHEREAS, Assembly Bill 2987 would allow these new entrants to access local streets under a new set of rules as determined by the state; and WHEREAS, limiting or abolishing local cable franchises could violate local property rights and principles of Federalism by taking portions of the streets and rights-of-way without the agreement of local government, without adequate opportunities to tailor the franchise and services to meet local needs, and without the provisions in cable franchises necessary to protect the local government, the public, and customers; and WHEREAS, local franchise fees paid to local governments under the current regulatory framework for telecommunications services are vital to support local public services such as public safety and transportation; and WHEREAS, Assembly Bill 2987 could dramatically reduce the amount of local franchise fees paid to local governments by revising the definition of "gross revenues" from which these local franchise fees are calculated; and WHEREAS, most cable franchises require the cable company to dedicate a small number of channels for public, educational and government access purposes, together with funding for those channels; and WHEREAS, Assembly Bill 2987 would prescribe, based on population, a set number of public, educational and government access channels each local government would be entitled to and limit how much the cable operator is required to give local government to operate these channels; and WHEREAS, the City of Palm Springs supports fair competition and wants to responsibly encourage improved consumer choices in video programming and a reduction in related costs for consumers; and WHEREAS, Assembly Bill 2987, in its current form, would fail to ensure that telecommunications services would be fairly and equitably provided to all businesses and residents of Palm Springs within a reasonable timeframe; and WHEREAS, Assembly Bill 2987 does not guarantee community access to public, educational and government access channels; and WHEREAS, Assembly Bill 2987 does not protect the city's financial resources and it does not protect the public's right-of-way. NOW, THEREFORE BE IT RESOLVED, that the City Council of the City of Palm Springs does hereby oppose Assembly Bill 2987 for the reasons stated herein and urges the California Legislature to uphold existing requirements for providers of video services using the public rights of way to obtain local franchises, whether that provider is a cable company, a telephone company, or some other entity. BE IT FURTHER RESOLVED, that the City Council strongly endorse promoting competition for all consumers and treating like services alike and are willing to work with new entrants in the video market in order to provide an efficient franchise process that will not obstruct new service deployment. BE IT FURTHER RESOLVED, that the City Manager is hereby directed to send a copy of this Resolution to its state representatives, the League of California Cities and other organizations and/or agencies as deemed appropriate to indicate the City's position on this matter. 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: League of California Cities Telecom Reform: Our Messages Cities support and welcome competition. City officials welcome competition.We know that it's good for consumers. It leads to lower prices and better service. But competition must be fair for all Californians.We can only have;fair competition if anti-discrimination provisions are strengthened to hold telecom providers'feet to the fire- requiring them to commit to build-out schedules that will ensure that all communities, regardless income levels, have access to service within a reasonable timeframe. Competition Must Deliver Choices for EVERYONE.AS 2987 says that telecommunications companies cannot discriminate among customers. But the lack of specific criteria on service build out, coupled with the lack of enforcement provisions, makes this a false promise.We know that AT&T has announced a business model that assumes they will deliver service to 90 percent of"high value customers-those who can pay$160 to$200 a month on telecom and entertainment services-and only 5 percent to"low-value"neighborhoods-places where people spend less than $110 a month. Enforcement matters. No reform measure should be passed that doesn't guarantee enforcement of anti- discrimination provisions, use of local rights of way, consumer protection and other key provisions.This should happen at the local level. PEG Stations Must be Protected, and Free Broadband Preserved)for Schools, Libraries. Public, education and government(PEG)channels are essential to a 21"century community's ability to share ideas, educate and communicate with its members.These stations provide a window through which all community members can be heard and participate in critical decision-making. Free broadband service to schools, libraries and other government buildings are also essential to ensure that children, seniors and others,who may not own a computer, still have access to the information and services available through the Internet. Local agencies are best able to protect their communities. As currently written,AB 2987 would force millions of Californians to contact a new state bureaucracy to help them solve customer service problems, rather than their city or county. Preserving the local enforcement role would help consumers and avoid the need to create a new state bureaucracy. But locals need authority to control the use of the taxpayers'investments in public rights-of-way-and they need franchise fees preserved at current levels to do the job adequately. The t&e tGrou 'C�N AB2987 OVERVIEW AND IMPACT STATEMENT Background The City of Palm Springs finds itself in the middle of a cable franchise renewal process at the same time that major changes are being proposed at the state and federal levels to the regulatory structure that guides the renewal process. Palms 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. Across the United States, telephone companies are spending millions of dollars to convince Congress and state legislatures that today's telecommunications technologies make the local cable franchise -- currently required of all providers of cable TV service -- no longer efficient or necessary. The telephone companies argue that local franchises take too long to acquire, and thus represent a barrier to competition and expanded customer choice. The telephone companies massive PR campaign over the past 6 months have claimed the outcome of AB2987 will be lower prices for consumers. Yet just last week AT&T Chairman Edward Whitacre stated in a press interview when asked whether a price war between telco video, like AT&T's Lightspeed service, and cable was inevitable, Whitacre said, " If I were the Cable companies I guess I wouldn't be offering discounts....I don't think there's going to be a price war. I think its going to be a war of value and services,". 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" (as stated in a 2004 presentation to Wall Street analysts). In California, reform efforts now focus on AB 2987 (Nunez/Levine), a bill that would create a new statewide franchise for cable and video service providers. The franchise would be issued by the California Department of Consumer Affairs, creating the need for a new bureaucracy within state government at an agency with no prior experience in this area. The California League of Cities and many other local government, educational, civic, and public interest groups strongly oppose the bill. However, with the aid of millions of dollars in advertising and lobbying efforts, the bill was passed by the Assembly and moved to the Senate. Below is a summary of many key issues that arise in AB 2987. • Franchise Enforcement and Consumer Protection: AB 2987 removes the authority to grant franchises from local governments and directs the California Department of Consumer Affairs to grant and enforce state franchises -- but provides minimal funding for the agency to assume these responsibilities. In addition, the enforcement authority given to the Department is very limited. Therefore, if consumers or local agencies had a complaint, they would have to settle it in court. - 2 - • Lack of "Build-Out" Requirements: AB 2987 limits the number of residents who will ever have the choice of a competitive video service, or even video service itself. The bill allows video providers to select which neighborhoods will and which neighborhoods won't get video service. It does this by failing to include a "build out" requirement that a video provider will bring competitive service to all residents of a community by a specific date. AB 2987 allows phone companies like AT&T to ynore what it calls "low-value" customers, who can't afford to pay over $100 per month for video & telecommunication services. However, these are the very people who are already underserved by broadband services. In addition, as soon as existing cable operators get a state franchise when their current agreements expire, they will be relieved of any existing obligations that they had to serve all areas of the community. • Franchise Fee Revenues Reduced and Jeopardized by Bill's Wording: AB 2987 is worded in a way that jeopardizes the ability of local governments to continue to collect franchise fees for the use of the public rights-of-way. The bill confuses fees -- currently levied at the local level -- with taxes, imposed at the state level. In the bill's current form, a franchise fee would be a tax according to the constitution of the state, rather than a fee. The language in AB 2987 needs to be amended to ensure that franchise fees paid to local government for the private use of public rights-of-way to deliver video services are maintained, and not preempted by a state tax that would occur under the current wording in the bill. Furthermore, the bill narrows the definition of "gross revenues" that is the basis for calculating franchise fees, resulting in a reduction compared to current franchise fee levels because of"exceptions" written into the definition of gross revenues. • Minimum Number of PEG Access Channels and the Elimination of Non-Activated Channels: AB 2987 preempts local authority by restricting the number of Public, Education and Government (PEG) access channels in a community to those that are currently activated. This ignores instances where cities and counties have existing agreements that may require the cable operator to provide additional PEG channels in the future. • Funding and In-Kind Support for PEG Access and I-Nets: Under AB 2987, many communities will lose funding support for PEG access. It ignores the fact that local agreements have been negotiated with cable operators that require them to provide PEG funding support for expenses in addition to capital costs. PEG funding support currently received for capital and other costs will be lost under AB 2987 (see attached table). Furthermore, by preempting local franchising authority, AB 2987 eliminates the right of a City to negotiate more robust, community-responsive PEG support in an ongoing or upcoming franchise renewal process, and instead imposes an unreasonably low level of support under a state franchise. At the expiration of existing franchises, AB 2987 limits the amount of PEG and I-Net funding to the lower of 1% of gross revenues (as more narrowly defined by the legislation) or the level of support that was in the existing franchise. As a result, the loss for many communities would be 35-50% of their current funding; some will lose more than 75%. For many other cities, this means they will never have the opportunity to develop a thriving PEG access and community media environment for their residents. - 3 - • Loss of In-Kind Services to PEG Access, Schools, and Public Buildings: When a current franchise expires, AB 2987 does not preserve in-kind services that are currently provided. This may include connections from the cable company head-end to the Community Media Center (to enable PEG programming to be transmitted on the cable system), remote PEG location feeds, ]-Nets, guarantees that PEG programming information will be listed in all print and electronic channel guides provided to subscribers, and many other items. This proposed legislation does not allow the requirement of such in-kind services to be included in a state franchise. Other in-kind support, such as video service to public buildings (e.g., City Hall, school buildings, and libraries), is only preserved until the end of the current franchise. AB 2987 does not require a telephone company that gets a state franchise to provide such services to schools, city or county buildings or libraries.