CC – Item 5A – Staff Report Schedule for Consideration of Pending Acquisition of Charter Cable Television c4•r..' E M /' staftepor
TO: HONORABLE MAYOR
AND MEMBERS
ROSEMEAD CITY COUNCIL Pri
FROM: G. TRIPEPI, CITY MANAGER V
DATE: NOVEMBER 16, 1998
SUBJECT: SCHEDULE FOR CONSIDERATION OF PENDING ACQUISITION OF
CHARTER CABLE TELEVISION BY PAUL ALLEN AND THE
RENEWAL OF FRANCHISE AGREEMENT
The purpose of this item is to discuss Charter's pending acquisition by Paul G. Allen and the
renewal of the City of Rosemead's cable television franchise agreement with Charter
Communications. These two issues are related because some of the same considerations must be
reviewed in connection with the sale of a cable television franchise as are reviewed in franchise
renewal. Therefore, while considering whether or not to approve the sale, staff suggests that this
is a good time to discuss renewal of the franchise agreement.
BACKGROUND
In 1985, the City of Rosemead granted a nonexclusive fifteen year cable television franchise to
Falcon Communications. The franchise granted authority to the cable operator to use public
streets and other public rights of way to engage in the business of operating a cable television
system. Ownership of the cable company has changed several times over the years. Charter
Communications has been the owner and operator of the cable system since October, 1995.
In August, 1998, Charter notified the City that Paul G. Allen, co-founder of Microsoft, had made
an offer to purchase Charter Communications. Charter therefore filed the required papers, and
requested the City's approval of the sale. Approval or rejection must occur by December 22,
1998, or the transfer is deemed approved.
DISCUSSION
The following is a summary of facts on the current franchise:
1. The term of the current franchise agreement is expiring on June 27 of 2000.
2. The City has met with Charter Communications regarding renewal of the franchise
agreement to discuss possible issues COUfvCiL. AGENDA
NOV 241998
14 \ • . / -
Charter Franchise Transfer
November 16, 1998
Page 2
3, Section 626 of the Cable Act provides the legal basis and framework for all cable
television franchise renewals. The franchising authority must consider the
following four factors:
* Whether the cable operator has "substantially complied" with the material terms
of the franchise and with applicable law.
* Whether the quality of the operator's service has been "reasonable in light of
community needs".
* Whether the cable operator has the financial, legal and technical ability to
provide the services, facilities and equipment set forth in the proposal.
* Whether the operator's proposal is reasonable to meet the future needs and
interests of the community,taking into account the cost of those needs.
4. As part of the franchise renewal process, identification of cable-related community
needs and interests is required. In addition, a review of the performance of the
cable operator during the existing franchise term is also completed.
Section 76.502 of the FCC rules regarding cable franchises (47 C.F.R. § 76.502) provides that
franchising authorities can deny a request for transfer only if the proposed transferee lacks legal,
technical or financial qualifications to operate the franchise.
Under the Cable Act, a city can only deny a franchise if the incumbent company has substantially
failed to offer reasonable levels of service,has failed to comply with the terms of the franchise, or
lacks the financial, legal or technical ability to provide services reasonable to satisfy community
needs. Since City staff is not aware of substantial failure on the part of Charter Communications
in these areas, the City is proceeding with the renewal process. For the same reasons, unless
information comes to light that Mr. Allen lacks the legal, technical or financial qualifications to
operate the franchise, staff will recommend approval of the transfer.
The points for discussion during the renewal process include the term of agreement, computation
of franchise fees, continuation of Senior Citizen discounts, convenience of bill payment locations,
recovery of renewal costs, educational and government access, equipment grants, including
provision of character generating equipment to post city notices, programming support,
technology upgrades, and customer service requirements.
Charter Franchise Transfer
November 16, 1998
Page 3
SUMMARY
In order to proceed with the franchise renewal process, an opportunity for public input is valued
and necessary. The Public Hearing can be noticed and will request input on the four factors
outlined above that a franchising authority must consider. If it is the Councils decision to move
ahead with the renewal, it is anticipated the franchise renewal will be complete and ready for City
Council action in January, 1999. As a result,the content of the public testimony received during
the public hearing and the input received by City staff would be included in the remaining renewal
discussions with the Charter Communications. Staff is suggesting this matter be scheduled for an
adjourned meeting on December 15, 1998.
RECOMMENDATION
Schedule consideration of the sale of Charter Communications to Paul G. Allen for an adjourned
d notice a public
for that same date to
fmeeting on rom the public oon the renewal oer 15, 1998 f thee City of Rosemead's hearing ble elev s on franchi eonsidagreement ut
with Charter Communications.
osu(oiwn 1198
CHARTER
August 18, 1998
The Honorable Robert W. Bruesch
Mayor
City of Rosemead
8838 E. Valley Blvd
Rosemead, CA 91770
Dear Mayor Bruesch:
Over the past five years, Charter Communications, Inc. and its affiliated entities ("Charter") has
grown to be the 10th largest multiple system operator ("MSO") in the United States. Charter
accomplished this phenomenal growth with the aide of some trusted and valued partners. Charter
provided the expertise and cable management acumen l access to eque our ity and primarily caaKeso &
Company and Charterhouse Group International, Inc., provided
With the wave of consolidations in the industry, Charter's senior management has been looking at
ways to consolidate the ownership and control of all of the cable properties managed by Charter
under a single umbrella company. We have recently explored the idea of an IPO (issuing public
stock) to provide the liquidity needed to further grow and expand and may still pursue this option in
the future. As we explored all of our alternatives, we were presented with an option that provided for
consolidation of the entities, access to capital, and a vision which is unsurpassed in the industry.
We are extremely pleased to have been chosen by Paul G. Allen, co-founder of Microsoft, to manage
his cable properties and to help develop and deliver his vision of the 'Wired World" In he short, Allen
n
envisions a connected future marked by the merger of high bandwidth data channels, power
f
the personal computer and the availability of compelling content.
You will be pleased to know that there will be no increase in debt-to-equity ratios of the entities as a
result of this transaction. Mr. Allen will assume the current debt and in many instances liquidate
some debt instruments. Notwithstanding the consumer benefit of this transaction, the effect of this
transaction on you and your subscribers should be transparent for the most part. The current
corporate staff and system management will remain under my leadership. And of course, Charter will
retain its commitment to superior customer service.
In reviewing this application, you are called upon to determine that the applicant meets the legal,
technical and financial qualifications to own and operate a CATV system. In this instance, legal and
technical qualifications are a non-issue since there is no change in either corporate or system
management. We think you will agree that the financial condition of the company can only be
strengthened by this consolidation and infusion of equity.
hope The
men speedy women
e transfer are eager
ity
to focus our energy toward deploying new technology a P
s.
Paul Allen's vision helped bring forth the computer revolution. Just imagine the possibilities when
compelling content, personal computing and high bandwidth data channels combine. The staff at
Charter looks forward to bringing you the'Wired World."
Sincerely,
Jerald L. Kent
President and CEO