CC - Item 2A - Staff Report - Public Hearing for Renewal of Franchise Agreement Charter Cable Tv E M F
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- staf
teport
TO: HONORABLE MAYOR
AND MEMBERS
ROSEMEAD CITY COUNCIL
FROM: FRANK G. TRIPEPI, CITY MANAGER -V4/7—
DATE:
DATE: DECEMBER 10, 1998
SUBJECT: PUBLIC HEARING FOR THE RENEWAL OF FRANCHISE
AGREEMENT AND ACQUISITION OF CHARTER CABLE
TELEVISION BY PAUL ALLEN
The purpose of this item is to hold a public hearing to consider input from the public on the
renewal of the City of Rosemead's cable television franchise agreement with Charter
Communications and regarding Charter's pending acquisition by Paul G. Allen. 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. Public input is not required
regarding the transfer of the franchise; nevertheless, public input may be considered by the
Council in determining whether the applicants have satisfied the transfer criteria.
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.
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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. --,
i
COUNCIL AGENDA
DEC 151998
ITEM No.
Charter Franchise Transfer
November 16, 1998
Page 2
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. City staff has met with Charter Communications regarding renewal of the
franchise agreement to discuss possible issues. These meetings have resulted in
tentative agreements with Charter on a number of issues, as reflected in the letter
dated December 1, 1998 to Assistant City Manager Donald J. Wagner. Item 2 in
that letter should say$10,000 rather than $5,000. The transfer\renewal expenses
incurred by Charter and the City will not be passed along to customers in the
form of rate increases. The equipment listed in item 9 will also not be passed
along to customers. Staff is also recommending a ten year extension instead of the
current fifteen.
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
Charter Franchise Transfer
November 16, 1998
Page 3
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. Unless information comes to light during the public hearing which establishes that Charter
has not satisfied one of these criteria for renewal, preparation of a renewal franchise agreement
should proceed.
Under the Cable Act, a franchising authority may disapprove a transfer of control of a cable
franchisee if the franchising authority determines that the transferee lacks the legal technical or
financial qualifications to operate the franchise. Sufficient assurances have been presented by the
Applicants that the proposed transferee, Paul G. Allen, has the necessary legal and financial
qualifications . Regarding the technical qualifications, Mr. Allen has successfully operated a
number of technologically oriented businesses, but he does not have significant experience in
operating cable television systems. It is therefore crucial that assurances be provided that Charter
will continue to be operated by qualified personnel. Charter and Mr. Allen are still attempting to
provide those assurances to the City. By the time of the hearing , more will be known regarding
the applicant's qualifications to operate the system.
SUMMARY
In order to proceed with the franchise renewal process, an opportunity for public input is valued
and necessary. The Public Hearing was properly noticed and input requested on the four factors
outlined above that a franchising authority must consider. If it is the Council's 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 will be considered by the Council and may be reflected in a motion to approve
or reject renewal.
Approval or rejection of the transfer shall be based upon specified criteria which are set forth in
the alternate Resolutions Approving or Denying. Attached are copies of the resolutions, the letter
dated December I, 1998 from Melvin Matthews, the letter dated December 7, 1998 from Jerry
Kent, the letter from Jerry Kent dated August 18, 1998, and a copy of the notice of public
hearing.
RECOMMENDATION
Open the public hearing to consider input from the public on the renewal of the City of
Rosemead's cable television franchise agreement with Charter Communications and regarding
transfer of control of Charter to Paul G. Allen. close the Public Hearing and :
1) Consider approval of the transfer of control to Paul G. Allen, and adopt Resolution No. 98-54
conditionally approving the transfer or adopt Resolution No.98-54 denying the transfer without
prejudice.
Charter Franchise Transfer
November 16, 1998
Page 4
2) Approve the principal negotiating points for the cable television franchise agreement, as set
forth in the letter dated December 1, 1998 from Melvin L. Matthews of Charter to Assistant City
Manager Donald J. Wagner(as modified with regard to point 2), together with any additional
points resulting from the public hearing process, and instruct staff to prepare a Franchise
Agreement and Ordinance Amendments for consideration by the City Council at the January 26,
1999 Meeting .
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CHIART�ER
December 1, 1998
Donald J. Wagner
Assistant City Manager
City of Rosemead
8838 E. Valley Blvd.
Rosemead, CA 91770
Dear Don:
I am writing to confirm our mutual understanding on several points of agreement with
respect to the pending transfer and franchise renewal.
I. Charter will collect from customers and remit to the city the"fee on the fee" for the
period between October 1, 1995 and March 31, 1998. This additional franchise fee
will be billed to customers at the same time as the next rate adjustment,tentatively
scheduled for March 1999 and will be billed over a mutually agreeable time period.
2. Charter will reimburse your expenses for the transfer/renewal process in an amount
not to exceed$5,000 within 60 days of submitted of invoice and documentation.
3. Charter will continue to make improvements in customer service and provide a report
to the city to address any open issues.
4. Upon completion of the system upgrade, Charter will add CCIN or other mutually
agreeable programming on the educational access channel
5. Charter will provide information on the current management agreement to provide
reasonable assurance that Charter management will stay in place after the franchise
transfer.
6. Charter will continue to make its studio available for community access and will
cover up to four city events per year.
7. Charter will agree to a"most favored nations" clause in the new agreement.
8. Charter will provide a character generator and VCR for a governmental informational
channel.
9. Charter will provide up to $30,000 every five years upon request as an equipment
grant based on a plan for the usage of the funds to produce local programming.
2215 West Mission Road•PO Box 1451 •Alhambra,California 91802-1451
10. Charter will provide 10% low income discount on limited and expanded basic service
based on the same criterion for similar discounts on trash pickup service in the City.
As an alternative, based on further discussion Charter is willing to consider a
continuation pY'the current 25%discount to customers who only have limited basic
service.
11. AlthoughCharter believes that its current full-service location in Alhambra is
convenient to Rosemead residents, Charter will explore the cost of providing a
payment-only location in Rosemead.
Please let me know if there are any other outstanding issues.
Sincerely,
Melvin L. Matthews
Director of Government and Community Relations
cc: Cary S. Reisman
11 CHARTER
December 7, 1998
Mr. Don Wagner
Assistant City Manager
City of Rosemead VIA OVERNIGHT MAIL
8838 E. Valley Blvd.
Rosemead, CA 91770
Dear Mr. Wagner:
As we near the end of the 120 day approval process relative to Paul Allen's acquisition of
Charter Communications, Inc. (Charter), it has come to my attention that some
communities in Northern and Southern California have raised an issue regarding the
potential impact this transaction may have on subscriber rates.
It seems that many consultants have sought to calculate the amount needed to "service"
the purchase price as if the purchase price were comprised primarily of debt. Fortunately
for Charter, the communities we service and the subscribers we serve, Paul Allen will
acquire a strong equity position in Charter. The equity that Mr. Allen will invest in
Charter will neither be serviced as debt or carried as debt. Equity, as you know, has no
guaranteed rate of return or "debt' service requirement. What this means for you and
your constituents is that there is no new pressure on rates. You can rest assured, that no
portion of the purchase price will be used as a basis to increase rates.
As you know, Charter manages and/or owns cable TV systems in 19 different states
serving 1,300,000 subscribers. We are proud of our growth and our commitment to
customer service. We were recently ranked by JD. Powers & Associates (an
independent research firm) as Number 3 in customer service for providers of CATV
service. We are proud of this accomplishment but not satisfied. As we continue to serve
your community, we strive for the Number 1 spot. We look forward to achieving that
goal as we provide new and advanced services to your community.
12444 Powerscourt Drive•Suite 100•SL Louis,Missouri 63131 •(314)965-0555•Fax(314)965-6640•Internet http://www.chartercom.com
Mr. Don Wagner
December 7, 1998
Page 2
We sincerely hope that you will place our request for transfer on the next available City
Council agenda so that this transaction can be concluded on a timely basis.
Sincerely,
eec / ,4
Jerry Kent
President& Chief Operating Officer
JLKJtmt
cc: Mel Matthews
Cary Reisman, Esq.
j:allcn/394transferirosemead2
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 while our partners, primarily Kelso &
Company and Charterhouse Group International, Inc., provided access to equity and capital.
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 1p
iver
s vision
the 'Wired Worl ." n short,
en
envisionsa connected ted futureemarked l by the meop and lrger olf high bandwidth fata channels, l
the power of
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. The men and women of Charter are eager
to focus our energy toward deploying new technology and hope for a speedy transfer process.
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
(Space below for use of County Clerk only)
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I SAN GABRIEL VALLEY TRIBUNE
affiliated with
SGV Newspaper Group
1210 N. Azusa Canyon Road
West Covina, CA 91790
PROOF OF PUBLICATION
(2015.5 C.C.P.)
STATE OF CALIFORNIA Proof of Publication of
County of Los Angeles CITY OF ROSEMEAD
NOTICE OF PUBLIC HEARING
I am a citizen of the United States, and a resident NOTICE IS HEREBY GIVEN that on
December 15, 1998, at 7:00 p.m., or as soon
of the county aforesaid; I am over the age of thereafter as the matter may be heard, in the
eighteenyears, and nota partyto or interested in Council Chamber at Rosemead City Holh 8838 E.
9 Volley Boulevard,Rosemead,CA,the Rosemeod
the above-entited matter. I am the principal clerk of City Council will consider Input from the public
on the renewal of.the City's nonexclusive cable
the printer of SAN GABRIEL VALLEY TRIBUNE, a television franchise agreement with Charter
Communications and on the proposed transfer of
newspaper of general circulation which has been that franchise to Paul G.Allen.
adjudicated as a newspaper of general circulation The proposed agreement allows Charter to
by the Superior Court of the County of Los install and maintain its Infrastructure In theCity
and to continue providingcable television
Angeles, State of California, on the date of services to Rosemead resdents with period
systeSeptember 10, 1957, Case Number 684891. The cable ulevisis.in return,chartertwill provide
p cable television and related services to
notice, of which the annexed is a true printed copy, Rosemead residents, as well as assistance for
public access programming, and will pay
has been published in each regular and entired issue franchise fee to the City of Rosemeod. The
proposed franchise renewal period is ten rears.
of said newspaper and not in any supplement
thereof on the followingdates, to wit: Input from etre public will be received on me
following questions:
U Whetherthe cableoperator has"substantially
complied" with the material terms of the
franchise and with applicable law?
2) Whether thequality of the operator's service
as been "reasonable in liaht of co unity
12/5/98 -- needs?'
3) Whether the cable operatorhos the financial,
legal'and technical ability to provide the
I declare under penalty of perjury that the see
facilities and equipment set forth in
foregoing is true and correct. the proposal?
4) toWmeetrtheef Lure neer's ds and intereosal is sts of the
community, taking into a:count the cost of
those needs? •
5) Whether proposed transferee Poul G. Allen
Executed at West Covina, LA Co, California lacks the legal, technical or financial
t$IS 5 day of DECEMBE 1 9 99 qualifications to operate the franchise.
Interested persons are invited to attend thd
participate inre the publicss sa tia t Questions
C should be directed to Assistant City Manager
signature ✓ � Donald Wagner at (626) 288-6611.
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Nancy Y.Valderrama
City of Rosemead
8838 E.Valley Boulevard •
Rosemead, CA 91770
1 I Publish: December 5,1998
Son Gabriel Valley Tribune 8147/11288