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HomeMy WebLinkAbout11/01/1994, 3 - STATUS REPORT ON SONIC CABLE TELEVISION FRANCHISE RENEWAL NEGOTIATIONS �III�i ��IIIII��I II, � o sdMEETING DATE: ll� c� 11 �.�is OBISPO REPORTITEM NUMBER: COUNCIL AGENDA FROM: Ken Hampian, Assistant City Administrative Officer e010 Prepared By: Deb Hossli, Assistant to the City Administrative Officer SUBJECT: Status Report on Sonic Cable Television Franchise Renewal Negotiations CAO RECOMMENDATION: 1. Receive a status report on franchise negotiations with Sonic Cable Television. 2. Adopt a resolution extending the City's franchise with Sonic Cable Television for three months (through February 28, 1995) to provide staff with one last opportunity to reach agreement with Sonic using the informal renewal proceedings set out in the 1984 Cable Policy AcL REPORT-IN-BRIEF: After nearly two years of negotiations, Sonic Cable Television representatives have failed to present a franchise renewal proposal to the City that meets the Council's minimum requirements based on Council adopted renewal objectives. Progress has been made in some areas of the negotiations (e.g., Sonic has agreed to upgrade the cable system, adhere to customer service standards, increase the franchise fee from 4% to 5%, etc.). However, we are still far from reaching agreement in such key areas as franchise term, infrastructure to support public access activities, and reimbursement for franchise renewal costs, In light of this situation, staff recommends that the City extend the franchise for a three- month period (through February 28, 1995) to provide staff with one last opportunity to reach agreement with Sonic using the informal renewal proceedings. If we are not able to reach agreement during this period,however,staff will then likely recommend that the City invoke the formal renewal proceedings set out in the 1984 Cable Policy Act. DISCUSSION: Current Situation The City's negotiating team (composed of the City Attorney, Assistant City Administrative Officer, the Assistant to the City Administrative Officer, and our cable advisor), has been meeting regularly with Sonic Cable representatives for nearly two years now to develop a franchise. When we entered into negotiations, it was staff's hope that we would be in the position to present a franchise agreement to the Council for approval prior to the franchise's expiration in April of 1993. After nearly two years of negotiations,however, we are still far from reaching agreement with Sonic. Put most simply, Sonic has been unwilling to provide the City with a franchise renewal proposal that meets even minimum requirements based on the renewal objectives established by the Council. 3 - 1 A�� III city of San Luis OBISPO COUNCIL AGENDA REPORT Given the lack of response from Sonic, staff felt that it was an appropriate time to provide the Council with a detailed report on the status of negotiations (e.g., where we agree and where we don't), along with recommendations for how we should proceed from this point forward. Bac and In order to prepare for negotiations with Sonic, staff, with assistance from the City's cable advisor Carl Pilnick,developed a listing of franchise renewal objectives. The objectives were developed after a year long information gathering process that involved a series of technical studies and substantial public input (e.g., surveys, public meetings, etc.) to identify the community's cable needs and desires. The objectives were established for the purpose of providing staff with agreed upon parameters to pursue negotiations with the cable operator. The major objectives adopted by the Council at that time included: ■ A cable system upgrade from its present 36 channel capacity to 80 channel capacity so that the City can keep pace with technology over the term of the franchise agreement. ■ Adequate channel capacity and equipment funding to support public, educational and government (PEG) uses of the cable system. ■ Effective and enforceable customer service standards to insure that cable subscribers receive timely, efficient service from the cable operator. ■ Effective enforcement capabilities to insure that all provisions of the new cable franchise are met throughout the term of the agreement. ■ An increase in the franchise fee from 4% to 5%. ■ A discount rate for those with limited incomes. ■ A franchise term commensurate with the level of financial commitment from the cable operator. ■ Rate regulation authority so that the City can take advantage of the rate regulation provided by the new cable legislation. Based on surveys of comparable cable systems conducted by the City's cable advisor and the experience of the City's cable advisor (who has negotiated over fifty franchises throughout the United States since passage of the 1984 Cable Policy Act), the above stated objectives are reasonable and represent the minimum requirements the City should request in exchange for providing the cable operator with a long term franchise (e.g., 10 or 15 years). 3 -� city of San LUIS OBISpo COUNCIL AGENDA REPORT Review of Current Proposal Outlined below is a summary of the most recent proposal made by Sonic, followed by a more detailed evaluation of the quality of this proposal. Key Areas of Tentative Agreement The City and Sonic have reached general agreement in the following areas: ■ Cable System Upgrade - Sonic has agreed to upgrade the system to a minimum of 78 channels within three years of the franchise agreement's execution. The system rebuild will be designed with fiber optics. ■ PEG Access (Channel capacity and PEG Fund only) - Sonic has agreed to provide adequate. channel capacity to accommodate the City's projected PEG access needs. They have also agreed to pay the City 1% of their gross annual revenues to fund capital equipment for a PEG access program. It is important to note that federal law allows Sonic to pass the 1% cost through to the cable subscriber (1% of gross revenues would equate to 25 cents per month, per subscriber on a cable bill for basic service). ■ Customer Service Standards - Sonic has accepted the customer service standards currently set out in the City's cable. ordinance. They have also agreed to provisions that would allow the City to effectively enforce these standards. Customer service standards refer to such items as how quickly the cable company must answer the phone, what circumstances merit subscriber reimbursement, how quickly the cable company responds to system outages, etc. ■ Franchise Enforcement Capabilities - Sonic has agreed to establish a security fund to insure that all provisions of the franchise are adhered to throughout the life of the franchise. ■ Franchise Fee Increase - Sonic has agreed to increase the franchise fee from 4% to 5% (the maximum allowed under law). As with PEG access fees, Sonic is allowed under federal law to pass this cost on to the subscriber (this equates to an increase of approximately 25 cents per month, per subscriber on a cable bill for basic service). ■ Rate Regulation - This objective has been satisfied via federal cable rate regulation legislation (although the current regulation has fallen far short of our expectations in terms of reducing cable rates). - 3 "'��►►�II��P° '►�plll city of San iui s OBISPO = COUNCIL AGENDA REPORT Key Areas of Disagreement ■ PEG Access (Infrastructure related issues) - Sonic wants the City or cable subscribers to pay for PEG related infrastructure costs that are traditionally borne by the cable operator. Specifically, the City has requested Sonic to provide live cablecasting capabilities in the Council Chamber, the Library Community Room,and one location at San Luis High School. Sonic has thus far refused to pay these costs. ■ Low Income Discount - Sonic is unwilling to consider providing a low income discount program. While it is clear that federal law prohibits the City from requiring this type of program, Sonic could choose to offer this type of program in the spirit of community cooperation. The County was able to convince Falcon Cable to provide a similar program as part of their last franchise renewal agreement. In addition, many local governments (ours included) and most major utility companies provide these types of programs. ■ Term Length - Sonic is only willing to provide the above mentioned terms in exchange for a 15 year franchise. ■ Reimbursement for Franchise Renewal Costs - Sonic is unwilling to reimburse the City for approximately $35,000 in cable franchise renewal costs. While this also is not something the City can require the cable operator to do, it is common practice in the cable industry to provide this reimbursement. Staff Analysis In reviewing the quality of this proposal, it is first important to understand that any cable operator that wants to be competitive in the next decade and desires to increase their revenue base would make expanding the system to 80 channels a high priority on their own. Consequently, it is a somewhat marginal "concession" to the City that the cable operator is willing to provide an upgraded cable system Rather, it is a reasonable expectation on the part of the City in exchange for a long-term franchise agreement (e.g., 10 years). Secondly, costs associated with several of the objectives represent.expenses that the cable operator is legally able to "pass through" to consumers, and as such, does not result in any actual "out of pocket" expenses to the cable operator. As an example, PEG access costs are borne by the cable subscriber, not the cable company. Increasing the franchise fee from 4% to 5% is, again, borne by the cable subscriber not the cable operator (both fees in total would increase a typical cable bill for basic service by about 50 cents per month). ����i���Hlll��► � city of sands OBISpo Ia�UII COUNCIL AGENDA REPORT A third issue to consider is that two of the City's original objectives have been satisfied outside of the franchise renewal proceedings via the 1992 Cable Consumer Protection and Competition Act. Specifically, federal law now allows local government to regulate cable rates (within certain parameters) and impose customer service standards. Therefore, the cable operator would be subject to these requirements regardless of our franchise renewal proceedings. When this information is considered in total, it is fair to say that the only significant issues "on the table" beyond what Sonic could reasonably be expected to do on their own or required by federal law, relates to providing at their expense live cablecasting capabilities at three locations in the City,providing a low income discount program and reimbursing the City for franchise renewal costs. When a dollar value is placed on the cost of these items (which our consultant estimates to be less than $100,000), it becomes extremely difficult for staff to understand why we have reached a near "deadlock" in negotiations. When this dollar amount is placed in the context of the gross revenues Sonic generated from the City's cable subscribers in 1993 alone ($4.31 million) and the fact that these costs would be amortized over a ten-year period, it is even more puzzling. Again, staff recognizes that we cannot require Sonic to provide a low income discount program or reimburse the City for franchise renewal costs, however, based on the fact that other comparable franchises have received these concessions, they represent reasonable requests on our part. With respect to term length, Sonic's request for a fifteen year franchise is simply not warranted. Fifteen year franchises are typically only granted in circumstances where the cable operator has agreed to significant improvements over and above the norm. Since Sonic's last proposal does not even meet the City's minimum expectations for a ten-year franchise, it would be extremely difficult to justify a fifteen-year term. In summary, over the past two years of negotiations, the cable company has conceded little beyond what they might normally do in order to modernize their infrastructure and enhance profitability. Most other concessions are either currently required by federal law, or ultimately funded by cable subscribers. While this approach may be within their legal prerogatives, federal law also grants local government prerogatives regarding the length of a franchise agreement. The decision about agreement length should be made in direct relationship to the quality of a cable company's proposal (one that goes beyond mere legal minimums). In other words, an above average proposal warrants an above average franchise term, and so on. At present, staff believes that Sonic has offered a proposal that is, at best, at the lower end of the average (warranting something less than a 10 year term). -5 ��� �►I�I��p��11���`� city of San WIS OBISpo % COUNCIL AGENDA REPORT Recommendation While this process has been frustrating for the City, we must keep in mind that cable law still largely favors the cable industry in renewal proceedings. For example, terminating a franchise is neither easy (very few local governments have succeeded in accomplishing this) or inexpensive. And, typically such efforts result in protracted litigation (during which time the cable company can continue to operate). Therefore, it still makes sense to try to reach agreement with Sonic through the "informal proceedings" set out in the 1984 Cable Policy Act. Given this, staff is recommending that the City extend the franchise for three months (until February 28, 1995). During this period, staff will attempt to secure a franchise agreement that meets the City's minimum objectives. If we are still unable to reach agreement with Sonic after the three-month period has elapsed, staff will return to the City Council with another status report. At this time, it is likely that we will recommend that the City pursue invoking the "formal proceedings" for renewing a franchise as set out in the 1984 Cable Policy Act (this is discussed further in the Alternatives Section of this report). ALTERNATIVES: 1. Accept Sonic's current offer. The advantages of this option are that the upgrade of the system would occur in the shortest timeframe possible, we would begin collecting monies for a PEG access program, and the City would collect an additional 1% in franchise fees (estimated to equate to $40,000 annually). The disadvantages of this option, however, are greater. In essence, the City would be "stuck" with an inadequate franchise for fifteen years. 2. Continue month-to-month extensions indefinitely. If the City continues to pursue month-to-month extensions, no real harm is done. However, no progress toward improving the cable system is made either. Basically, this approach just puts the City and Sonic into a holding pattern until one or the other is desirous of reaching a conclusion. Given the condition of our cable system (it is at maximum programming capacity) and the community's apparent desire for public access capabilities (that can only be provided with an upgrade to the system), staff does not feel that this approach is in the best interest of the City. 3. Pursue the Formal Proceedings. Invoking the formal proceedings may ultimately be the only option available to the City that will allow us to conclude the negotiations process with Sonic. For the past two years, the City has been pursuing the "informal proceedings" to reach agreement with Sonic. The vast 3 - city of San LUIS OBISp0 COUNCIL AGENDA REPORT majority of all cable negotiations are carried out in this manner. The only real differences between the two approaches is the structure involved to reach conclusion and the fact that the process becomes more public. Once the formal proceedings are invoked, Sonic would have a specified amount of time to provide the City with a "best and final' proposal that meets the City's cable related needs. The City, in turn, would have a specified period of time to determine whether the proposal meets the City's cable related needs. This determination is based on a series of technical reports and community needs studies that the City conducted during 1992 to prepare for the renewal process. At the conclusion of the City's review period, we would then advise Sonic as to whether we felt the proposal met or did not meet our needs. If it met our needs, the City would adopt the franchise and conclude the process. If it did not meet our needs, the City could begin proceedings to terminate the franchise and seek another cable company. One of the clear benefits of invoking the "formal proceeding" is that it would end the protracted negotiations that have taken place between the City and Sonic over the past two years. The downside, however, is that both sides lose the flexibility that the "informal proceedings" offer. In essence, acceptance of the franchise becomes an "all-or-nothing" proposal leaving no room for negotiation. As such, staff feels that it would be in the City's best interest to continue negotiating informally with Sonic for another three more months in an attempt to reach agreement. If we are not able to, however, we may then invoke the "formal proceedings".. CONCURRENCES: The City's cable advisor has reviewed this report and concurs with its contents. Mr. Pilnick will be available at the November 1 Council meeting to provide further information about the situation and answer any questions. FISCAL IMPACT: Approval of this recommendation would not result in any additional costs to the City. ATTACHMENTS: Resolution 3 - '7 EXTENSION OF FRANCHISE AGREEMENT This Agreement is made and entered into this _ day of , 1994, by and between the City of San Luis Obispo, a duly authorized municipal corporation (the "City") and Sonic Cable Leasing Corporation, an.Alaska corporation ("Sonic"). WHEREAS, Sonic has operated a cable television system ("System")in the City pursuant to a franchise agreement("Franchise Agreement") entered into between the City and Sonic Cable TV, a California corporation, by Ordinance No. 790, passed December 19, 1978, and effective retroactively April 1, 1978, and transferred to Sonic Leasing Corporation by Resolution No. 6728, dated December 5, 1989; and WHEREAS, the franchise under which Sonic has operated its system expires on November 30, 1994; and WHEREAS, Sonic has requested that its franchise be renewed by the City; and WHEREAS, the City has determined that the public interest would be served by negotiating a renewal of the franchise to Sonic; and WHEREAS, Sonic and the City are in the process of negotiating and drafting a renewal franchise agreement; and WHEREAS, the City has determined that the public interest would be served by granting to Sonic an extension of the franchise pending finalization of the renewal franchise agreement. NOW, THEREFORE, the City and Sonic do hereby agree as follows: 1. The City hereby grants to Sonic an extension of the franchise to and including February 28, 1995. .2. Except as otherwise provided herein, all terms and conditions set forth in the Franchise Agreement shall remain in full force and effect. 3. It is mutually agreed by the City and Sonic that when a renewal franchise agreement is reached and entered into by the City Council of San Luis Obispo and Sonic, the term of this Extension shall immediately expire. SONIC CABLE LEASING CORPORATION By: Greg Blume, Sonic Cable General Manager 3 -8 Page 2 Sonic Agreement CITY OF SAN LUIS OBISPO By: Peg Pinard, Mayor ATTEST: By: Diane Gladwell, City Clerk APPROVED AS TO FORM: By: 01'.Aaug• CUwv,,%o J Jeff Jo w=, City Attorney g:sonic.agr 3 -�1 v MEED MG AGENDA DATE ITEM #= October 27, 1994 TO: CITY COUNCIL VIA: JOHN DUNN, CITY ADMINISTRATIVE OFFICER FROM: KEN HAMPIAN, ASSISTANT CITY ADMINISTRATIVE OFFICER SUBJECT: ADDITIONAL INFORMATION ON SONIC CABLE TELEVISION REPORT - ITEM 3 ON THE NOVEMBER 1, 1994 COUNCIL AGENDA The City received the attached letter from Sonic Cable Television on October 26; 1994 responding to the City's.last franchise renewal proposal of July 1994 (which was outlined in detail in the status report). The letter basically advises us that they do not feel that providing live cablecasting capabilities at the three locations requested by the City as part of franchise renewal negotiations makes good "business sense", and as such, is unwilling to. In addition, Sonic reiterated their position that a fifteen year franchise is necessary to justify a re-build of the system. Additionally, based on the tone of the letter, it is probably safe to assume that Sonic's position has not changed on reimbursement for franchise renewal costs or a lowincome discount program (although there is no formal mention of these two items in the letter). Sonic's letter merely strengthens staff's contention that Sonic is essentially asking for the privilege of a long term franchise without giving back any of the things that have earned long term agreements in other communities.- The letter also suggests that we may have reached impasse with Sonic, and in light of this, the Council may want to forego the three month extension of the franchise recommended by staff and consider invoking the formal franchise renewal process (as described in the status report). Mr. Pilnick, the City's cable advisor, will be available at the meeting to discuss the elements of the formal process and provide the Council with examples of what other communities of comparable size have been able to secure in exchange for long term franchises. a .._.,:,4�-cis_•. OUNCIL ❑ CDD DIR CAO ❑ FIN DIA /ACAO 0 FIRE CHIEF VATTORNEY L FAN Din RECEIVED � i : RI isE'� D� I Cd�CLlrr;3'JC•F'Sa:, ❑ a✓OLI';E CI•�FI �l E � 0.J ❑ rivir;. i: ';9 f_! P.EC GPi �' ❑ f,F> f] U_II_LiP OCT 2 81994 o v;is :.. . „ ..,=_. CITY CLERK :;:�oelBPo.C.:, r Cable Television P.O. Box 1205, San Luis Obispo, CA 93406 of San Luis Obispo i805i 544-1962 October 26, 1994 HAND DELIVERED Mr. Ken Hampian Assistant City Administrative Officer City of San Luis Obispo 990 Palm Street San Luis Obispo, CA 93401 Re: Sonic Cable Television -Franchise Renewal Dear Mr. Hampian: This letter is-submitted in response to a solicitation from the City for the status of franchise renewal negotiations and, therefore, falls under an exception to the City's Municipal Advocacy Ordinance. With respect to the PEG Access issue, although it may be feasible to wire the requested City locations for cablecasting capability, it is evident that our subscribers do not want PEG Access if it will result in any incrbase in the monthly billing. For this reason, we do not think it is wise to make any changes in the franchise agreement to accommodate PEG Access. Your attention is directed to a September, 1992, subscriber survey conducted by Telecommunications Management Corporation to "assist the City in improving cable service in the community through any franchise renewal." The results of that survey clearly show that our subscribers had little or no interest in PEG Access, particularly if it resulted in any increase in the fee structure. As an example, the summary for the inquiry regarding "Programming Services Desired by Current Subscribers" shows that the categories of"Community Programming (General)", "Local Studio", and "Public Access" each had a positive response from a single subscriber. We are aware of nothing over the past two years which would change the desires of our subscribers. If your staff feels differently, another survey might be in order. Sonic would be happy to cooperate. Based on the information available, however, imposing PEG Access on our subscribers makes poor business sense. Mr. Ken Hampian October 26, 1994 Page 2 Regarding the franchise term, a ten-year franchise is unreasonably short given the capital investment expected of Sonic as a part of franchise renewal. Sonic requires a minimum franchise term of fifteen (15)years in order to justify the expected capital investment. We look forward to working with you to resolve these issues and finalize franchise renewal. Sincerely, g Blume General Manager GB/j s MEETV AGENDA DATE Ir-1-2 ITEM # MEMORANDUM November 1, 1994 To: Mike McCluskey From: John Dunn Subject: "Cle n-u f e Circulation Element Mike, this will briefly follow-up our extended conversation of about two weeks ago. At that time I asked you to do two things, relative to the Circulation Element, similar to what I had earlier asked the Community Development Department staff to do concerning the Land Use Element. After the City Council has completed its review of the Circulation Element, carefully review the plan for two issues: 1. For any sections with wording that is awkward, inconsistent, or difficult of interpretation; please develop your recommendations for improved wording to the end that the plan is concise, clear, consistent, comprehensible, and capable of proper, future roper- future interpretation. 2. If in your professional judgement, and that of your staff, there are still changes needed to be made to the document before the document is complete, and a valid guide to the future of the City's transportation system, please give the City Council your best advice on specific changes that would lead to that end. As we discussed, these suggested changes in a straightforward format would be presented to the City Council at the same time as the draft Circulation Element, approximately two weeks ahead of a final public hearing, scheduled for November 29th. Please see my separate memo relating to the relationship of the Circulation Element to the Land Use Element and to the EIR for both elements. Thank you. JD:mc C. City Council Ken Hampian Jeff Jorgensen Diane Gladwell A �= �+kz f Terry Sanville �i J V! q 199 UTV%Ewe, 013M U.