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HomeMy WebLinkAbout09/21/1993, C-13 - EXTENSION OF FRANCHISE AGREEMENT WITH SONIC CABLE TELEVISION I��YIIII��III��IIIIIIIII Yi II�IIII City c MEETING DATE: c� or san �a�s os�spo -� -> > Nia; COUNCIL AGENDA REPORT ITEM NUMBER j FROM: Ken Hampian, Assistant City Administratiye Phicer Prepared By: Deb Hossli, Administrative Analyst `..; SUBJECT: Extension of Franchise Agreement with Sonic Cable Television CAO RECOMMENDATION: Approve an amendment that extends the City's franchise agreement with Sonic Cable Television to October 31, 1993, and authorizes the CAO to extend the agreement on a month-to-month basis thereafter until December 31, 1993 if necessary to conclude negotiations. DISCUSSION: Franchise Extension The City's franchise agreement with Sonic Cable Television is scheduled to expire on September 30, 1993. As the Council is aware, staff has been working with Sonic over the last six months to develop a renewal franchise agreement. It is staff's opinion that we are very close to concluding negotiations with Sonic. However, implementation of the 1992 Cable Consumer Protection Act has temporarily stalled our progress. Deadlines for resolving issues surrounding rate regulation(September 1, 1993) and retransmission consent (October 6, 1993) have limited Sonic's ability to participate in renewal discussions. Consequently, staff is requesting City Council approval of a one month extension to our franchise agreement with Sonic Cable Television and authorization for the CAO to extend thefranchise on a month to month basis thereafter until December 31, 1993 (if necessary to conclude negotiations). This should provide staff with ample time to finalize a draft franchise for the City Council's consideration. Regular status reports on the negotiations will be provided to the City Council in the interim. Concurrence The City has reviewed the proposed extension with our cable television advisor, Carl Pilnick, who feels that the extension is reasonable. He also believes that the month-to-month status of the agreement, if negotiations are not concluded by October 31, will put the City in a stronger position to conclude negotiations shortly thereafter. Rate Regulation ation In accordance with the 1992 Cable Consumer Protection Act, the City filed its petition to regulate basic cable rates with the Federal Communication Commission (FCC) on September 1, 1993 (the earliest date possible). The City expects to receive approval from the FCC to regulate rates in early October. At that time, the City will have the legal authority to review Sonic's rates and determine if they comply with the benchmark rates established by the FCC. ATTACHMENTS: Resolution G:son-mtm 1��� EXTENSION OF FRANCHISE AGREEMENT This Agreement is made and entered into this day of , 1993, 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 September 30, 1993; 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 and 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 October 31, 1993. Should the City and Sonic not be in the position to conclude franchise renewal negotiations by October 31, 1993, the CAO will have the authority to extend the franchise agreement on a month to month basis thereafter until December 31, 1993. 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. ["_ 13 -Z Page 2 Sonic Agreement SONIC CABLE LEASING CORPORATION By: Steve Burrell, General Manager CITY OF SAN LUIS OBISPO By: Peg Pinard, Mayor ATTEST: By: Diane Gladwell, City Clerk APPROVED AS TO FORM: (-2C4tIJ,,, /Lk� C (� [`Laren>� e ey G. J rgensen, City Attorney \bh\franagre C - i3. 3 T ITEM # - �►II II IIIIIIII �� ���IIII�IIIII IIIII� city of sAn luis oaspo 990 Palm Street/Post Office Box 8100 • San Luis Obispo, CA 93403.8100 TO: CITY COUNCIL FROM: KEN HAMPIAN, ASSISTANT CITY ADMINISTRATIVE OFFICER SUBJECT: ADDITIONAL INFORMATION RELATED TO ITEM C-13 ON THE SEPTEMBER 21, 1993 MEETING AGENDA - UPDATE ON THE FRANCHISE NEGOTIATIONS WITH SONIC CABLE TELEVISION Since preparation of Item C-13 for the City Council's September 21 , 1993 meeting, staff has received a counter franchise renewal proposal from Sonic Cable Television. Based on the contents of the proposal (See Attachment 1), staff feels it is necessary to advise the City Council that our assessment of the status of franchise renewal negotiations has changed significantly. After our last meeting with Sonic, it appeared that we were very close to agreement on the crucial elements connected with the franchise, and as such, we expected to conclude negotiations in the very near future. We subsequently requested a short-term extension to the franchise (Item C-13 on the September 21, 1993 agenda) with an expectation of presenting a draft franchise to the City Council well before the end of this year. Attached is Sonic's most recent proposal. There is a large disparity between what we thought we had tentatively reached agreement over and what Sonic's counter proposal actually contains. Significant examples of the disparity in our positions include: ► System Upgrade Sonic is only willing to upgrade the cable system to seventy channels if the City, in turn, is willing to guarantee rate increases that allow the cable company to fully recoup from subscribers all costs associated with the system upgrade. From the City's perspective, the Cable Company's stance on this issue is unacceptable. According to the City's cable advisor (Carl Pilnick), 70 channel systems are considered an industry standard and a very reasonable expectation in any franchise agreement exceeding seven years. In addition, the City cannot . legally guarantee rate increases to offset capital improvements under the terms of the soon to be implemented FCC rate regulation. ► Low-income Assistance Program _ Sonic-_has—declined_to_ provide-.a_._low-income assistance program to cable _ subscribers. Staff recognizes that the law precludes the City from requiring Sonic to offer a low-income assistance program. However, as evidenced in the recently adopted cable franchise between the County and Falcon Cable, some OThe City of San Luis Obispo is committed to include the disabled in all of its services, programs and activities. �� Telecommunications Device for the Deaf(805) 781-7410. Page 2 cable companies have offered such tiered rate programs. ► PEG Access Sonic's proposal for PEG access funding is approximately $350,000 short of what staff (along with advice from our cable advisor) has determined to be reasonable based on contributions from cable systems of comparable size. ► Reimbursement for Cable Advisor Costs Sonic's current proposal takes exception to reimbursing the City for the costs of our cable advisor. Requiring cable companies to reimburse a municipality for costs associated with franchise renewals is standard practice throughout the United States and a reasonable expectation on the part of the City. ► Business Tax Exemption It is the City's position that Sonic will be responsible for paying business taxes once a new franchise is adopted (the current franchise precludes this). As set out in their proposal, Sonic takes exception to this. Again, assessing a cable company a business tax is common practice and a reasonable expectation on the part of the City. In summary, Sonic's current proposal is unacceptable to the City and represents a step backward in our negotiations. Given this, we need to prepare ourselves for more protracted negotiations. And, despite the recent Federal Legislation, the strongest tool still available to the City is refusal to grant a long-term franchise agreement. Therefore, staff recommends no change in the recommendations outlined in Item C- 13, which is to essentially convert to a month-to-month agreement for the time being. Staff is currently conferring with our cable advisor to develop a further strategy for responding to Sonic. ATTACHMENTS: 1 - Sonic's Proposal ' t WARREN A.SINSHEIMER III SINSHEIMER, SCHIEBELHUT & BAGGETT ROBERT K.SCHIEBELHUT A PROFESSIONAL CORPORATION STREET ADDRESS K.ROBIN BAGGETT MARTIN 1. TANGEMAN ATTORNEYS AT LAW 1010 PEACH STREET THOMAS M. DUGGAN POST OFFICE BOX 31 FACSIMILE MARTIN P.MOROSKI DAVID A.IUHNKE SAN LUIS OBISPO. CALIFORNIA 93406-0031 805.541.2802 STEVEN 1. ADAMSKI THOMAS D. GREEN 805-541-2800 M.SUZANNE FRYER DIANE W. MOROSKI CYNTHIA CALDEIRA CLIENT 0133222 W. ARTHUR GRAHAM SUSAN S. WAAG ROY E. OGDEN THOMAS I. MADDEN III CHRIS A.CARR MARIA L HUTKIN NINA NEGRANTI September 13, 1993 Jeffrey G. Jorgensen HAND-DELIVERED City Attorney City of San Luis Obispo City Hall 990 Palm Street San Luis Obispo, California 93401 Deb Hosli HAND-DELIVERED Administrative Analyst City of San Luis Obispo City Hall 990 Palm Street San Luis Obispo, California 93401 Re: City of San Luis Obispo Cable Franchise Dear Jeff and Deb: After considering the proposal made by the City at our meeting on August 6, Sonic would be willing to enter into an agreement with the City of San Luis Obispo for the renewal of the cable television franchise on substantially the following terms: 1. The Franchise Agreement would incorporate Sonic's offer of July 12, 1993, with regard to the payment of franchise fees. This offer included raising franchise fees to 5% after the end of the FCC-imposed rate freeze, paying franchise fees on franchise fees for 1993 and beyond and paying the City $24,819.30 for underpayment of franchise fees prior to 1993. 2. The Franchise Agreement would incorporate Sonic's offer of July 12 with respect to funding for PEG access. This offer included $0.14 per subscriber per month, commencing 180 days after the effective date of the rate regulations, with a one time advance of $100,000 in September 1994, and an increase to $0.19 per subscriber in the tenth year of the franchise. 3. The Franchise Agreement would obligate Sonic to rebuild the system to a 70- channel capacity within 3 years, but only if the City approves any rate increase which Jeffrey G. Jorgensen Deb Hosli September 13, 1993 Page 2 would be required to allow Sonic to recover the cost of the rebuild plus a reasonable rate of return. 4. The Franchise Agreement would continue to exempt Sonic from the payment of the City business tax. 5. The Franchise Agreement would incorporate Sonic's July 12 offer with respect to reimbursement of the City's costs on renewal or transfer. This offer provided that any such reimbursement would be credited towards franchise fees. 6. The Franchise Agreement would incorporate Sonic's July 12 offer with respect to the performance bond. This offer required Sonic to put a letter of credit in place for $15,000 to serve as a security fund. 7. The Franchise Agreement would provide for liquidated damages in the amount of $250 per day for any failure to complete the rebuild in a timely manner (unless such failure was excused as provided in the Ordinance). Liquidated damages would be $50 per separate, unrelated incident for failures to comply with other provision of the franchise agreement. 8. The Franchise Agreement would provide for the City's acceptance of Sonic's current line extension service policy but Sonic would be required to provide service in those areas in the existing city limits where Sonic has reasonable access (without expense for trenching or relating costs) to the necessary open trenches during construction to install any required plant. In newly annexed areas of the City, Sonic would only be required to provide service in areas where the density is greater or equal to 10 dwelling units per 1/4 mile. 9. The franchise Agreement would provide for rate regulation by the City in accordance with the standards adopted by the Federal Communications Commission. 10. The Franchise Agreement would provide for a fifteen year term. Although this offer does not contain the same terms as those which you and the City's other representatives indicated you would be willing to recommend to the City Council for adoption, we hope that this proposal can form the basis for a mutually satisfactory agreement between the City and Sonic. If the City does not believe that further discussion with Sonic along the terms outlined above would be productive, however, then, without waiving any rights it may have to renewal under the Federal Cable Act, as amended, Sonic would be willing to agree to a month-to-month extension of its current franchise with the City until such time as another satisfactory arrangement can be reached. r Jeffrey G. Jorgensen Deb Hosli September 13, 1993 Page 3 If you have any questions regarding these matters, please do not hesitate to contact me. Sincerely, SINSHEIMER, SCHIEBELHUT & BAGGETT 47 M. SUZE FRYER MSF/hkm 15:Jorg0910.1tr cc: Steve Burrell (by telecopy) Chris Cohan (by telecopy)