HomeMy WebLinkAbout03/07/1995, 4 - SONIC CABLE TELEVISION FRANCHISE RENEWAL AGREEMENT tJ p MEETING DATE:
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COUNCIL AGENDA REPORT ITEM NUMBER:
FROM: Jeff JorgensenXity Attorney anenampian,Assistant City munstra ive
Officer
Prepared By: Deb Hossli, Administration
SUBJECT: Sonic Cable Television Franchise Renewal Agreement
CAO RECOMMENDATION: Introduce an ordinance to print granting a fifteen year
franchise agreement to Sonic Cable Television of San Luis Obispo.
DISCUSSION:
Background
As the Council is aware, City staff have been negotiating with Sonic Cable Television
(Sonic) representatives since early 1993 to develop a renewal cable television franchise
agreement. Up until recently, these negotiations have proceeded at a slow pace. Over the
last month, however, both the City and Sonic have made significant movement on the key
issues associated with the franchise. As such, City staff and Sonic are now ready to present
a franchise renewal proposal to the Council that meets the community's cable related needs.
In order for the Council to formally act on the franchise proposal, the City first had to adopt
a resolution advising the community of the City's intent to grant a franchise to Sonic and
setting a public hearing for March 7, 1995. The Council adopted a resolution.of this nature
at their February 14, 1995 meeting. The purpose of the March 7, 1995 hearing is to now
provide the community with an opportunity to comment on the recommended franchise
prior to Council action.
Overview of Proposed Franchise
Using the franchise renewal objectives established by the Council as a guide, staff has
negotiated a fifteen year franchise agreement for the Council's consideration (see
Attachment 1). Key components of the proposed franchise include:
■ Term - Fifteen years.
■ Type - Non-exclusive. Should any competing cable system or cable technology want
to operate in the City over the next fifteen years, this franchise will not impede their
ability to do so.
■ System Upgrade - Sonic will upgrade the system to a state-of-the-art 78 channel
system within three years of franchise agreement execution. The system rebuild will
be designed with fiber optics.
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■ Public, Education, and Government (PEG) Access tote Cable System - Sonic
(1) establish a PEG Fund to purchase capital equipment for a PEG access program
equal to 1% of their gross revenues upon execution of the agreement; (2) at their
expense wire and equip the City Council and Community Room with live cable
casting capabilities within three years of agreement execution; (3) at their expense
provide a cable link to San Luis High School within three years of agreement
execution; and (4) provide channel capacity to accommodate the City's projected
PEG access needs (up to five channels through the life of the franchise).
■ Future Upgrades - The franchise contains a "most favored nations" clause that will
require Sonic,under prescribed circumstances,to make upgrades to the cable system.
This provision will help to insure that the cable system keeps'pace with trends in
technology throughout the life of the franchise.
■ Customer Service Standards - Sonic has accepted the customer service standards
currently set out in the City's cable ordinance. In turn, the franchise contains
provisions that will allow the City to effectively enforce of 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 will establish a security fund to insure
that all provisions of the franchise are adhered throughout the life of the franchise.
■ Franchise Fee Increase - Sonic will increase the franchise fee from 4% to 5%.
Staff Analysis of Proposed Franchise
As proposed, the franchise agreement with Sonic contains nearly all of the renewal
objectives established by the Council at the outset of this process. The cable operator has
agreed to carry out all of the costly, significant franchise objectives that are critical to
meeting the community's cable related needs over the life of the franchise (e.g., a state-of-
the-art system re-build to 78 channels and PEG access commitments). In addition, the
"most favored nations" clause should lessen concerns in the community over the possibility
of the franchise becoming obsolete. As designed, the clause will trigger improvements to
the City's cable system when comparable communities under prescribed circumstances
receive new services (e.g., more channels, inter-active capabilities). Finally, it is important
to reiterate that the recommended franchise is non-exclusive and its adoption will not
impede the entry of competing cable companies or cable technologies.
The few objectives that we were not able to reach agreement on (e.g., creation of a low
income discount program and reimbursement for franchise renewal costs), while important,
were necessary concessions to reach agreement on a franchise equitable to both sides..
Therefore, on balance, City staff feels that the recommended franchise will: (1) adequately
meet the City's future cable needs, including PEG access desires; (2) provide subscribers
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COUNCIL AGENDA REPORT
with state-of-the art cable service while not unduly burdening them with additional costs,
and (3) represents a fair investment on the part of the cable operator in exchange for a
fifteen year franchise. As such, staff recommends that Council approve the proposed
franchise.
Inter-Comnanv Transfer
It is also important to note that in the latter part of 1994, Sonic Communications, Sonic
Cable Leasing Corporation's parent company,requested to reassign the cable franchise from
the Leasing Corporation to another of subsidiary company, Sonic Cable Television of San
Luis Obispo. The transfer was requested to aid Sonic Communication's corporate
restructuring and merely involved a change in legal title to the franchise. The reassignment
does not affect cable service to the residents of San Luis Obispo and local management of
the cable system will remain the same.
Under the terms of the City's current franchise with Sonic, transfers can be granted if the
franchisee can demonstrate financial solvency and agrees to fulfill the terms of the current
franchise in effect. In order to satisfy these requirements, Sonic submitted an Officer's
Certificate and a legal opinion prepared by the law firm representing Sonic
Communications. Staff reviewed the documents and determined that they adequately
satisfied the conditions of transfer. Therefore, as part of the Council's action on March 7,
1994, the City will be asked to execute a franchise agreement with Sonic Cable Television
of San Luis Obispo as opposed to Sonic Cable Leasing Corporation.
CONCURRENCES:
Sonic Communications has executed a document accepting the franchise as presented (see
Attachment 2). In addition, the City's cable advisor has reviewed this report and concurs
with its contents.
FISCAL IMPACT:
Approval of this recommendation will result in the City receiving a 1% increase (which
equates to approximately $40,000) in cable television franchise fees. It is also important to
note that upon execution of this franchise, a typical subscriber bill will likely increase by
approximately 50 cents a month. Cable law currently allows cable operators to pass through
the costs to subscribers of creating the 1% PEG fund and increasing the franchise fee.
ALTERNATIVES:
1) Reject the franchise proposal and pursue the formal franchise renewal process.
In November of last year, the City Council invoked the formal franchise renewal process
with Sonic as progress on negotiations had slowed to a near standstill. This action required
Sonic to provide the City with a 'best and final" franchise renewal proposal by February 3,
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city Of San tui S OBI SPO
COUNCIL AGENDA REPORT
1995. After that action, however, staff and Sonic were able to meet and agree via the
"informal renewal process" on a franchise proposal to present to Council. As such, the date
to submit the "best and final' proposal was extended to March 17, 1995 so that the City
Council could consider the agreement presented as part of this report.
Given this situation, the Council could choose to reject the recommended franchise if they
felt it did not meet the community's cable needs. This would then trigger the formal process
and require Sonic to provide the City with their "best and final" offer by March 17, 1995.
Staff does not recommend that the Council pursue this option, as it is very likely that any
proposal received under the formal process would be far less generous than the proposal
currently under consideration.
ATTACHMENTS:
(1) Ordinance Granting Franchise
(2) Document from Sonic Accepting Franchise
GsoNcla
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ORDINANCE NO.
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF
SAN LUIS OBISPO GRANTING A FIFTEEN YEAR FRANCHISE TO
SONIC CABLE TELEVISION OF SAN LUIS OBISPO
WHEREAS, Sonic Cable Television of San Luis Obispo notified the City in 1991 of their
desire to renew their cable television franchise that was scheduled to expire in April of 1993;
and
WHEREAS, upon receiving this notification from Sonic Cable Television of San Luis
Obispo, the City began preparing for the renewal process. Several studies and surveys were
carried out to assess the capabilities of the current cable system and ascertain the community's
future cable related needs. The results of these studies and surveys were used to create formal
franchise renewal objectives to guide the City through the franchise renewal process; and
WHEREAS, the City began meeting with Sonic Cable Television of San Luis Obispo in
early 1993 to develop a mutually acceptable franchise renewal agreement. Because the City and
Sonic Cable Television of San Luis Obispo were not able to reach agreement on a new franchise
prior to the April 1993 franchise expiration date, the City and Sonic Cable Television of San
Luis Obispo mutually agreed to extend the existing franchise for short-term increments until an
acceptable franchise agreement was developed; and
WHEREAS, in early February of 1995, City staff and Sonic Cable Television of San
Luis Obispo were able to reach agreement on a fifteen year franchise renewal proposal for the
City Council's consideration; and
WHEREAS, the City Council subsequently adopted a resolution on February 14, 1995
advising the community of the City's intention to grant a fifteen year franchise to Sonic Cable
Television of San Luis Obispo and set a public hearing for March 7, 1995 to provide interested
parties with an opportunity to comment on the franchise prior to City Council action; and
WHEREAS, the City Council has held a public hearing on this date.
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY
OF SAN LUIS OBISPO THAT:
SECTION 1. A non-exclusive fifteen year cable television franchise is granted to San
Cable Television of San Luis Obispo subject to the terms and conditions setforth in Exhibit A.
SECTION 2. A synopsis of this ordinance, approved by the City Attorney, together with
the ayes and noes shall be published once in full, at three (3) days prior to its final passage, in
a newspaper published and circulated in said City, and at the same time shall go into effect at
the expiration of thirty (30) days after its said final passage. A copy of the full final text of this
ordinance shall be on file in the office of the City Clerk on and after the date following the
introduction and passage to print and shall be available to any interested member of the public.
Upon motion of , seconded by and
on the following roll call vote: l /
/S'
Page 2
Ordinance No:
AYES:
NOES: I
ABSENT•
the foregoing ordinance was introduced to.print this _ __ day of __-__:.- __ , 1995_
Mayor Allen Settle
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A=T; I
Diane G.bdwep, City Clerk
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APPROVED: I
oFge._se- ity ttorney
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I T I
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CABLE TELEVISION FRANCHISE AGREEMENT
BETWEEN THE CITY OF SAN LUIS OBISPO
AND
SONIC CABLE TELEVISION OF SAN LUIS OBISPO
EFFECTIVE: ,1995
TABLE OF CONTENTS
SECTION 1 RENEWAL OF FRANCHISE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2 GENERAL REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3 SYSTEM REBUILD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 4 SERVICES AND PROGRAMMING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 5 SUPPORT FOR PUBLIC, EDUCATIONAL AND GOVERNMENTAL
ACCESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6 REGULATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
EXHIBITS
EXHIBIT A: SURETY GUARANTEE (SAMPLE)
EXHIBIT B: GRANTEE CON VfITMENT TO PEG ACCESS FACILITIES AND
EQUIPMENT
EXHIBIT C: SERVICE TO PUBLIC FACILITIES
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AGREEMENT
This Agreement, made and entered into this day of 1995, at San Luis
Obispo, California, by and between the City,of San Luis Obispo, a municipal corporation of the
State of California, and Sonic Cable Television of San Luis Obispo, a California corporation.
RECITALS
1. The City of San Luis Obispo, pursuant to Ordinance No. 1238 and applicable law,
is authorized to grant and renew one or more non-exclusive revocable franchises to operate,
construct, maintain and reconstruct a cable television system within the City.
2. The City, after due evaluation of Sonic Cable Leasing Corporation, and after public
hearings, has determined that it is in the best interests of the City and its residents to renew its
franchise with Sonic Cable Leasing Corporation. Sonic Cable Leasing Corporation has requested
that the City consent to its transfer of the franchise to Sonic Cable Television of San Luis Obispo,
which is also a wholly owned subsidiary of Sonic Communications. The City hereby consents to
the transfer of the franchise to Sonic Cable Television of San Luis Obispo. This transfer to Sonic
Cable Television of San Luis Obispo has occurred prior to the effective date of this Agreement.
3. Therefore, the City of San Luis Obispo (hereinafter the "Grantor") hereby grants to
Sonic Cable Television of San Luis Obispo (hereinafter the "Grantee") a renewal of its cable
television franchise in accordance with the provisions of Ordinance No. 1238 and this Agreement.
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SECTION 1 RENEWAL OF FRANCHISE
1.1 Grant
The cable television franchise granted as of April 1, 1978 to Sonic Cable Television of San
Luis Obispo, which was assigned to Sonic Cable Leasing Corporation as of December 22, 1989,
pursuant to Resolution #6728, adopted by the City Council on December 5, 1989, which was
assigned to Sonic Cable Television of San Luis Obispo, is hereby renewed, subject to the terms and
conditions of this Agreement. Grantee is a wholly owned subsidiary of Sonic Communications, a
California corporation. The renewal extends the franchise, authority, right and privilege, to
construct, reconstruct, operate and maintain a cable television system within the streets and public
ways in the City of San Luis Obispo as it is now or may in the future be constituted.
1.2 Right of Grantor to Issue and Renew Franchise
Grantee acknowledges and accepts the present right of Grantor to issue and renew a franchise
and Grantee agrees it shall not now or at any time hereafter challenge any lawful exercise of this
right in any local, State or Federal court. This is not, however, a waiver of any constitutional or
legal right or privilege on the part of the Grantee.
1.3 Effective Date of Renewal
The renewal shall be effective on the date that the last of the parties has executed this
Agreement, provided that said date is no later than thirty(30) days after the date the City Council,
by Resolution, approves this Agreement. The renewal is further contingent upon the filing by
Grantee with the City Clerk of an original of the executed Franchise Agreement and the required
security fund and insurance certificates. If the filing of all of the above does not occur within sixty
(60) days after the effective date, the Grantor may declare this renewal null and void.
1.4 Duration
The term of the renewal shall be fifteen(15) years from the effective date hereof at which
time the franchise shall expire and, except as otherwise provided herein, be of no force and effect
unless renewed for an additional period. Renewal shall be in accordance with applicable law.
1.5 Conflict with Cable Ordinance
The provisions of the City of San Luis Obispo Cable Television Regulatory Ordinance,
Ordinance No. 1238, are hereby incorporated herein by reference as if set out in full, and form part
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of the terms and conditions of this Agreement. In the event of any conflict between the terms and
conditions of this Agreement and the provisions of Ordinance No. 1238, this Agreement shall
prevail. Should Ordinance No. 1238 be amended, revised, superseded or otherwise changed after
the effective date hereof in such a way as would materially affect the terms and conditions of this
Agreement, said amendment, revision or change shall not apply to this Agreement without Grantee's
approval.
1.6. Definitions
The definitions contained in Ordinance No. 1238 are incorporated herein as if fully set forth.
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SECTION 2 GENERAL REQUIREMENTS
2.1 Governing Requirements
Grantee shall comply with all lawful requirements of this Agreement, Ordinance No. 1238
and applicable State and Federal law.
2.2 Franchise Fee
Commencing on the effective date of this Agreement, the Grantee shall pay to the Grantor
an annual franchise fee of five percent (5%) of Gross Annual Revenues received by Grantee from
operation of the cable system in the City of San Luis Obispo. The fee shall be payable quarterly by
April 30, July 31, October 31 and January 31 for the preceding three- (3) month period.
2.3 Resolution of Disputes
To aid in the analysis and resolution of any future disputed matters relative to the franchise,
the Grantor and Grantee may, by mutual agreement (both as to whether to hire and whom to hire),
employ the services of technical, financial or legal consultants, as mediators. All reasonable fees
of the consultants incurred by the Grantor and/or the Grantee in this regard shall be borne by the
parties in such proportion as is appropriate, in the judgment of the employed consultant(s).
2.4 Payment to Grantor
No acceptance of any payment shall be construed as an accord that the amount is in fact the
correct amount, nor shall such acceptance of payment be construed as a release of any claim the
Grantor may have for finther or additional sums payable under the provision of this Agreement. All
amounts shall be subject to audit, as authorized by Section 1.18 of Ordinance No. 1238.
2.5 Liability Insurance
(a) Upon the effective date of renewal the Grantee shall, at its sole expense, take
out, and maintain during the life of this Agreement and furnish to the Grantor, a policy of insurance
as required by the State of California for Workers' Compensation, and a policy of liability insurance
that shall conform to the provisions of Section 1.23 of Ordinance No. 1238.
The amounts of insurance shall not be less than the following:
Single Limit Coverage applying to Bodily and Personal Injury and Property Damage: Two
Million Dollars ($2,000,000).
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The following endorsements shall be attached to the liability policy:
(1) The policy shall cover on an "occurrence" basis.
(2) The policy shall cover Personal Injury as well as Bodily Injury.
(3) The policy shall cover blanket contractual liability subject to the standard universal
exclusions of contractual liability included in the carrier's standard endorsement as
to bodily injuries, personal injuries and property damage.
(4) Broad Form property damage liability shall be afforded.
(5) The Grantor shall be named additional insured on the policy.
(6) An endorsement shall be provided which states that the coverage is primary
insurance and that no other insurance effected by the Grantor will be called upon to
contribute to a loss under this coverage.
(7) Standard form of cross-liability shall be afforded.
(8) An endorsement stating that the policy shall not be canceled without thirty (30) days'
notice of such'cancellation given to the Grantor.
(b) Grantor reserves the right to adjust the limit coverage requirements no more
often than every four(4)years, after conducting a duly noticed public hearing. Any such adjustment
by the Grantor will be no greater than the increase in the Los Angeles/Long Beach Metropolitan
Area Consumer Price Index (all consumers) for such four- (4) year period, and will be based on
current prudent business practices of like enterprises involving the same or similar risks.
(c) Grantee shall submit to Grantor documentation of the required insurance
including a certificate of insurance signed by the insurance agent and companies named, as well as
all properly executed endorsements.
(d) Any deductible or self-insured retentions must be declared to and approved
by Grantor. At the option of Grantor, insurer shall reduce or eliminate such deductible or self-
insured retention as respects Grantor, its officers and employees or Grantee shall procure a bond
guaranteeing payment of losses and related investigation, claims, administration and defense
expenses.
(e) Grantee hereby indemnifies Grantor for any damage resulting to it from
failure of either Grantee or any subcontractor of Grantee to take out and maintain such insurance.
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2.6 Indemnification
(a) Grantee shall indemnify, hold harmless, release and defend Grantor, its
officers, employees and agents from and against any and all actions, claims, demands, damages,
disability, losses, expenses including attorneys' fees and other defense costs or liabilities of any
nature that may be asserted by any person or entity including Grantee from any cause whatsoever
including another's concurrent negligence arising out of or in any way connected with Grantee's
operation of the cable system, the exercise or enjoyment of the franchise renewed pursuant to this
Agreexnent, and/or the activities of Grantee, its subcontractors, employees and agents hereunder.
Grantee shall be solely responsible and save Grantor harmless from all matters relative to payment
of Grantee's employees including compliance with Social Security, withholding, and other similar
matters.
(b) This indemnification obligation is not limited in any way by a limitation on
the amount or type of damages or compensation payable by or for Grantee under Workers'
Compensation, disability or other employee benefit acts, acceptance of insurance certificates
required under this Agreement, or the terms, applicability or limitations of any insurance held by
Grantee.
(c) Grantor does not, and shall not,waive any rights against Grantee which it may
have by reason of this indemnification, because of the acceptance by Grantor, or the deposit with
Grantor by Grantee, of any of the insurance policies described in this Section.
(d) This indemnification by Grantee shall apply to all damages and claims for
damages of any kind suffered by reason of any of the aforesaid operations referred to in this Section,
regardless of whether or not such insurance policies shall have been determined to be applicable to
any of such damages or claims for damages.
(e) Grantee shall not be required to indemnify Grantor for negligence or
misconduct on the part of Grantor or its officials, boards, commissions, agents, or employees.
(f) Grantor shall hold Grantee harmless from any damage resulting from any such
acts of the Grantor or its officials, boards, commissions, agents or employees in utilizing any
governmental or educational access channels, or in activating emergency alert equipment or
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facilities, or from work performed by Grantor and permitted by this Agreement, on or adjacent to
the cable system.
2.7 Security Fund .
(a) In accordance with Section 1.19 of Ordinance No. 1238, within sixty (60)
days after the effective date of this Agreement, Grantee shall establish and provide to Grantor a
security fund, as security for the faithful performance by Grantee of all material provisions of this
Agreement. The security fund shall consist of two (2) parts. The first part shall be a bond or a
corporate guarantee from Sonic Communications and which shall be in the amount of Two Hundred
Thousand Dollars- 200,000 Any guarantee shall be essentially similar to the example provided
in Exhibit "A". The second part shall be in the amount of at least Fifteen Thousand Dollars
($15,000) and shall be in the form of an irrevocable bank letter of credit, whose wording shall be
subject to the approval of Grantor's City attorney, and shall reflect the provisions of paragraph(c)
below.
(b) The bond or guarantee shall be maintained at the amount provided above until
the system rebuild provided for in Section 3.1 herein is completed, at which time the bond or
guarantee shall be released, provided there are then no outstanding material violations of this
Agreement. The letter of credit portion of the security fund shall be maintained at the amount
provided above throughout the term of this Agreement, provided that at intervals no more often than
every four(4)years, Grantor shall have the right to require that this amount be increased to reflect
changes in the Los Angeles/Long Beach Metropolitan Area Consumer Price Index during the prior
four- (4)year period.
(c) The security fiord may be assessed by Grantor for those purposes specified
in Sections 1.19 and 1.34 of Ordinance No. 1238, in accordance with the procedures of Section 1.35
of said Ordinance, provided that Grantee has received written notice, an opportunity to be heard and
an opportunity to cure any material violations prior to any assessment. As long as the Grantor
follows the procedures specified herein and in Ordinance No. 1238 for assessing and withdrawing
Rinds from said security fund, Grantee shall not initiate litigation or non-City administrative action
to prevent or impair Grantor from accessing those funds. Grantee's recourse, in the event Grantee
believes any taking of security funds is improper, shall be.through legal action after the security has
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been drawn upon. If the Grantor's action or taking is found to be improper by any court or agency
of competent jurisdiction, Grantee shall be entitled to a refund of the funds, including interest
accrued thereon.
(d) After any withdrawal from the security fund, Grantee, within thirty (30) days,
shall cause the security fund to be replenished to its full value, in accordance with the provisions of
Ordinance No. 1238. Any failure to replenish shall be deemed a material breach of this Agreement.
(e) Nothing herein shall be deemed a waiver of the normal permit and bonding
.requirements made of all contractors working within the City's rights-of-way.
2.8 Procedure for Remedying Franchise Violations
(a) The procedures for remedying franchise violations shall be those expressly
set forth in Section 1.34 of Ordinance No. 1238.
(b) If the violation is reasonably curable within thirty (30) days of receipt of
Grantor's written notice following the public hearing, and if Grantee has not commenced appropriate
corrective action within that thirty- (30) day period, or provided a plan to correct the violation in
accordance with subsection (c) below, then Grantor may proceed to assess from the security fund
damages for Grantee's individual or repeated willful violations of a material franchise requirement
of up to Five Hundred Dollars($500)per day, or per incident, for unexcused violations of the system
rebuild completion schedule provided in Section 3.1 herein, and up to One Hundred Dollars ($100)
per day, or per incident, for all other unexcused violations, provided that all such violations of
similar nature occurring at the same time shall be deemed one incident.
(c) In the event any stated violation is not reasonably curable within such thirty
(30) days, the franchise will not be terminated or revoked or damages assessed if the Grantee has
provided, within said thirty(30)days, a-plan, satisfactory to the Grantor, to remedy the violation and
continues to demonstrate good faith in seeking to correct said violation.
(d) In determining whether violations are material, Grantor shall take into
consideration the nature of the violation, whether the violation was chronic, the person or persons
bearing the impact of the violation,the nature of the remedy required in order to prevent further such
violations and such other matters as the Grantor may deem appropriate.
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2.9 Reservation of Rights
Grantor and Grantee reserve all rights that they may possess under the law unless expressly
waived herein.
2.10 State or Federal Preemption
In the event that the State or Federal Government discontinues preemption in any area of
cable communications over which it currently exercises jurisdiction in such manner as to expand
rather than limit municipal regulatory authority, Grantor may, if it so elects, adopt rules and
regulations in these areas, to the extent permitted by the then applicable law. If such regulation of
previously preempted areas conflicts with any provision of this Agreement, it shall not be
implemented without Grantee's concurrence.
2.11 Recovery of Litigation Costs
If any legal action is brought for the enforcement of this Agreement or because of any
alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees
and other costs incurred in that action or proceeding, in addition to any other relief to which it may
be entitled.
2.12 Settlement of Potential Prior Claims
Grantor and Grantee acknowledge that a dispute has arisen between them as to whether
Grantee's predecessor has complied with franchise obligations regarding the obligation to pay
franchise fees. Grantor contends that Grantee's predecessor was not allowed to deduct amounts paid
by subscribers as franchise fees when determining gross annual revenues prior to determining
franchise fee obligations under the franchise superseded by this Agreement_ Grantee contends that
amounts paid by subscribers as franchise fees should have. been deducted from gross annual
revenues when determining franchise fee obligations under the franchise superseded by this
Agreement. While Grantor acknowledges that a substantial legal controversy exists as to the
correctness of its position on this issue, Grantee acknowledges that, for purposes of interpretation
of this Agreement, the parties have adopted Grantor's position with respect to the inclusion of
franchise fees paid by subscribers in the definition of gross revenues for the purpose of calculating
franchise fees due, as set forth in Ordinance No. 1238. The Grantor and Grantee hereby waive any
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and all claims that may have arisen or may arise due to noncompliance with the prior franchise
including, without limitation, any claim for nonpayment, underpayment or overpayment of franchise
fees.
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SECTION 3 SYSTEM REBUILD
3.1 Rebuild
Grantee shall rebuild the existing cable system to provide a capacity of at least seventy-eight
(78) analog downstream video channels [corresponding to an upper operating frequency of Five
Hundred Fifty Megahertz (550MHz)], within thirty-six (36) months of the effective date of this
Agreement. The system rebuild design shall utilize a "fiber to the serving area" approach in which
optical fiber cable shall be installed from the headend to nodes in areas comprising approximately
one hundred(100)to two thousand (2,000) homes, with coaxial cable utilized for the portion of the
system distributing signals from the node to the cable subscribers. Completion of construction shall
be defined as the ability to provide up to seventy-eight (78) channels of video programming, without
digital compression, to all residential subscribers within the City, as well as satisfactory completion
of any permit-specified requirements.
3.2 Future System Modifications
(a) To assure that Grantee's cable system continues to reflect the general cable industry
state-of-the-art throughout the term of the franchise, Grantor and Grantee agree to utilize cable
systems in terms of numbers of subscribers, penetration, and demographics as a basis for
comparison. The comparison communities ( also referred to as to as the "comparison group") shall
be selected no later than six years after the effective date of this Agreement. Grantor and Grantee
shall each select four communities to be included in the comparison group.
(b) Grantor and Grantee agree that subsequent to the completion of the rebuild required
in Section 3.1 above, but no sooner than seven(7)years after the effective date of this Agreement,
when (i) five or more cable systems in the comparison group (also referred to as the "comparison
sub-group") offer programming services which exceed the services provided on Grantee's system
by ten (10) services or more, and (ii) addition of such services is commercially reasonable, then
Grantor may require Grantee to provide additional programming services to meet the average
provided by the comparison sub-group. Grantee shall complete the modification within twelve (12)
months of receipt of Grantor's request, subject to the availability of system channel capacity. If this
provision would require Grantee to incur additional capital costs in excess of$500,000, then prior
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to incurring any such additional capital costs, Grantee shall-be entitled to an appropriate extension
of the franchise term on a commercially reasonable basis.
(c) Grantor and Grantee further agree that subsequent to the completion of the rebuild
required in Section 3.1 above, but no sooner than seven (7) years after the effective date of this
Agreement, when (i) five or more of the cable systems in the comparison group have activated
upstream communications capacity,and are offering interactive residential services to all subscribers
on a regular (and not a test case or other experimental) basis, and (ii) the addition of such services
is commercially reasonable, then Grantor may require Grantee to activate the upstream capacity of
Grantee's system. Grantee shall complete this activation within twelve (12) months of receipt of
Grantor's request. If this provision would require Grantee to incur additional capital costs in excess
of $500,000, then prior to incurring any such additional costs, Grantee shall be entitled to an
appropriate extension of the franchise term on a commercially reasonable basis. Capital costs shall
include, without limitation, all costs to meet the provisions of Section 3.5 of this Agreement.
(d) For the purposes of this Section 3.2, the addition of programming services shall be
"commercially reasonable" if Grantee is able to recoup all capital costs and earn a reasonable return
on any such addition.
3.3 Emergency Alert Capability
Concurrent with the completion of the system rebuild provided in Section 3.1. above, Grantee.
shall provide the system capability to transmit an emergency alert signal to all participating
subscribers, in the form of an audio override capability to permit Grantor and/or the County of San
Luis Obispo to interrupt and cablecast an audio message on all channels simultaneously in the event
of disaster or public emergency.
3.4 Standby Power
Concurrent with the completion of the system rebuild provided in Section 3.1 above, Grantee
shall provide standby power generating capacity at the cable system control center capable of
providing at least twelve (12) hours of emergency supply. Grantee shall maintain standby power
system supplies throughout the cable network and nodes capable of providing emergency power
within the standard limits of commercially available power supply units.
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3.5 Status Monitoring
Grantee shall provide an automatic status monitoring system or a functional equivalent when
the cable system has been activated for interactive service, provided that such status monitoring is
utilized by at least fifty percent(50%) of the comparison communities in Section 3.2(a).
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SECTION 4 SERVICES AND PROGRANMNG
4.1 Provision of Service
(a) No later than the completion of the system rebuild provided in Section 3.1,
Grantee shall offer its normal range of services to all residents of the City, as the City exists on the
effective date of this Agreement, at standard installation charges and monthly rates.
(b) Service to all residents in any areas annexed to the City after the effective date
of this Agreement shall be provided at standard installation charges and monthly rates no later than
twelve (12) months after the date of such execution.
(c) In commercial areas, wherever Grantee has been given at least ten(10) days'
notice of a street opening, Grantee shall install conduit or cable in the affected trenches prior to the
trenches being closed.
(d) Grantee shall have no obligation to extend its distribution lines to allow it to
provide service in any residential or commercial area where it cannot secure on commercially
reasonable terms any additional rights-of-way necessary for service to be provided to such area on
a commercially reasonable basis.
4.2 Services and Programming
Grantee shall provide Grantor with a list of program services offered, which list shall be
updated each time a change is made. Grantee shall not voluntarily reduce the number of program
services without thirty (3 0) days' prior notification to the Grantor and system subscribers.
4.3 Leased Channel Service
Subject to available system capacity, Grantee shall offer leased channel service in accordance
with applicable law.
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SECTION 5 SUPPORT FOR PUBLIC, EDUCATIONAL AND GOVERNMENTAL ACCESS
5.1 PEG Access Operating Costs
Based on the provisions of the Cable Communications Policy Act of 1984 and future
applicable law, Grantor shall determine from time to time the funding level Grantor desires to make
available for public, educational and governmental (PEG) access operating costs, and the most
appropriate entity or entities to manage PEG access operations.
Any Grantor request for grant funds for equipment, facilities and channels for PEG access
use shall be accompanied by an operating plan which delineates the source of the required operating
funds to the extent required by Exhibit "B".
5.2 Grantee Support of PEG Usage
Grantee shall provide the following or equivalent support for PEG cable usage within the
franchise area:
(a) Provision and use of the grant funds and channels designated in Exhibit 'B"
of this`Agreement for local PEG programming and access use at no charge in accordance with the
requirements of Exhibit "B".
(b) Maintenance of Grantee's PEG access facilities and channels, and support of
PEG programming to the extent specified in Exhibit 'B" of this Agreement.
(c) Provision of free public building installation and basic service, and provision
of one upstream transmission line to allow for live cablecasting capability from the locations
specified in Exhibit "C", including San Luis Obispo High School, which capability shall be available
not later than the completion of the rebuild outlined in Section 3.1 above.
(d) Provision of wiring and equipment for a turn-key system(when used in
conjunction with the upstream transmission line described in(c) above)for live broadcast from the
City Council Chambers located in City Hall and the City Council Auxiliary Chamber located in the
San Luis Obispo City-County Library using the equipment described in Exhibit "C", which
equipment shall be available not later than the completion of the rebuild outlined in Section 3.1
above.
The parties agree that the commitments outlined in (c) and (d) above are voluntarily entered
into pursuant to the provisions of the Cable Communications Policy Act.of 1984, and the cost of
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y-a3
providing such commitments will not be considered to be an amount required to satisfy franchise
requirements to support PEG during the term of the franchise and will not be charged against any
PEG funding due Grantor during the term of the franchise.
5.3 Compliance with Federal Law
In accepting this franchise, the Grantee agrees that the commitments indicated in Section 5.2
above are voluntarily entered into pursuant to the provisions of the Cable Communications Policy
Act of 1984, and will not be charged against any franchise fees due the Grantor during the term of
the franchise.
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SECTION 6 REGULATION
6.1 Franchise Regulation
The franchise renewed under this Agreement shall be subject to regulation by Grantor in
accordance with all of the lawful provisions of Ordinance No. 1238.
6.2 Force Majeure
The force majeure provisions of Section 1.36 of Ordinance No. 1238 shall apply.
6.3 Rate Regulation
Grantor may elect to regulate rates at any time in accordance with applicable law.
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IN WITNESS WHEREOF, Grantor and Grantee have executed this Agreement the date and
year first above written.
APPROVED AS TO FORM: CITY OF SAN LUIS OBISPO
By:
Date:
ATTEST:
City Clerk
(SEAL)
(CORPORATE SEAL) SONIC CABLE TELEVISION OF SAN
LUIS OBISPr
By:
Christopher Cohan, President
Date:
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%0133222\020995 18
EXFMIT A
SURETY GUARANTEE
(SAMPLE)
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A-1
EXHIBIT A: SURETY GUARANTEE
WHEREAS, the City of San Luis Obispo (hereinafter called "Grantor")under this Franchise
Agreement dated the day of 1995, has granted a franchise to Sonic Cable
Television of San Luis Obispo (hereinafter called "Grantee") to own, operate, and maintain a cable
television system (hereinafter called "the Franchise"); and
WHEREAS, Sonic Communications, (hereinafter called "Guarantor") a California
corporation, being the parent company of the Grantee, has a substantial interest in said Franchise,
the conduct of the Grantee, and the Franchise Agreement between Grantor and Grantee establishing
Franchise requirements,which Agreement is hereby specifically referred to, incorporated herein and
made a part hereof; and
WHEREAS, Section 2.7 of said Franchise Agreement requires the Grantee, as Principal, to
fim3ish security issued to cover the faithful performance of certain of the Grantee's obligations under
said Franchise, and which security shall be in favor of the Grantor;
NOW THEREFORE, subject to the provisions of Section 2.8, Guarantor hereby
unconditionally guarantees the due and punctual performance of any and all obligations of Grantee
contained in the Franchise Agreement, up to Two Hundred Thousand Dollars ($200,000). This
Guarantee shall, unless terminated, substituted or canceled as hereinafter provided, remain in full
force and effect for the period provided by said Franchise. Provided that, upon substitution of
another Guarantor reasonably satisfactory to the Grantor, this Guarantee may be terminated,
substituted or canceled upon thirty(30)days' prior written notice from Guarantor to the Grantor and
Grantee.
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A-2
Any such notice to be given hereunder shall be addressed to Grantor, with a copy to Grantee.
Such terminations shall not affect liability incurred or accrued under this Guarantee prior to the
effective date of such termination or cancellation.
No claim, suit or action under this Guarantee by reason of any default of the Grantee shall
be brought against Guarantor unless asserted or commenced no later than six (6) months after the
effective date of such termination or cancellation of the Guarantee.
IN WITNESS WHEREOF, the Grantee and Guarantor have hereunto set their hands and
seals this day of , 1995.
SONIC CABLE SONIC COMMUNICATIONS
TELEVISION OF SAN LUIS OBISPO
By: By:
Title: Title:
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EXHIBIT B
GRANTEE COMMITMENT TO
PEG ACCESS FACILITIES AND EQUIPMENT
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31,E
B-1
EXHIBIT B: GRANTEE COMMITMENT TO PEG ACCESS FACILITIES AND EQUIPMENT
1. PUBLIC, EDUCATIONAL AND GOVERNMENTAL (PEG) ACCESS CHANNELS
(a) From the effective date of this Agreement until the system rebuild provided in
Section 3.1 is completed, Grantee shall continue to provide capacity of one (1) downstream video
channel for composite PEG use.
(b) Concurrent with the completion of the system rebuild provided in Section 3.1,
Grantee shall make two (2) downstream video channels available exclusively for PEG use. These
channels shall be dedicated for the term of the franchise renewal, provided that Grantee may utilize
any portions of these channels during any time when they are not scheduled for PEG use. Grantor
and Grantee shall establish rules and procedures for such scheduling in accordance with Section 611
of the Cable Communications Policy Act of 1984.
(c) After the completion of the system rebuild, at any time during the term of this
franchise, Grantor may request and Grantee shall provide up to a total of two (2) additional
downstream video channels for PEG use. Grantor may not submit such a request unless the PEG
channels already being utilized each are cablecasting at least eight(8) hours per weekday, exclusive
of weekends, of unduplicated video programming on each channel already designated for PEG use,
and, further, that additional contemplated PEG programming cannot effectively utilize the existing
channels during the time they are available.
(d) Upon completion of the system rebuild provided in Section 3.1, Grantee shall make
available for interactive�G use-afleasf flu'rfy meg la rertz (30 of upstream capacity and thirty
erif ga�ertz(30 #t)jof downstream capacity, on a closed-circuit basis, at no cost to EG users. The
EG users shall be responsible for the procurement, installation and operating costs of any terminal
and interface equipment needed at the user facilities to-utilize this interactive bandwidth. Using
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B-2
monies available in the PEG Fund, Grantee shall be responsible for the procurement, installation and
operation costs of all equipment external to the EG user facilities necessary to provide and maintain
the communications network paths, except that Grantee shall be responsible for maintenance of the
external cable plant at its sole expense.
(e) As used in subparagraphs (a) (b) and (c) above, "PEG use" shall mean the use of the
channels and bandwidth to provide live, taped or character generated programming, or data
transmission for public, educational or governmental purposes by the Grantor and the governmental
and educational institutions listed in Exhibit C (collectively the "Other PEG Users"). Grantee
reserves the right to add other public, governmental and educational institutions to the list of Other
PEG Users from time to time. Grantor and the Other PEG Users shall establish rules and
procedures for scheduling the use of the channels available for PEG access use and provide a copy
of such rules to Grantee. As used in subparagraph (d) above, "EG use" shall mean the use of the
channels and bandwidth to provide live, taped or character generated programming, or data
transmission, for educational or governmental purposes by the Grantor and the governmental and
educational institutions listed in Exhibit C (collectively the "Other EG Users"). Grantor reserves
the right to add other governmental and educational institutions to the list of Other EG Users in a
timely manner to allow for construction of the necessary facilities in connection with the rebuild.
Grantor and the Other EG Users shall establish rules and procedures for scheduling the use of the
channels available for EG access use and provide a copy of such Hiles to Grantee. Grantee may
utilize any portion of these channels during any time when they are not scheduled for EG use.
Grantor,the Other PEG Users,the Other EG Users and Grantee shall establish rules and procedures
for scheduling use by Grantee in accordance with Section 611 of the Cable Communications Policy
Act of 1984, as amended from time to time.
0
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B-3
2. ESTABLISHMENT OF PEG FUND
On the effective date of this Agreement, Grantee agrees to establish a fund (the "PEG Fund")
for Grantor to use solely for PEG access equipment and facilities. Grantee shall pay into the PEG
Fund in arrears an amount equal to one percent (1%) of gross revenues. If applicable federal law
and regulations permit Grantee to "pass through" the cost of these funds to system subscribers,
Grantor shall not oppose such a pass-through. Grantor reserves the right to request, and receive,
an advance credited against the PEG Fund of up to Two Hundred Fifty Thousand Dollars
($250,000), no sooner than three (3) years after the effective date of this Agreement, for designated
PEG capital equipment and facilities. The advance provided above shall accrue any interest costs.
At the Grantor's request, Grantee shall provide Grantor with a calculation of the current balance
available to Grantor in the PEG Fund.
3. REQUEST FOR GRANTS FROM PEG FUND
Including the advance provided in paragraph 2 above, any request by Grantor for funds from
the PEG Fund shall be in accordance with an operating plan prepared by Grantor. The operating
plan shall contain, as a minimum, the following information:
(a) List of intended PEG users.
(b) Planned type and level of programming for each user.
(c) Capital equipment, facilities and estimated costs required to support the intended
uses. This shall include a survey of existing publicly-owned equipment that might be available for
the intended purposes.
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B-4
(d) User commitments by Grantor or another PEG user to cover operating expenses for
at least a three- (3) year period. The user commitments shall be approved by resolution of the City
Council.
(e) An evaluation by Grantor that the existing public facilities and equipment are
inadequate to meet the needs of the operating plan.
(f) Except for the advance provided in paragraph 2 above, a statement of the amount
requested and that the amount requested is less than or equal to the amount available in the PEG
Fund.
Based solely on Grantor's certification that the PEG operating plan is reasonable and
appropriate to meet PEG needs and objectives, Grantee shall provide the requested funds no later
than sixty(60) days after receipt of Grantor's request and the operating plan.
4. PEG OPERATIONS
Grantor may negotiate agreements with neighboring jurisdictions served by the same cable
system, educational institutions, or others to share operating expenses as appropriate. Grantor and
Grantee may negotiate an agreement for management of PEG facilities, if so desired by the parties.
5. TITLE TO PEG EQUIPMENT
Grantor shall retain title to all PEG equipment provided with funding made available in
accordance with paragraphs 2 and 3 above.
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B-5
6. RELOCATION OF PEG CHANNELS
If Grantee relocates any PEG access channel to a different channel number, Grantee shall
reimburse Grantor for any out-of-pocket Grantor costs incurred as a result of the relocation up to a
maximum of$1,000. Grantee shall provide Grantor and all subscribers with at least thirty (30) days'
written notice of the relocation of any PEG access channel.
7. PROMOTION OF PEG ACCESS
Grantee shall allow the Grantor to place bill stuffers in Grantee's subscriber statements sent
in the franchise area, for the purposes of promoting or explaining PEG access, no more than twice
per year upon the written request of the Grantor and at such times that the placement of such
materials would not effect Grantee's cost for the production and mailing of such statements. The
Grantor agrees to pay Grantee in advance for the actual costs incurred by Grantee in connection with
the placement of such materials. Grantee shall also make available access information provided by
Grantor in subscriber packets at the time of installation and at the counter in the system's business
office. Not more often than three (3) times per year, Grantee shall also distribute, at no charge to
Grantor, through advertising insertion equipment, promotional and awareness commercial spots
produced at the Grantor's cost and submitted by the Grantor in a format compatible with such
equipment once Grantee has acquired and activated such capability. Grantee shall also include a
listing of the known programming to be cablecast on PEG access channels in any program guide of
services for the cable system.
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,3s
EXHIBIT C
SERVICE TO PUBLIC FACELITIES
. / 3�
C-1
1. PUBLIC BUILDINGS TO BE PROVIDED WITH FREE CABLE TV CONNECTIONS
AND THE HIGHEST LEVEL OF BASIC SERVICE:
City of San Luis ObiWo Buildings:
City Hall
Police Station
Fire Stations
Senior Citizens Center
City Recreational Center
City-County Library
City Recreation Department (current location and new location at 1341 Nipomo)
Public Works Department
Other Public Buildings:
San Luis Obispo High School
Pacific Beach High School
Laguna Middle School
Pachecho Elementary School
Hawthorne Elementary School
Sinsheimer Elementary School
Bishop Peak's Elementary School
Teach Elementary School
C.L. Smith Elementary School
Jesperson School
San Luis Coastal Office of Education
State of California(675 California Blvd.)
San Luis Jr. High School
San Luis Obispo County General Hospital
Crisis Center
2. PUBLIC BUILDINGS TO BE PROVIDED WITH LIVE PROGRAM ORIGINATION
CAPABILITY:
City of San Luis Obispo City Hall
San Luis Obispo City-County Library
San Luis Obispo High School
3. PUBLIC BUILDINGS TO BE PROVIDED WITH DATA TRANSMISSION
CAPABILITY:
City of San Luis Obispo City Hall
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C-2
4. EQUIPMENT FOR COUNCIL CHAMBERS AND COUNCIL AUXILIARY CHAMBER:
LOCATION: City Council Chambers
EQUIPMENT TO BE INSTALLED:
1 Fixed mounted camera with remote control pan, tilt and zoom capability
1 portable camera w/tripod and dolly
1 video/audio mixer
1 character generator
1 S-VHS editing recorder/player deck
4 Black& white video monitors
1 Color Monitor
1 waveform monitor/vectorscope
1 audio monitor
1 microphone mixer
Wiring of all above equipment to master control room located adjacent to Council
Chambers and tie-in to house audio system.
LOCATION: Library Community Room
One fixed mounted camera with remote control pan, tilt and zoom capability wiring
to enable use of above provided portable camera. Tie to house audio system.
EQUIPMENT:
Equipment specifications will be of comparable quality as listed below
Qty Description
2 Sony PAC1/DXC-930 Color CCD camera with CMA-D2
power supply
1 Panasonic AG455 camcorder
2 Sony CCDC-25 DC power cable
2 Fujinon S 16x6.7BMD-A8 tele-conferencing lens
2 Vicon V6033PT pan tilt head, 151b load rating
1 Vicon V7000C desktop controller for use with two pan tilt
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C-3
heads
1 Vicon V6634LM modification to all tele-conferencing lens
for presets
2 Vicon V6616WM wall mounts for V6033PT
1 Bogen 3196 Professional Tripod
1 Bogen 3198 dolly
1 Panasonic WJ-MX50 Video/Audio mixer
-1 Panasonic WJ-KB50 Character generator for WJ-MX50
1 Panasonic AG-1970 S-VHS editing recorder/player
4 Panasonic TR-930B 9" monitors
2 Panasonic TY-K930 rackmount for single or dual rackmount
1 Panasonic CT-1383Y 13" Color monitor
I Panasonic CT-1383 Custom rackmount kit for CT-1383Y
1 Videotek TVM-621- Combination Waveform monitor/
vectorscope, case not included
1 Videotek DRC-1 double rack mount case for TVM-621
1 Videotek BLK-1 blank panel
1 Videotek APM-200 Stereo rackmount audio program monitor
1 Shure AMS-2415" black goose neck microphone with 20'
cable
1 Shure AMS-8000 8-channel automatic microphone mixer
New conduit to be laid to cross Palm Street at 18" depth as well as a reasonable
easement and location for Palm Street to City Hall building to enable return wiring
from Community Room to Control Center adjacent to City Council chambers.
5.. QUALIFIED PUBLIC, EDUCATIONAL AND GOVERNMENTAL
ACCESS USERS:
City of Morro Bay
Cal Poly State University
6. OTHER EG USERS:
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ACCEPTANCE OF FRANCHISE
CITY OF SAN LUIS OBISPO
SONIC CABLE TELEVISION OF SAN LUIS OBISPO, a California corporation, hereby
agrees and undertakes during the life of the transferred franchise, to perform all of the terms,
conditions, provisions, and obligations thereof. SONIC CABLE TELEVISION OF SAN LUIS
OBISPO further agrees to comply with the restrictions of said franchise and the laws and ordinances
of the City of San Luis Obispo, and be subject to all rights, powers and privileges reserved and
reservable to the City of San Luis Obispo and its officers as in said laws and ordinances
contemplated and provided.
Dated: February��, 1995 SONIC CABLE TELEVISION
OF SAN LUIS OBISPO,
a California corporation
President
Secretary
t:\cor\Sonic\CitySLO\46accept.wkg
020995\hlmr
.�/- alp
'STING AGENDA
uATE .�`ITEM # _,
Proposed changes to the
"CABLE TELEVISION FRANCHISE AGREEMENT..."
"Exhibit B, Section 1. subparagraph (e)"
(e) As used in subparagraphs (a) (b) and (c) (d) above, "PEG use"• shall
mean the use of the channels and bandwidth to provide live, taped or character
generated programming, or data transmission for public, educational or
governmental purposes by the Grantor and the governmental and educational
institutions listed ka £aEh#li#t G (eelleetWely the "Other. PEG UseFs"). GFezatee
Grantor or its designe�eserves the right to add other public, governmental and
educational institutions to the list of Other- Peg Users from time to time.
Grantor and the Other- PEG Users shall establish rules and procedures for
scheduling the use of channels available for PEG access use and provide a copy
of such rules to Grantee. , " " shaR
�P—aa thte-11se-e€the-eh- els aid baadvAdth toprev4de live taped or- ehar-aete
generated pregra ager data t s ssion €er publie, edue t ,
J—;R- tut-4e:-R-s listed ka Em-hibitG(eelleetWel-y the "Other- EG U GFanter-
r-eseFves
Other—G UseFs shaR establish Fines and p} eeduFe F L. d l g
. ie ssoc
t F
Y8r
ehannelc..a--all—able 1;G aeeerre a and YF .:de ., P F 1. Fules t
G-ri-Watee Grantee may utilize any portion of these channels during any time
when they are not scheduled for PEG use. Grantor, the Other- PEG Users, the
Other- EG d Grantee shall establish rules and procedures for
scheduling use by Grantee in accordance with Section 611 of the Cable
Communications Policy Act of 1984, as amended from time to time.
ADAPT - March 7th. 1995
Proposed to the San Luis Obispo City Council
by Brad Brown for the Association of Directors Artists Producers and Technicians
P.O. Box 14151, San Luis Obispo, CA 93406
COUNCIL ❑ CDD DIR
N DIR
RECEIVED
"AO ❑ FIREC
N�AO ❑ FIRE CHIEF
■f WORNEY ❑ PW DIR
MAR 7 1995 CLERIGOR G ❑ POLICE CHF
❑ MOMT TEAM ❑ REC DIR
CITY COUNCIL' ❑ C R FILE ❑ UTIL DIR
SAN I_I uc!1g1$P�• CA
❑ PERS DIR
.,a. HO:�fG
Agenda Report
p. 1 Community comment
p. 2 Term used "Community Room"
p. 3 Request for funds
Cable Franchise Agreement...
§ 5 "SUPPORT FOR PUBLIC, EDUCATIONAL AND GOVERNMENTAL ACC
5.2 (c) Add "Cuesta College and San Luis Obispo Little Theatre"
(d) Change name "Community Room"
Exhibit B"GRANTEE COMMITMENT TO PEG ACCESS FACILITIES AND EQUIPMENT"
1 (a) "Time split"; Interim guidelines
(b) One channel to Public; one channel to Educ, Govt.
(d) Add "P" to "EG", interactive
(e) Changes as specified-in "Proposed changes... "
2 Include "operation"
3 Add "or designee of the Grantor"
4 Add "or its designee's"
5 Add "or the designee of the Grantor"
Exhibit C "SERVICE TO PUBLIC FACILITIES"
1 Add "Cuesta College,
San Luis Obispo Supt. of Schools Office,
San Luis Obispo Literacy Council"
2 Add "Cuesta College, San Luis Obispo Little Theatre"
5/6 Combine sections & categories - "Examples of PEG Users"
ENDA
ETI '�. Ct j ITEM #4
DATE - -
March 3, 1995
TO: CITY COUNCIL
FROM: JOHN DUNN, CITY ADMINISTRATIVE OFFICE
SUBJECT: REPLACEMENT PAGE FOR MARCH 7, 19 5 SONI CABLE TELEVISION
PUBLIC HEARING ITEM
Please replace page 4-10 in your March 7, 1995 agenda packet with the attached
page (Sonic Cable Television Franchise Renewal Public Hearing - Item 4) . The
replacement page includes a minor change to section 1 .3 of the franchise agreement
and merely clarifies the effective date of the franchise agreement.
COUNCIL ❑ CDD DIR
CAO j
FIN
ACAO F
ATTORNEY
CLERKAiBO CEF
❑ M(iMTTEAM
❑ C �LE
RECEIVE ®
MAR - 3 1995
CITY CLERK
SAN LUIS OBISPO.CA
09/02/95 15:98 $805 541 2809 Sinsheimer ET AL Z004
SECTION 1 RENEWAL OF FRANCHISE
1.1 Grant
The cable television franchise granted as of April 1, 1978 to Sonic Cable Television of San
Luis Obispo, which was assigned to Sonic Cable Leasing Corporation as of December 22, 1989,
pursuant to Resolution #6728, adopted by the City Council on December 5, 1989, which was
assigned to Sonic Cable Television of San Luis Obispo, is hereby renewed, subject to the terms and
conditions of this Agreement. Grantee is a wholly owned subsidiary of Sonic Communications, a
California corporation. The renewal extends the franchise, authority, right and privilege, to
construct, reconstruct, operate and maintain a cable television system within the streets and public
ways in the City of San Luis Obispo as it is now or may in the future be constituted.
1.2 Right of Grantor to Issue and Renew Franchise
Grantee aclmowledges and accepts the present right of Grantor to issue and renew a franchise
and Grantee agrees it shall not now or at any time hereafter challenge any lawful exercise of this
right in any local, State or Federal court. This is not, however, a waiver of any constitutional or
legal right or privilege on the part of the Grantee.
1.3 Effective Date of Renewal
The renewal shall be effective on the date of-the r - _-_.. d this
_ a a .w • •- - -- 11`4185 tbirty (30) days after the date the City
: 5
Council,byPcese '.arm approves this Agreement. The renewal is Ru ther contingent upon
the filing by Grantee with the City Clerk of an original of the executed Franchise Agreement and
the required security fund and insurance certificates. If the filing of all of the above does not occur
within sixty(60) days after the effective date, the Grantor may declare this renewal null and void.
1.4 Duration
The term of the renewal shall be fifteen(15) years from the effective date hereof; at which
time the franchise shall expire and, except as otherwise provided herein, be of no force and effect
unless renewed for an additional period. Renewal shall be in accordance with applicable law.
1.5 Conflict with Cable Ordinance
The provisions of the City of San Luis Obispo Cable Television Regulatory Ordinance,
Ordinance No. 1238, are hereby incorporated herein by reference as if set vut in full, and form part
t1a9.fSo1dc\CitySL0\46s1oha 214
0133222\030295
TEL NO .805-544-3224MEETING AGEND , 95 1758 P .01
DATE 1-.,
ITEM #
CI de ostetter '
48 Los Palos Drive, San Luis Obispo, California 93401, U.S.A.
(805) 544-3224 (voice or fax) Internet: cnostettOoboe.calpoly.edu Compuserve: 72673,350
4 p.m., Friday, March 3, ,s9s Page One of Seven
To: Deb Hossti
Just in cafe I didn't give you enough to read today, what follows Is a copy of a speech being
made in Washington today about the time I was handing you the bundle for the Council and Jeff.
I got it on the Internet this afternoon, downloaded from the Bell gopher, to which I have access.
It is significant because Gary McBee is the spokesman for the baby Bells In his capacity as
chairman of the Alliance for Competitive Communications. rt sets forth the baby-Bell stance for
the telecommunication legislation that Is being crafted this month In D.C.: and undoubtedly will
have Its e* on legislators.
I have boldfaced the segments that particularly relate to cable TV
You may Want to pass this on to Jeff and/or Mayor and Council. They certainly should be aware
of how fast things are happening in D.C. and how quickly they are going to affect SLO's cable
service.
As I believe I mentioned earlier In our talks, I have been appointed to the PaclOc Bell
Telecomm cations Consumer Advisory Panel. This is anything but a company union—many of
the fifteen members are more adversarial than supportive on many issues, I have discovered—
and so I ciIrtainly don't represent the company in my concern about getting good cable in San
Luis Obis o. However, PacBell seems to be the best bet for getting it here quickest. I hope
through My panel membership, which involves regular meetings with top PacBell management,
to focus the company's attention on SLO as a prototype for rural smaller towns, so that we might
be near ttje top of the list when the go signal comes from Congress or the Justice Department to
permit VDY Into town.
,
WASHINGTON RESEARCH GROUP TELECOM LEGISLATIg�W R'f
EIVED
GARY MBEE, CHAIRMAN MAR 0 1 1995
ALLIANC� FOR COMPETITIVE COMMUNICATIONS
rITV C6gPK
FRIDAY, MARCH 30 11995 SAN LUIS 681PO,CA
My thank to Scott Cleland, senior director of the Washington Research Gr
and the s aff here for Inviting me. COUNCIL E3cDD DIR
y to discuss I'd like toI a ditwo related aspects of telecom reform: I6 CAO ❑ FIN DIR
p �
The legis l tive process, which—as some of the presentations earlier this CJ10 O flRE CHIF
nORNE, o PW DIR
moming riade Gear—is already in full swing; K CLERKMa ❑ POLICE c
And soma of the key issues Congress will be dealing with as it tries to ❑ I GMTTFAM ❑ REC DIR
update odr nation's communications policy. oj�` FILE ❑ tmL DIR
1 ❑ PERS DIR
i
TEL N0 . 805-544-3224 Mar 05 . 95 17 :59 P .02
First, theegislative process. Some may forget that last year Congress 2
made pro ress on telecommunications.
That was especially true in the House, which passed legislation by an
overwhelming margin that certainly went in the right direction on MFJ
relief.
Much of the progress was made possible because of the local Bell telephone
companies who have now joined together In the Alliance for Competitive
Communl' tions, which I represent. Local service providers worked
seriously' nd constructively with Congress and agreed to major compromises
—with thb newspaper publishing and alarm industries.
The Alllagce for Competitive Communications has made a commitment to
continue jo participate constructively in the legislative process,
pursuing �olicies that serve America's communications consumers.
We are more than a little worried, however, that the long-distance
oompanies are moving In another direction.
In particu ar, we are concerned that the only public discourse there has
been be een us has been through their public advertising.
These ad show a great deal of creativity and have a lot of entertainment
value. But, frankly, I have been disappointed that, for now at least, the
long distance Industry has chosen to take on critical discussions about
the future of American communications policy via newspaper ads and public
manifestos to Congress.
Using mi 'leading ad copy and sound bites makes progress— and compromise
—much rore difficult.
But let's tern from the process to the issues. In communications, as in
any other policy area, It's easy to get lost In the jargon and
techno-minutlae, but the basic Issue at stake is really very Gear and
simple: i
Should w� rely on competition to move our industry into the 21 st century
or should iwe continue to rely on government regulation?
In my mind the answer is clear—fuil, free and fair competition, not the
heavy hard of regulation, brings progress. That's also the choice most
American favor. Indeed, that choice was a major reason for the sea change
that occu. ed in this city last November.
The local'phone companies are so strongly committed to competition that it
is at the Heart of all of our proposals for reform.
Our fundamental goal Is to open all telecommunications markets—
Includino our own--to full competition as quickly as possible.
More sp4ifically, to move away from heavy-handed regulation in
communi"tions, we believe Congress should pass legislation this year
based on our principles.
TEL N0 .805-544-3224 Mar 03 .95 18 :00 P .03
i
3
First, fullcompetition: the long-distance and cable markets should be
opened a s fully and as quickly to local phone companies as the local
market is to longdistance and cable companies.
Second, 4nivemal service protection: all market participants should
contributo unlvemal service. Universal service providers should be
given in ntives through price regulation to function efficiently and
competiti ely, And local telephone companies should not lose the customers
that proviQa support for below-cost residence service unless we can make
up lost re anus by entering other markets.
Third, simultaneous entry: local telephone companies should be given the
opportulity to compete In the cable and long-distance markets at the same
time that'ithe cable and long distance companies have the freedom to enter
local tel+hone service. Let's open all markets now—everyone can offer
every seryioe.
And finally, fewer and fairer regulations: competition should replace
regulation as the guiding force for Investment, innovation and price
control. '�ere regulations are necessary, they should apply to all
compatit in the same way in every market.
if Congress enacts legislation in line with these principles, America's
phone ar d cable consumers will not be the only ones to benefit. Our entire
economy will receive a tremendous boost. According to the latest analysis
by The WEFA Group, over the next decade full, Immediate and simultaneous
competiti n in all communications markets will result in the creation of
3.4 millio additional U.S. Jobs in all 50 states and in every economic
sector.
And, as a' aside, the long distance folks claim that they have their own
WEFA study showing the opposite: that things are better if you only open
the local market. However, that's not the case. WEFA has disavowed working
on that study. in fact, the WEFA group has stated they were never engaged
by the Czpetitive Long Distance Coalition at all. More to the point, in a
letter to al members of Congress, WEFA has stated that It disagrees with
the long distance study findings.
What WE-A's study does show is that full and immediate competition would
increase I ie annual real Gross Domestic Product by $298 billion, Increase
annual rei il personal consumption by $162 billion, improve our.annual
balance cArade by $14 billion, and decrease the annual national budget
deficit by 14 billion.
Full and immediate competition will also save consumers nearly $550
billion ovI the next decade through lower long distance rates, lower
cellular rates, lower cable TV rates, and lower awass rates. On average
TEL N0 .805-544-3?24 Mar 03 .95 18 '01 P.04
I
such a reform will add $850 to the annual disposable Income of each 4
househol .
Our oom itment is to pro-competitive legislation In general, and to these
four prin les in particular.
1, full competition In every market
2. ynlvomal service protection
3. > imultaneous entry
4. 1 nd, where regulation is necessary, the same regulations for everyone
That comi ii1mant is the reason we have expressed our concerns—though not
on the ad pages of the Wall Street Journal or The Washington Post--about
the draft III released by Senator Pressler.
White the draft takes some substantial steps in the right direction, it
falls shogI of what's needed. On the positive side, ilia draft is
pr000mpetitive. It protects universal service by requiring all carriers to
contribut , removes competitive entry barriers to local services, allows
service pr Dviders to negotiate interconnection issues and provides a date
certain foi Bell company entry into long distance.
Instead of full competition and simultaneous entry, the draft opens
differentarkets at different times.
It delays r a year consumers'full access to key services like video,
wireless ITnd Information servioes.
Instead of fewer and fairer regulations, the draft regulates unreasonably
and unev nly, requiring local telephone companies to provide
Interconn ction services to competitors without regard to economic
reasonab eness. That means that our competitors could ask for just about
anything, and we'd be legally obliged to provide it
it also Im ses onerous separate subsidiary requirements that promote
Inefflclen y and customer Inconvenience. And the draft Imposes more
stringent eQulrements on local phone companies than on all other
carriers.
Finally, thdraft needlessly delays price regulation.
As I said 'artier, the local phone companies are deeply committed to the
legislativ process, and we know that will involve compromise.We are
confident het the final bill will lead to true procompetitive reform
because a American people and the now Congress share our view on the
need for rpore oompetition and less regulation.
i
TEL NO . 805-544-3224 Mar 03 , 95 18 : 01 P .05
I think our rivals know this, too. that Is why they have begun so early to 5
try to cloud the issue and divert the public and congress from the real
Issue—competition vs. regulation.
Lets look 3t some of the arguments the long distance industry has
presentec In their latest ads. Since we aren't responding in the press, I
thought I' respond now.
They clairn competition In long distance exists with over 500 "competitors"
in the market.et.
The factsi for years AT&T, Sprint, and MCI have tried to deflect attention
from the ict that they raise long distance rates in lock step with each
other. Ovi r the last four years their rates have increased six tinges while
the local 1 hone companies have lowered their access charges. The truth is
that the 8 i percent of Americans who use one of the big three have little
choice in he prices they pay to call long distance.
One race t example, on January 1 of this year, California opened intraLATA
long distaice service to competition. The result was that costs and prices
changed, and the change was symmetrical, a classic case of rate
rebalanci. g.
Consume P prices for local service went up. But the cost of access paid by
the long c Istance companies went down dramatically. For a 4-minute,
80-mile e ill the access charges AT&T had to pay plummeted from 23 cents to
11 cents, i 3 better than 50 percent drop.
Since the long distance giants are always complaining about what a burden
access ct arges are and since they claim long distance is fiercely
Competitive, you might have expected AT&T to pass their savings on to
customers.
The probl m Is AT&T decided that this reduced charge thing had gone for
enough, they kept the money—with virtually no benefit to consumers.
AT&T's c arge to consumers for that 4-minute, 80-mile call was 57 cents
before co petition. After competition was Introduced and their access
charges ,ummeted, consumers were paying almost exactly the same to the
long dista noe giant, 56 cents.
This is no how real competition works.
Maybe thi kVs why the long distance companies want Congress to continue to
safeguarc their market from the Bell companies. Real competition could
mean low 3r profits for the big three.
We agree with CLDC statements that open markets are good for the consumer,
That'swh when Congress opens our markets to competitors, we want the
long dist oe markets open at the same time on the same conditions. What's
TFL N0 . 805-544-3224 Mar 03 , 95 18 : 02 P .06
fair is fair. 6
1 for one c on't think AT&T—with its $75 billion in revenues, nearly $5
billion in profits, and roughly 84 million long distance customers —
needs pr ection from a Bell company with virtually no presence in the
long-dista ice market.
We've bei in accused in the press ads of"shenanigans' in our use of access
charges. qut the CLDC doesn't mention that the FCC created access charges
to suppo universal service. No one questions that access charges are
above co t. That's one way universal service is subsidized. In any case,
access ch rges have been falling consistently over the past few years,
even as I ng-dlstance prices have increased.
One quart r of MCI is now owned by British Telecom. And Sprint is now
selling 20 ercent of its business to France and Germany's government
owned tali icom companies. It is absurd that these telecom firms with
substanti I foreign ownership are allowed to provide a broader array of
services Ir i the United States than the domestic bell companies.
I must adr ilt that when those long-distance company ads started running, we
were sore y tempted to respond in kind. In searching for a dynahtite image
that woul capture the true nature of the so-called competition in the
long lista ce market one leaped quickly to mind:
The ads tr at AT&T, MCI, and Sprint are always running attacking each
other, are a lot like pro wrestling. There Is a lot of noise, a lot of
threats, a of of name calling, lots of color and spectacle. But in the
end we kr ow they are all in it together. When one raises his prices, the
others follow.
It would h ve been a fun ad to run, but in the end, we got carried away by
our better udgment. We decided to honor our commitment to letting the
legislative process work. Frankly, we don't think that running ads is the
best use our capital. In 1994 in California AT&T spent S69 million on
advertisin , Sprint $26 million, and MCI $43 million. The local bell
company pent only $18 million. The local telephone companies prefer to
Invest In frastructurs.
The future of communications policy will not be decided by dueling ad
writers. I telieve Congress and the American public are too committed to
cutting rec tape and promoting competition to be diverted.
The Allian for Competitive Communications will continue to work for
legislation that opens all markets to all competitors at the same time.
That is stll 1 the best way to give 250 million American consumers the real
choices, Ic w prices,.and highest-quality services they deserve.
TPL N0 .805-544-3224 Mar 03 .95 18: 03 P .07
We hope he long distance companies and all others in the communications 7
industry v rill join us in the business of serious and substantive
discussio s that are the best guarantee of real change.
I would like to Gose with a couple of quotes from the conclusion of the
Heritage oundation's telecommunications report.
"Policy makers," the report says, "Should reject arguments from both
long-dista ice and local telephone carriers that their markets should be
shielded fi om competition and remove the bottlenecks created through six
decades c f federal micromanagement of this industry."
We at the CC strongly agree.
The report,goes on to say that"for the sake of consumers, Congress must
rise above)intra-industry squabbles such as the current debate between
long-distar ice and local telephone providers, free entry, open access, and
consumer choicei continued restrictions on either segment of this
industry re the greatest guarantors of a competitive market and lower
prioes."
As we havm always said, all markets and all services should be competitive
on the same date.
it44�
Clyde Hostetter
48 Los Palos Drive, San Luis Obispo, California 93401, U.S.A.
(805) 544-3224 (voice or fax) Internet: chostett@oboe.calpoly.edu Compuserve: 72673,350
March 3, 1995
To: Mayor and Council RECeJ��D
Copies: City Attorney and Debbi Hossli A141? U 1995
Subject: Sonic Cable Franchise Vote SAN UjIS e S �
As you may know, I have been concerned about continuing the cable TV franchise with
Sonic Cable. Some might say that the company is using economic blackmail to get its way. I
would prefer to say that it using legal hardball tactics. Jeff Jorgensen and Debbi Hossli have
given persuasive reasons why the City must sign a 15-year franchise agreement to avoid
fiscal jeopardy through the legal battles that would ensue if the agreement were not signed.
Under the agreement the City agrees that for the next 15 years it will not be able to take
advantage of any new Federal or state regulations that are more restrictive of Sonic unless
Sonic agrees.that it can. This means, among other things, that lower-income residents could
never take advantage of the lower rates such as are now available to them for electricity,
gas and telephone service unless Sonic wished them to receive the lower rates. There are
other weaknesses in the agreement which I am sure you have discussed with staff and
counsel previously.
The only way out of the straitjacket is competition, as I think everyone agrees. The question
is how to achieve competition. Currently the staffs of Senators Pressler and Hollings are
trying to put together a bipartisan telecommunications bill that will do this. (I heard a report
from one of the staff members on their efforts when I was in Washington Feb. 23-25
attending a telecommunications conference)
A new factor was added to the equation on Tuesday (Feb. 28) with a speech by Assistant
Attorney General Anne K Bingaman to the National Press Club in Washington. I was able
to download a copy of the speech via the Internet and had hoped to excerpt segments to
accompany this memo; however, the speech is too tightly constructed to permit excerption.
Accordingly I am attaching the speech in its entirety, together with a reaction from the baby
Bell association, the Alliance for Competitive Communication.
To summarize: The Justice Department is prepared to move ahead on deregulation even if
Congress does not pass a telecommunications bill. Although the speech emphasizes long-
distance deregulation, it also includes cable television as being part of the deregulation
process.
The Council's hands appear to be tied on whether or not to approve the 15-year franchise
agreement. However, the City still can actively seek to encourage cable TV competition in
San Luis Obispo. I urge you, collectively as a Council or individually as city residents,
to sign the attached petition that will help inform both legislators and potential
providers of competition to Sonic that San Luis Obispo wants competition for cable
television service in the community and wants it as quickly as possible.
"Promoting Competiton in Telecommunications" 2
Address by Anne K. Bingaman, Assistant Attorney General, Antitrust
Division, U.S. Department of Justice
Before the National Press Club, Washington, DC, February 28, 1995
----------------
Today, I would like to discuss one of the most important economic issues
facing the United States - promoting free and open competition in the
telecommunications industry. As you know, Congress has begun work on
legislation to effect comprehensive reform in this area, an effort that we
support. We look forward, as does this Administration, to legislation
that promotes competition while protecting the competitive process and
consumers. Real competition is the key to deregulation. And I hope that
legislation succeeds, because a good comprehensive policy is better than
a good piecemeal approach.
But my focus today is not on legislation, although some of the ideas
will outline may be useful in that regard. Unless and until legislation
is passed, the Department of Justice must fulfill its existing
responsibilities, under the antitrust laws and under the Modification of
Final Judgment, or MFJ, which provided the framework for breaking up the _
AT&T telephone monopoly over a decade ago. Today, I will discuss our
approach to these important issues and how we can support moving forward
under the MFJ. This approach is based on our extensive experience for
over 25 years now in assessing competition in the critically important
local and long distance telephone markets.
The Break-Up of AT&T and the Telecommunications Revolution
Before outlining our views, however, it is worthwhile to review briefly
the MFJ's role in promoting competition in the telecommunications
industry. It is common these days to talk about the "telecommunications
revolution° and how it is transforming our lives. Indeed, the changes in
the past ten years have been breathtaking. Services that were novel a
decade ago are taken for granted today. None of us thinks twice, for
example, about faxing a document across the country -or around the world.
Cellular phones, cable television, a choice of long distance carrier
all are a part of everyday life in the United States.
America is the world leader in this revolution in no small part because we
were the first nation to commit to opening our telecommunications markets
to competition, which we did when we dismantled AT&T's vertically
integrated telephone monopoly. We should not forget, however, the
hurdles that effectively slowed competition before the success in 1982 of
the Justice Department's antitrust suit. Long after competition in long
distance service and communications equipment became technologically and
economically feasible, AT&T frustrated consumer choice and actual
competition through abuse of its monopoly control over local networks.
AT&T used the local monopoly to discriminate against competing long
distance carriers in terms of the type, quality and price of
interconnection with the local network, preventing most consumers from
buying service at lower prices from AT&Ts competitors and inconveniencing 3
consumers who did. Some of you may recall, for instance, that consumers
who used a competitor had to dial 23 digits to complete a long distance
call, while AT&T customers only had to dial ten or eleven digits.
Similarly, consumers who preferred other manufacturers' equipment that
they could not connect that equipment to the local telephone network.
Moreover, the Department found that AT&T's manufacturing subsidiary,
Western Electric, was overcharging the Bell equipment. Because these
overcharges contributed to the Bell Companies' rate bases, they had the
effect of inflating the prices that captive ratepayers paid phone service.
Competitors detected AT&T's anticompetitive conduct and fought it in the
courts and before regulators. The result more often than not was one
step forward one step back- incremental progress that rarely could keep
with AT&Ts ability to find new ways of impeding access to the local
networks or disadvantaging other equipment manufacturers. For example,
the Federal Communications Commission (FCC) attempted to increase
competition in the equipment market with its 1968 Carterfone decision,
which held that customers had a right to use their own terminal equipment
in simplest terms, they should not have to buy their phones from AT&T.
Nevertheless, AT&T succeeded in imposing such burdensome conditions on the
interconnection of non-AT&T equipment that evidence of those conditions
was an important part of the monopolization case that the Justice
Department presented in 1981. As long as AT&T controlled the strategic
bottleneck of a local telephone monopoly, litigation and regulation could
not hope to promote free competition in long distance and equipment
markets or protect captive ratepayers from inflated prices.
Indeed, the problem was related partly to the nature of regulation itself.
With regulation constraining rates in the local market, AT&T had the
incentive to use the local monopoly to increase profits in the long
distance and equipment markets. As long as consumers had no choice of
local service provider, structural separation that prevented the regulated
monopolist from participating in the other markets was necessary to
prevent the abuses that plagued the industry and thwarted competition.
Regulators and would-be competitors were not the only ones stymied by the
problem of the AT&T telecommunications monopoly. The Justice Department
sued AT&T twice, in 1913 and in 1949, before bringing the suit that
resulted in the MFJ. Those first two efforts to protect competition in
telephone markets ultimately failed, because the relief obtained was not
comprehensive enough.
But the third time it worked. The case filed against AT&T in 1974 was a
nonpartisan undertaking to vindicate the principle that underlies the
antitrust laws and, indeed, our economic system: Open competition on the
merits is superior to regulated monopoly. The Department began its
investigation in the Nixon Administration, filed suit during the
Ford Administration then pursued the case through the Carter 4
Administration into the Reagan Administration, with AT&T fighting every
inch of the way. AT&T ultimately came to terms with Assistant Attorney
General Bill Baxter and agreed in 1982 to the entry of the consent decree
that we now the MFJ.
As you know, the structural separation of the local exchange from other
telecommunications activities was the essence of the MFJ. It required
AT&T to divest itself of its local exchange businesses, resulting in the
creation of the seven Regional Bell Operating rating Companies, sometimes called
the RBOCs or Bell Companies. These Bell Companies - independent of each
other and of AT&T- retained local telephone monopolies within their
respective regions, subject to the requirement that AT&T and its long
nondiscriminatory access through the local networks.
The complete divestiture of the Bell Companies from AT&T's long distance
and equipment operations removed AT&Ts ability to use the local monopoly
to thwart competition in the long distance and equipment markets. The MFJ
also removed the RBOCs' incentive to impede competition in those markets
through its "line of business" restrictions, which continue to prohibit
the Bell Companies from providing long distance services and from
manufacturing communications equipment. These restrictions protect
against the recurrence of the specific harm that the MFJ remedied - use
of the local monopoly bottleneck to hurt competition in other markets.
These restrictions, though vital, are not inflexible. Section VIII(C) of
the- MFJ, for example, allows them to be removed upon a showing by the
petitioning RBOC that there is no substantial possibility that it can use
its monopoly power to impede competition in a market that it seeks to
enter. The Department has an obligation to review requests for waiver or
modification of the restrictions and provide its views to the court. The
ultimate authority to grant waivers- or other modifications resides with
Judge Greene, to whom the nation owes an enormous debt of gratitude for
the energy and wisdom with which he has administered the decree.
The MFJ retained the historically complementary roles of the FCC and of
the Justice Department. Since its creation in 1934, the FCC has had
Congressionally assigned responsibility for establishing the "rules of the
road" for the telecommunications industry. Therefore, after entry of the
MFJ, the FCC established the specific rules for implementing the decree's
equal access requirements and created a process by which consumers could
presubscribe to their preferred long distance carrier, both vital to
facilitating the competition made possible by the MFJ. The FCC
has continued to help open the long distance and equipment markets to
competition.
The MFJ has benefited the country spectacularly. Separating the long
distance market from the local monopoly has increased competition
dramatically, as MCI, Sprint and hundreds of smaller carriers have vied
with AT&T to provide long distance service to businesses and residences. 5
The New York Times recently reported that in 1994 more than 25 million
residential customers changed long-distance carriers -spotlighting the
MFJ's incredible success in bringing real choice to consumers.
Residential long distance rates have fallen some 50 percent since the
break-up. Because of these lower prices, Americans are communicating with
each other, by phone, fax and computer, more than ever before. We are
closer to each other and in better touch with each other, for business and
pleasure, because of the MFJ and its benefits. The impact of this change
cannot be measured but it unquestionably is profound and has changed the
nation for the better.
Improvements in quality have accompanied lower prices and increased
output: The United States now has four fiber optic networks spanning the
country, another by-product of competition. These networks make possible
all kinds of new services and enhance others, including the Internet.
Similarly, businesses and consumers enjoy lower prices, more choice and
better quality in communications equipment, as competition has eroded
AT&T's power in that market and forced it to compete for customers.
The dividends that competition has paid in these markets underscore the
value of introducing competition to local telephone markets. The local
telephone exchanges still appear to remain effectively the monopoly
preserves of the RBOCs, each of which controls an enormous geographical
expanse. For their part, the Bell Companies vigorously protest the
competitiveness of some business telecommunications services and they are
not entirely wrong -for some services in some areas. Moreover, we will
continue to investigate their claims.
But we believe thus far, simply stated, that the RBOCs protest too much.
Competitive dial tone service is still unusual for business customers and
nonexistent for residential customers. In fact, in many states it still
is illegal to compete with the RBOC in the provision of dial tone
service.
Some progressive States are moving to change this. We applaud these
efforts and urge the other states to follow that lead. For example, the
Rochester plan approved by New York regulators augurs real competition for
local telephone dollars and real choiceses for Rochester residents. Partly
in response to regulatory pressure and after extended negotiations
facilitated by the regulatory staff, Nynex recently has agreed to reduce
the charges it levies on MFS Communications for access to the local
network in New York City; Nynex also will allow customers to keep their
local telephone numbers if they switch carriers. Illinois is poised to
move forward and has certified certain competitors, as have Washington
State and Maryland. Michigan has both certified a competing carrier and
issued a detailed order on terms of interconnection, prices for mutual
compensation unbundled network and other issues. California is taking
steps to open its local markets to competition. Others are moving in that 6
direction as well, although many are not.
It is an immensely difficult process, to be sure. These are complex
markets with complex relationships between the monopolists and the
competitors that seek to enter. But the States I have mentioned want
competition in local markets and they are working to find ways to achieve
without threatening other reasonable policy goals.
I cannot overstate the importance of these State efforts to promote local
competition. Local competition is key to ending the Bell Companies'
ability to impede competition in other markets. Meaningful local
competition, combined with the safeguards which are necessary until
competition flourishes on a large scale, is the surest way to erase the
need to prolong the MFJ's line-of-business restrictions.. It is the best
way to protect consumers and promote better service. It is also the way
to reduce total costs of providing universal service.
Our vision for the telecommunications future is simple to state, but
breathtaking in its implications: Every company will be permitted to
compete in every market for every customer. The government cannot and
should not pick winners. Let the market decide. We would be naive,
however, if we expected the transition from regulated monopolies to
competitive markets to be flawless. To paraphrase Thomas Jefferson, we
cannot expect to be transported from monopoly to competition in a
featherbed.
The Transition to Competition Under the MFJ
In the absence of legislation, the MFJ has an important role in the
achievement of that vision. The RBOCs have argued vociferously that the
ability to offer one-stop shopping for local and long-distance telephone
service is a major competitive advantage in the marketplace and that they
do not want to be left out. By the same token, if the RBOCs are allowed
into long-distance service before there is truly the opportunity for
competition in local markets, they-and they alone -will have that
advantage. Two intolerable results would follow. First, we likely would
see a substantial loss of competition in the long-distance market,
nullifying the hard-won benefits of the MFJ. Second, the RBOCs would gain
an unwarranted advantage over potential local competitors, disabling the
local competition that was supposed to serve as the predicate for removing
the restrictions in the first place.
We therefore have devoted a great deal of thought to the relationship
between the transition to competition and the relaxation of the MFJ
restrictions in the absence of comprehensive, effective legislative
reform. We have drawn on our more than 25 years of experience with
competition in telecommunications markets, as well as intensive
discussions over the past year or so with the Bell Companies and with
other interested parties - including competitive access providers, long 7
distance carriers, cable companies, State regulators, the FCC, the
National Telecommunications and Information Administration and consumer
groups—to find a way to increase local telephone competition as a basis
for eventually considering the removal of the MFJ restrictions.
Until Congress enacts reform legislation, we are prepared to recommend to
Judge Greene that the Court move forward under the MFJ when three basic
principles are satisfied:
First, steps to foster the emergence of local competition must be taken.
Second, the effectiveness of these steps must be tested by actual ,
marketplace facts- by the state of competition.
Third, RBOC participation in other markets initially must be accompanied
by appropriate safeguards.
.Let me elaborate on these broad principles.
Steps Appropriate for the Emergence of Competition
First, there are some steps that we believe from the outset are beneficial
for the emergence of local competition:
State removal of regulatory and legal barriers to competition;
implementation of arrangements for mutual compensation and
interconnection, including access to databases and signaling, that allow
entrants to compete on a level playing field with the RBOC;
implementation of unbundling and other arrangements for resale of local
services on terms that make competition in local markets feasible for
those not in a position to duplicate the RBOCs' local networks;
implementation of intra-LATA toll dialing parity;
implementation of number portability so that customers can switch local
service providers as easily as they already can switch long distance
carrier; and
implementation of arrangements for access to poles and conduits.
These steps stem from the fundamental economic characteristics of
telecommunications markets and from our experience with competition, or
the lack thereof, in these markets in the past.
Assessing the Development of Competition
Although these steps should foster the emergence of local competition, we
cannot be certain that they will or how fast they will. On the one hand,
competition may not be sufficient. On the other hand, competition may $
flourish before some are fully accomplished, thus warranting the
Departments earlier support before the Court of long distance entry.
There simply are no guarantees as to whether and how fast local
competition will develop. The Department of Justice will respond to real
market facts and changes.
We recognize, however, that no set of conditions for promoting such
competition could hope to address in advance the dozens and dozens of
complicated implementation issues that will require resolution before
meaningful competition is a practical reality , rather merely a
theoretical possibility. To say that unbundling must take place, for
example, begs the questions of the price of the unbundled network
elements, the relation between those prices and the retail price of the
bundled service and what sort of volume discount structure can be applied
The answers to these questions in tum will determine the marketplace
effectiveness of the unbundling.
The underlying point is that we cannot simplistically assume that taking
some series of specified steps will result inevitably in the development
of local competition. The real test will be what is happening in the
marketplace itself: Have competitors be able to enter? Are they able
to serve a variety of customers in the geographical area that the RBOC
seeks to serve? Is the availability of such competing service expanding?
Are competitors encountering significant barriers to such expansion? This
is not and should not be a test based on market share, but a judgment
based market facts.
These implementation issues mean that the growth of local competition may
take time, even under the best of circumstances. Thus, there remains the
question of when in the process the Bell Companies should be allowed to
offer long distance services and on what terms. At one extreme is the
idea that the Bell Companies should not be allowed to foray into other
markets, such as long distance, until after they experience enormous
losses of market share in the local markets over which they now exercise
monopoly control. This approach, however, could sacrifice for too many
years any benefits in added competition and innovation that the RBOCs
might be able to bring to the long distance and other markets. It also
conflicts with our fundamental vision of allowing every company to
compete in every market At the other extreme is the idea that
restrictions on the RBOCs should be lifted on a certain, preordained date,
no matter what actually happens in the marketplace. By blithely assuming
without any basis in experience that competition eventually will come to
currently monopolized markets, this approach would seriously endanger the
progress of the last ten years in opening the long distance market to
competition.
We think neither extreme is correct. We support the middle ground of
competition. In our view, it would be too great a risk to competition to
let the RBOCs enter the long distance market immediately upon the first g
halting steps toward meaningful local competition. Entry should come
only after a thorough assessment of actual developments in the market.
If market developments suggest that RBOC entry into other markets may be
allowed without a substantial possibility of impeding competition, such
entry initally must be accompanied by appropriate safeguards. At a
minimum, those safeguards would include th a creation of a separate
subsidiary for interexchange operations to promote transparency in the
operation of the Bell Companies as they enter long distance markets, as
well as the continuation of equal access provisions to require
nondiscriminatory treatment of competing interexchange carriers.
Let me emphasize explicitly what should be implicitly obvious from these
ideas. The Department of Justice would not seek to supplant the State
regulators or the FCC; they are the experts in telephone regulation. We
depend upon and work closely with the States and with the FCC. In fact,
this approach, if adopted, depends upon the States' acting first to
encourage competition, because one of the most basic conditions for moving
forward is for the States to remove legal and regulatory barriers to local
competition mpetition. Where States do act (or where they already have begun to
act), these carefully developed principles could establish a basis for
approaching the Court for relief from the MFJ restrictions in a way that
nurtures competition and allows it to flourish.
The success of this approach depends upon developing expertise about
competition in telecommunications markets and applying that expertise in
order to ensure that change is also progress. Our expertise in and
understanding of these markets arise from our more than 25 years of
experience since beginning the AT&T investigation. That understanding and
expertise continue to grow through our recent discussions with the RBOCs,
interexchange carriers and others.
Let me stress that forward movement within the framework of the MFJ does
not mean that legislation is unnecessary. Following this approach only is
a second-best alternative to comprehensive Congressional action that
establishes a framework for open competition in telecommunications
markets. But it is an approach that may well yield progress until Congress
supersedes the MFJ with comprehensive, competition-promoting
telecommunications legislation.
10
Alliance for Competitive Communications
News Release
FOR IMMEDIATE RELEASE
The following statement may be attributed to Gary McBee, chairman of the
Alliance for Competitive Communications:
"Assistant Attorney General Bingaman is correct that the face of
telecommunications in this country was changed by the settlement of
the suit charging AT&T with abuse of its monopoly.
"We agree with her concluding statement that comprehensive
Congressional action is the best solution to bringing open
competition to the entire communications marketplace.
"We also agree that the opportunity for competition must exist in
all markets— local, long-distance and cable— so that the only
advantage goes to consumers. That's what we've recommended to
Congress.
It is time for all of us to support Congressional action so this _
issue is decided quickly in favor of the public benefit that will
result from full and open competition."
The Alliance for Competitive Communications comprises the
seven Regional Bell Operating Companies -Ameritech, Bell Atlantic,
BellSouth, NYNEX, Pacific Telesis Group, SBC Communications Inc.
and U S West.
February 28, 1995
For information contact: Bill McCloskey mccloske@bell.com
A Cable Television Petition
We,the undersigned, support the following petition:
Whereas many residents of the City of San Luis Obispo believe that they have been receiving sub=
standard cable television service for well over a decade from Sonic Cable and its predecessors; and
Whereas the City has deemed it financially imprudent to prove or disprove the above beliefs
through litigation resisting the request of Sonic Cable that it receive a 15-year franchise renewal; and
Whereas Congress is expected to pass a telecommunications bill in 1995 to permit other more
experienced and reliable suppliers of telecommunications services to provide competitive cable
television services to San Luis Obispo residents; and
Whereas in the absence of Congressional action the Department of Justice has stated its intent to
further deregulate telecommunications services, including cable television service; and
Whereas potential providers of such service include Pacific Bell, AT&T, Sprint, MCI, and Pacific
Gas& Electric, all of whom have demonstrated their ability to provide reliable service to San Luis
Obispo residents;
Now. Therefore Be It Resolved that we invite the above companies and others to
provide competitive cable television service to San Luis Obispo at the earlier possible opportunity. We
further direct that copies of this petition be transmitted promptly to appropriate Federal and State
legislators and regulators with the urgent request that they take all possible steps to make better and
more competitive cable television service available to the City of San Luis Obispo.
Signed
Name Title or Occupation
Please fax,mail or e-mail this signed petition or a statement of your support c/o Clyde Hostetter,Coordinator,Citizens for Better Cable,48 Los
Palos Drive,San Luis Obispo,CA GM1 FAX or voice:(805)5443224 Internet:chosteti@otue.aix.calpoiy.edu CompuServe:72673,350