HomeMy WebLinkAbout04/06/2004, BUS 5 - PROPOSAL BY CHARTER COMMUNICATIONS TO PROVIDE A BROADCAST BASIC LEVEL OF SERVICE counat Marina Dn. �/� D
j acEnba Report 1�N,&S
C I TY O F SAN LU I S O B I S P O
FROM: Wendy George, ACRO �P A,
Prepared By: Betsy Kiser, Principal Administrative AnalystCt)
SUBJECT: PROPOSAL BY CHARTER COMMUNICATIONS TO PROVIDE A
BROADCAST BASIC LEVEL OF SERVICE
CAO RECOMMENDATION
Adopt a resolution approving a proposal from Charter Communications to implement a
"broadcast basic"level of service for customers in the City of San Luis Obispo.
DISCUSSION
Proposal
On October 21, 2003, the City received a letter from Charter Communications (Charter)
proposing a"broadcast basic" level of service to customers living in the City of San Luis Obispo..
(See Attachment 1) The proposed service includes all of the off-air broadcast signals (local
signals), as well as PEG(Public, Educational, Government) access channels, home shopping, and
both C-span channels. It is priced at $2020/month. Currently, the lowest cost package available
for San Luis Obispo customers (entry point) is the full "expanded service", which is inclusive of
the "broadcast basic" service plus an additional 50 channels. The "expanded service" costs
$39.95/month. (See Attachment 2). Citing consistency with service in neighboring communities,
a service level appropriate for residents on fixed-incomes, and better, more consistent and less
confusing customer service, Charter proposes making the "broadcast basic" service accessible to
residents in the City of San Luis Obispo. As a part of the offer, Charter has agreed to establish a
low-income discount of 10% on both the new entry level "broadcast basic" service and the
"expanded service".
Charter's proposal to implement a"broadcast basic" service in the City will provide an additional
level of service to the customers living within the City, but has implications in terms of our
franchising responsibilities and quite possibly, future service rates. It is therefore critical for
Council to understand the full implications of the proposal before approving it.
Background
As a franchise agency for Charter, the City is responsible for 1) monitoring service provided to
the customers in terms of responding to customer complaints, installing and repairing equipment,
restoring service, etc.; 2) collecting franchise fees, and 3) annually reviewing the rates for service
and equipment (termed rate review). Accepting the proposed offer from Charter will definitely
alter rate review responsibilities and in so doing, could possibly affect future rates paid not only
by City customers but customers county-wide.
S�
Council Agenda Report—Charter Communications Proposal Page 2
Rate Review Regulations
Since enactment of the Cable Television Consumer Protection and Competition Act of 1992,
cable television systems have been subject to regulation of their rates if they do not face a
statutorily defined level of competition. In areas where there is no "effective competition" to
cable service, the franchising agency is given the authority to regulate the cable systems' rates
and services of the most basic tier provided (entry point). The following definitions assist with
understanding the above regulation:
Basic Tier - The tier required as a condition of access to all other video services and
containing, among other services, local broadcast station signals (must-carry signals) and
PEG access channels. As stated previously, for the City of San Luis Obispo, the basic tier(or
entry point) is the "expanded service" tier and therefore is what receives annual rate reviews
by the City.
Effective Competition — A cable system is subject to rate regulation if the FCC finds that it
faces no "effective competition. Four conditions have been established by law, and a cable
system is subject to effective competition when any one of these conditions are met
(Attachment 3). Currently, Charter faces no "effective competition" in the City of San Luis
Obispo and therefore is subject-to annual rate reviews by the City.
Rate Review History
When franchise agreements were negotiated in this county, the City of San Luis Obispo and the
County were the only agencies that elected to review rates. At the time, the "expanded service"
was the entry point for service throughout the County, and therefore the service that received rate
reviews. When Charter upgraded their system several years ago, they also introduced (in limited
markets) the "broadcast basic" as a less expensive alternative to the more costly "expanded
service". Charter approached the City and County about providing the "broadcast basic" tier in
our jurisdictions, but both agencies declined the addition of this lower cost package. This
decision was based on the following premises: 1) reviewing rates for the more popular
"expanded service" provided some degree of price control to customers; 2) informal research by
the County and the City indicated that the majority of customers living in areas where "broadcast
basic"was available chose (and would continue to choose) the"expanded service"; 3) at standard
non-competitive pricing, the "broadcast basic" service was overpriced by about $5.00) ; and 4)
even where available, the "broadcast basic" service was not marketed by Charter. Charter
eventually "rolled-out" the "broadcast basic" service in all other cities where rate review did not
occur.
Last year, the County lost their ability to review rates when Charter filed with the FCC for
"effective competition" in the unincorporated areas. When this occurred, Charter introduced the
"broadcast basic" tier to customers in the unincorporated areas, leaving the City as the sole
jurisdiction without this service. It also left the City as the sole reviewer of rates in the county,
and"expanded service"as the only service level being reviewed.
GASta1Miser\Cab1e Television\CAR-Broadcast Basic 31204.DOC
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Council Agenda Report—Charter Communications Proposal Page 3
Implications
Under rate review, prices can increase only by an amount consistent with an FCC approved
formula. If the Council approves Charter's proposal to introduce the "broadcast basic" service,
the City can review rates only for the "broadcast basic" tier and not the "expanded service" that
is purchased by the majority of customers in the system. Rates for the "expanded service" could
rise unpredictably. In conversations with Charter, they have indicated that prices will naturally
be contained by competition from other providers (satellite dish providers) and that the City's
rate regulation of the"expanded service"is unnecessary and meaningless.
Another important piece of information lies in the fact that containing costs to our City
customers has the side benefit of keeping fees for the "expanded service" contained for all
customers throughout the County.
Benefits
Aside from the implications highlighted above, staff recommends approval of the "broadcast
basic"service at this time primarily for three reasons:
1. In the past year, the City's Franchise Administrator has received many more calls than
customary from Charter customers indicating that they only need and/or can afford a
"broadcast basic" level of service that provides the local channels and government access;
2. People living in apartment complexes (primarily students, low-income seniors and young
families) are often limited in their choice of providers by"tenant rules" that disallow the
use of satellite dishes, leaving the high prices "expanded basic" as the only alternative;
and
3. Charter has agreed to offer the 10% discount on both the "broadcast basic" and the
"expanded service", giving people with limited income some choice in what tier they
wish to purchase.
FISCAL IMPACT
The City receives from Charter Communications over $120,000 per year in franchise fees,
calculated on revenues. If a large number of customers in the City chose to reduce their level of
service from the "expanded service" to the "broadcast basic", the City could see a reduction in
the fees collected. Based on the number of customers currently subscribing to the "broadcast
basic" service throughout the entire service area (2000 county-wide), it would appear that there
would be little impact. (Although just how many customers Charter has is unknown, the City of
San Luis Obispo has over 13,000 Charter subscribers alone.)
ALTERNATIVES
The Council could deny the proposal and continue to review rates for the "expanded service".
Staff does not recommend this alternative for the reasons presented above under benefits.
GAStafAKiser\Cable Television\CAR-Broadcast Basic 31204.DOC
s'3
Council Agenda Report—Charter Communications Proposal Page 4
ATTACHMENTS
1. Proposal letter from Charter Communication
2. Channel Line-up
3. Effective Competition Standard
4. Resolution
G:\Staff\Kiser\Cable Television\CAR-Broadcast Basic 31204.DOC
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ATTACHMENT 1
ReeomCNhAarter ^
A WIRED WORLD COMPANY- X 2 v 2003
Adminisi,ration
Betsy Kiser October 21, 2003
Principal Administrative Analyst
990 Palm Street
San Luis Obispo, Ca. 93401
Dear Betsy: -We have spoken in the past about discrepancies between the service that.Charter offers in
San Luis Obispo and what is provided in our neighboring communities. Specifically, we
believe that our San Luis Obispo customers are at a distinct disadvantage because they do
not have access to a Broadcast Basic level of service. We propose a change in this
arrangement and standardizing our offerings no later than the end of 2004. Further, to
help accomplish this change,we are proposing the introduction of new low-income
discounts to our pricing structure.
To help us in our discussion of this proposal, it is worth noting the.advantages of making
these changes. First is the issue of cost for"entry-level' customers of cable.television .
services. Currently,the entry point for our San Luis Obispo customers is the full
Standard Service at$37.95 per month. By comparison, customers in neighboring
communities can choose to subscribe to our Broadcast Basic for$20.20 per month. In
fact, over 2,000 customers in these communities do exactly that. From our experience,
many of these residents are seniors on fixed-incomes. Since the service provides all the
off-air broadcast signals, as well as the PEG access channels, home shopping and both C-
SPAN channels, they find it a valuable and useful level of service. We believe that
making such a service available in San Luis Obispo would be in the best interests of your
citizens.
Perhaps less tangible,but also important to note, is the confusion and consternation that is
created by having these two different approaches in communities so close by. First is the
potential for miscommunication by our customer service representatives due to these
differences,but also the frustration by customers trying to understand why we do not
have identical services.
Charter would like to propose that we make the Broadcast Basic level of service
accessible to the residents in the City of San Luis Obispo. In addition, Charter proposes
establishing a low- income discount of 10%on both this new entry level of Basic and the
present full Charter Standard service. Customers who qualify for the low-income .
discount and who choose to purchase other services would still retain the 10% discount
on the Broadcast Basic and Expanded Basic service.
As part of this proposal, Charter would also agree that the City of San Luis Obispo would
retain the right to regulate the full basic service through December 31, 2004.
270 Bridge Street • San Luis Obispo,California • 93401
www.ehartercom.eom• tel:805.544.1962• fax:805.541.6042
ATTACHMENT
By way of background,residents in the following Charter service areas have a choice
between Broadcast Basic and the Expanded Basic Service level:
Arroyo Grande Atascadero
Avila Beach Cambria
Cayucos Grover Beach
Los Osos Nipomo
Oceano Paso Robles
Pismo Beach Santa Margarita
Templeton
By mid 2004 Heritage Ranch, San Miguel and Jardine Rd. will also have the Broadcast
Basic service available. This;then,would mean that the only area residents unable to
purchase the lower level of service would be those living in the City of San Luis Obispo.
Upon review,we hope you will agree that offering a smaller, less expensive Broadcast
Basic gives low-income and fixed-income residents an affordable choice for their home
entertainment and information services...a choice long available to surrounding
communities. Further, that with the proposed addition of a new 10% low-income
discount, Charter is attempting to ease any concerns you may have with this change.
We look forward to your thoughtful review of our proposal and we can make ourselves
available to meet for further discussion at your earliest convenience.
Cordially,
yl 'a Biddle
Government Relations Manager
cc: Wendy George
S'-4
ATTACHMEIT2
Channel Line-Up Channel Line-Up
i0wEffective 9/112003
47 Animal Planet 134 �y kderetlasi 801 IN DEMAND 1 Digital Big Movie Tier 915 ElectrDance nice
48 TV Land 136 BBC America 802 IN DEMAND 2 600 Showtime-West 916 Dance
3 KEYT--TV-ABC 49 Cartoon Network 138 DscuveyTimes 803 IN DEMAND 3 602 Showtime Toc-West 917 Progressive
4 KSBY-NBC 50 Nickelodeon-West 140 Do Itturself 804 IN DEMAND 4 604 S est Showcase- 918 Soft Rock
5 WB 100 Plus 51 Spike TV 142 kdertnallarol Channel 805 IN DEMAND 5
6 KCBS-TV-CBS 52 Style 144 MTV2 West 806 IN DEMAND 6 606 me Extreme 919 Hit List
807 IN DEMAND 7 West 920 Party Favorites
6 TV tilde 54 Tech TV 146 MN ids
7 PAX Network 55 HGTVMome and 148 MN Jams 806 IN DEMAND 8 608 Showtime Beyond- 921
8 KCET-PBS Garden Television 150 VH1 Classic 809 IN DEMAND 9West New 610 RIX--West 922 New Wave
9 KCAL-TV-IND 56 Food Network 152 VH1 Canty 810 W DEMAND 10 614 Showtime-East 923 '70s
10 Leased Acmes 57 Galavlsm 154 VH1 Mega F51s 811 IN DEMAND 11 616 Showtime Too-East 924 Solid Gold Oldies
11 KKFX 58 Comedy Central 156 VH1 Sod 812 IN DEMAND 12 650 The Movie Channel-
12 KCD`FTV-CBS 813 IN DEMAND 13 925 Singers and Standards
59 VH-1 158 Fuse West 926 BI band and Swing
13 KADY-TV-IND 60 MN Set n Utkna 814 IN DEMAND 14 652 TMC Xtra-West 9
14 DVC 67 E! 815 IN DEMAND 15 654 The Movie Clanmel- 927 Easy Listening
15 Home Slnoppk62 Trmnar Classic Morulas
g 250 Fox Sports World Espanol 816 W DEMAND 16 East 928 Smooth Jazz
Network 63 AMC 251 CNN on Espanol 817 IN DEMAND-1 T— - Digital Charter Movies Tier 929 Jazz
16 KPMR-LINV 64 Sci-fi 252 Cine tatiro 818 IN DEMAND 18 728 Independent Film 930 Blues
17 KV%S-TMO 65 Oxygen 253 TV Chile 819 IN DEMAND 19 Clnarmel 931 Reggae
18 KCOP-UPN 66 Soap Net 254 Canal Sur 820 IN DEMAND 20 729 Sundance
19 Fducidlacal Access 67 Golf Owal err Puma 1V 821 IN DEMAND 21 932 Soundscapes
20 Garerringm Access 68 Outdoor life Network 256 Latin TV 822 IN DEMAND 22 Digital Premium/Digital 933 Classical
21 GoverrmmntAcce.Ss 69 Speed Channel 257 Vidavision 823 IN DEMAND 231 Mortar Movies Tier Masterpieces
23 CSPAN 70 FX 258 Discovery an Espanol NASCAR In Car 730 Encore-West 934 Opera
24 CSPAN2 71 National Geographic 824 IN DEMAND 241 731 Encore Action-West
25 KTLA-WBN 72 Court TV 259 MN an Espanol NASCAR In Car 732 Encore Love-West 935 Light Classical
25 IatBonYa Clnerim 73 Hallmark Channel Digital Sports Choice 825 84 DEMAND 25/ 733 Encore Mystery-West 936 Show Tunes
95 hrspkatknat Network 74 Game Show Network 401 Fox Sports Atlantic NASCAR In Car 734 Encore True Stories- 937 Contempoary Christian
96 EWTN 75 Travel Channel 402 Fox Sports Central 826 IN DEMAND 261 West 938 Gospel
98 T 76 Bravo 403 Fox Sports Pacific NASCAR in Car 735 Encore Westens-West 939 For rids Only
Broadcas9ngirrBNn cNrT 405 Fox Spots World 827 IN DEMAND 271 Digital Adult-PPV 940 Sounds of the
E1 Nog PPV 406 ESPN Classic NASCAR In Car 894 The Hat Network Se
L 99 IN DEMAND 1 Digital PPV 828 IN SCAR IDEMAND rail 895 The Hot Zane 941 Musica Lafine
415 NHL Center Ice/ IN DEMAIn Oar 896 Playboy Espanol
28 A&E OW gen & MLB Extra brings 829 IN DEMAND 29/ 897 Playboy 942 Salsa Merengue
29 The�Clneanel latorrna0on 416 NHL Center Ice/ NASCAR in Car 898 Spice 943 RDck'En Espafiol
30 The Learning Clnarunel 102 Boomerang MLB Extra Innings 830 IN DEMAND 30 899 Spice 2 944 Latif Love Sags
31 History 104 Discovery IGds 417 NHL Center Ice/ Digital Premium tussle Audio(ovum wrvamrl 945 Mexicana
31 TBS 106 Nick Gas MLB Ella Innkig5 500 HBO-West
33 TNT 10B Nick Tons 41B NHL Center Ice/ 901 Showcase Digital Basle
try
34 USA 110 Noggin MLB Extra Innings 5504 02 HBO Signature-West
i West 9D2 TodayY Co gr¢hae West 903 Classic Gauntry ntry 1 i-N Central Channel
35 ESPN 112 Toon Disney 419 NHL Center Ice/
36 ESIW 114 Discovery Hans MLB Extra Innings 506 HBO Famlly-West 904 America 78 Charter Channel
37 Por(Spats Net West &Leisure 420 NHL Center Ice/ 508 HBO Zone-West 905 Bluegrass 960 i-Games
38 Fox Spats Net West2 116 Discovery Wings MLB Extra Innings 510 HBO Comedy-West 906 R&B and Hip-Hop 970 i-Entertainment
39 The Weather Ctrannel 118 Discovery Health 421 NHL Center Ice/ 512 HBO Ladr*West 907 Classic R&B Channel
40 CNN 120 Science(]ramal MLB Extra Innings 550 Cinemax-West 9D8 Smooth R&B 980 i-Sporting News
41 CNN Heaffis News 122 WE 421 NHL Center Ice! 552 More Max-West 909 Rap Omni
42 CNBC 123 Lifetime Movie Network MLB Extra innings 554 Action Max-West 910 Mew 985 Mews Channel
43 MSNBC 124 Grad ntalran Country 423 NHL Center Ica/ 556 Mer Max-West 911 Rock 990 i Shopping Channel
44 Fri(News Charanel 126 B We* MLB Extra Innings 700 Starz!-West 912 Power Rad(
45 ABC Family 128 Bloomberg 424 NHL Center Ice1MLB 702 Starz!-East 913 Classic Rods
46 The Disney Channel 130 CNN FN 800 INDEMAND Previews A 704 Black Starsl-West 914 Alternative Rock
s
S7
ATTAC
ENT
T303 Rates and Services HM
Meeting effective competition standard ,:
A cable system is subject to effective competition when any one of the following conditions is met:
(1) fewer than 30 percent of the households in the cable system's franchise area subscribe to
its cable service;
(2) the franchise area is (i) served by at least two unaffiliated MVPDs, each of which offers
comparable programming to at least 50 percent of the households in the franchise area, and (ii) the
number of households subscribing to multichannel video programming other than the largest
MVPD exceeds 15 percent of the households in the franchise area;
(3) an MVPD operated by the franchising authority offers video programming to at least 50
percent of the households in the franchise area; or
(4) a local exchange carrier (LEC) or its affiliate (or any MVPD using the LEC's or affiliate's
facilities) offers video programming directly to subscribers (other than direct-to-home satellite
services) in the franchise area'comparable to that of an unaffiliated cable operator serving that
franchise area (§76.905(a)). This last criterion was added by the 1996 act to reflect the opening of
video programming competition to telephone companies.
To determine effective competition based on a system serving less than 30 percent of the
households in the_franchise area, the FCC clarified that "franchise area" means the territory the
cable operator is permitted to serve under its franchise (first rate reconsideration order, paras. 24,
25). This interpretation allows the cable operator the benefit of unbuilt territory within the fran-
chise area, resulting in a potentially lower percentage of homes serviced than if, for example, the
measure were based on the number of homes within the area actually served by the cable system.
In an order issued in January 1995, the FCC said "there may be circumstances where a cable
system, although not subject to effective competition as defined in the 1992 Cable Act, may be
charging cable rates that are constrained by the presence of one or more MVPDs in the franchise
area."
The ruling allows cable operators to seek case-by-case waivers of local rate regulation author-
ity where market circumstances create effective competition even though the statutory definition
is not met. In reaching this decision, the commission said "the public interest may be served
by relying on ... market forces instead of our rate rules to ensure ... operators' rates are not
`unreasonable.`
Where the cable operator has defined the area to be served, that area becomes the "franchise
area." The FCC uses the example of a cable operator with "county-wide" operating rights that
chooses to limit service to a specific community within the county. In that limited circumstance,
the community becomes the franchise area for purposes of applying the 30 percent test, if the
Page 6 Tab 300 October 1999 Multichannel Video Compliance Guide q
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AITACHMEW 4
RESOLUTION NO. (2004 Series)
A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO
APPROVING A PROPOSAL FROM CHARTER COMMUNICATIONS TO IMPLEMENT A
"BROADCAST BASIC"LEVEL OF SERVICE
WHEREAS, Charter Communication has submitted a request to provide "a broadcast basic'
level of service to residents of the City of San Luis Obispo; and
WHEREAS, a "broadcast basic" level of service will provide an additional level of service
and choice to the residents living in the City; and
WHEREAS, the City has received calls from residents, particularly low-income seniors,
indicating a desire to have a "broadcast basic" level of service as an alternative to the higher priced
"expanded basic" service; and
WHEREAS, the City is aware that it will maintain the right to review rates on the
"broadcast basic" level of service only; and
WHEREAS, Charter Communications has agreed to provide a 10% discount on both the
"broadcast basic" and the "expanded service", giving people with limited income some choice in
which tier they wish to purchase;
NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis Obispo
as follows:
SECTION 1. Charter Communication may implement a "broadcast basic' level of service
in the City of San Luis Obispo.
SECTION 2. Charter Communication will provide a 10% discount for low-income
residents on both the "broadcast basic'and the"expanded service"from this time forward.
Upon motion of , seconded by
and on the following roll call vote:
AYES:
NOES`.
ABSENT:
The foregoing resolution was adopted this day of ,2004.
R q
S� /
Resolution No. (2004 Series) A,I TA �Y
Page 2
David F. Romero, Mayor
ATTEST:
Lee Price,C.M.C.
City Clerk
APPROVED AS TO FORM:
Jona an owell
City Attorney
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MEETI, 'GENDA
DATE '�,G D`I _._ �TEf�1 # f.35`
Charter
COMMUNICATIONS'
A WIRED WORLD COMPANY-
Dave
OMPANY,,,Dave Romero - Mayor April 2, 2004
City of San Luis Obispo
990 Palm St.
San Luis Obispo, Ca. 93406
Dear Mr. Romero:
In your upcoming Council meeting on April 6, City staff will be presenting their
recommendation that you approve Charter Communications' proposal to create a "Broadcast
Basic" level of service for the residents of San Luis Obispo. Your staff has done a detailed
job of reviewing the key issues in this request and we hope that you will look with favor on
their recommendation.
Just to recap,we believe the creation of this new level of service will:
• provide a lower cost entry point for customers
• give a choice to City of San Luis Obispo customers enjoyed by over 2000 residents
living in adjacent communities within the County
• be responsive to limited income residents who qualify by the simultaneous offering
of a discounted service for either"Broadcast Basic" or"Expanded Basic"
• maintain the City's right to regulate the price of this new level of service
While addressed adequately in the staff recommendation, we do want to reiterate the
comments attributed to Charter on the effects of competition on overall pricing. Competition
in San Luis Obispo is alive and well. The national and local growth for alternative providers
to cable television is well documented. Any concern about the loss of regulatory oversight
over a portion of our pricing can be balanced by the very real impact of competition on our
pricing decisions.
Finally, while staff is neutral on the potential financial impact on "franchise fees" to the City,
we would suggest that approving this "Broadcast Basic"plan makes us more competitive by
expanding the choices to residents. With expanded choices we think a case can be made for
overall growth in our customer base and of course this would have a potentially positive
effect.
O�U�N ILS, CDO DIR
CAO IN DIR
C ACAO RRE CHIEF
ATTORNEY PW DIR
CLERKIORIG11"UTIL
POLICE CHF
DEPT HEADS REC DIR
' I Tr'h DIR
O a
270 Bridge Street • San Luis Obispo,California • 9340 --rt!�• [-J -i 1=I PIR
w .Chartereomxam• tel:805.544.1962 • fax.805.541.6042
M We appreciate your consideration of this proposed change.
Cordially,
d�1'6
Sy via Biddle
Government Relations Manager
cc: Betsy Kiser