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Home My WebLink About4.02 Cable Television AT&T Corp . CITY CLERK File # []~~~-~~ AGENDA STATEMENT CITY COUNCIL MEETING DATE: (January 5, 1999) SUBJECT: Change of control of the cable television franchise from Telecommunications, Inc. (TCI) to AT&T Corporation (Report Prepared by: Sue Barnes, Management Assistant) ATTACHMENTS: A. Letter, dated December 18, 1998, from TCI Government Affairs Manager Rachelle Guillen, stating TCl's intention to compensate the four cities up to $600 each for the joint evaluation of the FCC 394 form B. Letter, dated December 18, from TCI General Manager Tom Baker, informing the City about the relocation of channels 69 and 70 to lower channel positions C. Resolution authorizing change of control of the cable television franchise from TCI, Inc. to AT&T Corporation . RECOMMENDATION: ~ 1. Note and file attached letters from TCl 2. Adopt attached Resolution FINANCIAL STATEMENT: No financial impact to the City. TCI will compensate the City of Dublin for the consultant's fee to evaluate the FCC 394 form. BACKGROUND: In 1985, the City renewed a non-exclusive cable television franchise with Tele-Vue Systems, Inc. (dba Viacom Cable). That cable franchise was later transferred to TCI in 1996, when TCl successfully acquired all of Via com's cable operations nationwide. TCl's Tri-Valley cable system serves the Cities of Dublin, Pleasanton, Livermore and San Ramon, with identical channel lineups in the four cities. The four cities have worked jointly to develop franchise agreements and cable TV ordinances, and those documents are identical in all four jurisdictions. The four cities have also worked together to regulate rates in accordance with the 1992 Cable Act. . COPIES TO: Tom Baker, TCl General Manager ITEM NO. 4~2 F: barnes/cab letv/tci/merger A GDASTMT C!( DESCRIPTION: Earlier this year, TCI reached an agreement with AT&T, in which AT&T will acquire TCl's cable operations, including the Tri-Valley System. Under the terms ofth~ agreement, AT&T will become the parent company of TCI. TCI will continue to exist as a corporation and a wholly owned subsidiary of AT&T. All stockholders ofTCI will exchange their shares ofTCI stock for shares of AT&T stock. The City's cable television ordinance requires City approval for a change of control of the franchise, and TCI and AT&T have formally requested City approval, following federal guidelines. . Federal Guidelines -- Federal Communications Commission (FCC) regulations issued pursuant to the 1992 Cable Act, and subsequently reaffirmed through the 1996 Telecommunications Act, require the franchisee (TCI) to request approval for a change of control from the franchising authority (City). The franchisee must file with the franchisor FCC Form 394, describing the transaction and providing information regarding the new company (AT&T). The franchisor must act on the request by approving or denying the change of control application within 120 days of receipt, or the application is deemed to be approved, unless and extension is granted. TCI submitted Form 394 on September 14, 1998. The 120- day review period expires January 11, 1998. Assuming the new company does not request any changes in the franchise terms (and in this case AT&T has not), the FCC regulations allow the franchising authority to deny a change of control application only under the following conditions: 1. Qualifications-whether the new company (AT&T) is legally, financially and technically qualified to operate the cable system. 2. Compliance-Whether the existing company (TCI) has been, and currently is, in compliance with the requirements of the existing franchise. 3. Impact on Cable Subscribers-What impact the merger may have on cable subscribers and the franchising municipality. . Each of these conditions is addressed below. Summary of Consultant Findings - The Cities of Dublin, Pleasanton, Livermore and San Ramon have contracted with Telecommunications Management Corporation (TMC), to review Form 394, as submitted by TCI and AT&T. TCI will reimburse the Cities for the consultant's fees to review the form, as stated in the letter enclosed as Attachment A. TMC is well respected in the cable regulatory industry and has been retained on previous occasions by the four cities to draft the existing franchise agreement, as well as conduct several rate reviews. TMC's final report to the four cities includes an analysis on AT&T's qualifications to operate the system, TCl's compliance with the existing franchise, and what impact the merger may have on cable subscribers. After a careful review of the application (change of control request) and of TCl's compliance with the existing franchise agreement, staff and the consultant have found no reason to deny the application under FCC guidelines. The following is a summary ofTMC's findings: 1. Qualifications - TMC's review concludes that AT&T, the largest long-distance telephone . services provider in the nation, clearly has the legal, financial and technical capability to operate the system. With respect to legal qualifications, as long as AT&T is qualified to do business in .-;J.- . . California, and is not subject to media cross-ownership prohibitions, no legal barrier exists to the assumption of the existing franchise. AT&T currently satisfies these two requirements. With respect to financial qualifications, AT&T's most recent financial statement, for the 1997 calendar year, indicates annual total assets of$58.6 billion, an order of magnitude greater than those ofTCL Given that their financial strength is greater than that of TCl' s, it is reasonable to conclude that AT&T is financially qualified to operate the Tri-Valley System. And fmally, with respect to technical qualification, AT&T has a proven history of providing telecommunication services to the . public. With this background, it is clear that AT&T has the technical qualifications to operate TCl's cable operations. 2. Compliance - TCI is currently in compliance with all existing franchise provisions. As part of the 1996 ViacomfTCI transfer request, the cities were seeking to resolve several outstanding franchise compliance issues as part of the transfer process. The most important issue was Viacom's failure to complete a system-wide infrastructure upgrade, and their unwillingness to provide additional public, education and government (pEG) access channels to the cities. Through extensive negotiations between TCI and City officials, TCI eventually committed themselves to a system- wide upgrade in the Tri- Valley area. As part of the upgrade, TCI also agreed to give the cities two additional channels (69 &70) for PEG access purposes. Both of these commitments have been fulfilled by TCI, thus making the cable operator fully compliant with the terms and conditions of the existing franchise. 3. Impact on Cable Subscribers - In the past, when cable systems have been sold, the sales almost universally have been followed by increases in subscriber rates, by which the buyer has attempted to recover as much of the purchase cost as rapidly as possible. However, with the passage of the 1992 Cable Act and the FCC rate regulations implementing the Act's policies, some limited constraints have been placed on basic service rates. Unfortunately, the Telecommunications Act of 1996 deregulates rates for all "upper tiers" of basic service by no later than March 31, 1999. Consequently, in three months, AT&T will be free to charge what the market will bear for all levels of service beyond the basic tier, without the City having any significant ability to influence rates. The intent of the 1996 Telecommunications Act was to encourage competition, and if this occurs, markef forces may limit the cable rates. Ifno meaningful competition occurs (which is very likely in Dublin), substantial rate increases may well take place. However, these increases could come whether or not TCI is acquired by AT&T. .oTHER'RELATED MATTERS: Telephone Competition - If the AT&T merger is implemented, there may be significant competition in some geographic areas (possibly Dublin) to the local telephone companies in terms of voice and data services. This may result in rate reductions and, perhaps, better quality of service to the consumers. In the area of video programming delivery (e.g. cable services), however, it is not expected that this acquisition will affect TCI's near monopoly in the cable service industry. Therefore, unless and until new competitors to TCI exist, cable service apparently will continue on a "status quo" basis. . Relocation of PEG Channels - Since the establishment of channels 69 and 70, staff has discovered that certain television sets (pre-1980 manufactured) limited channel capacity, and cannot receive channels 69 and 70. To address this situation, staffhas investigated the possibility of moving channels 69 and 70 downward on the channel spectrum. This would allow residents with older television sets the opportunity to view these channels without the purchase of a converter box from TCL .-1 7-- To address this issue, staffhas suggested that TCI relocate channels 69 and 70 to channels 28 and 29. This would effectively make the City's PEG channel line-up appear in a dedicated block of channels - 28,. 29, and 30. These discussions have been ongoing with TCI for the past two years, with little progress being made in this area. Given the recent merger request, staff once again used this as an opportunity to seek the relocation of channels 69 and 70. After some limited negotiations in this area, TCI has finally agreed to relocate the channels, and to make these changes effective no later than June 30, 1999 (letter enclosed as attachment B). Under this new channel line-up, channel 30 would continue to be reserved predominantly for produced government access shows (Video Newsletter, 580/680 News, etc.) Channel 28 would replace channel 70, and would continue tofocus on other government access programs (e.g. City Council meetings, special workshops, etc.), as well as overflow an/or repeat performances of programs carried on Channel 30, and community service programs produced by TCL Channel 29 would replace channel 69, and would continue to focus on educational programming and other public access programming, including shared leased and religious access programming. STAFF RECOMMENDATION: Staff recommends that the City Council receive the staff report; note and file the attached letters from TCI (Attachments A & B); and approve the enclosed resolution (Attachment C). . . -'-1- 12/18/98 FRl 14:23 ~~ TCl CABLEVlSlON I4J002 . @. Tel , ATTACHMENT A December 18, 1998 Ellyn Axelrod Assistant to the City Manager City of Livermore 1052 S. Livermore Avenue Livermore, CA 94550-4899 via facsimile Dear Ellyn: Per my discussion with you last week, TCl is willing to compensate each of the four Tri- Valley cities, Livennore. Pleasanton, San Ramon and Dublin, up to $600.00 eac.h for the joint evaluation ofthe FCC 394 form. . If you have any questions or concerns, please feel free to call me at 408-919-3716. Rachelle Guillen Govcmment Affairs, Manager cc: Nelson Fialho, City of Pleasant on JeffEorio, City of San Ramon Julie Carter, City ofDublin Kathi Noe, TCl Susie Evans> TCI Tom Baker, TCl . South Bay Regional OfficCl 3450 Garrett Driv" Santa Clara, CA P5' 154 (408) 919-37(\0 FAX (408) 98B-144" Tel of California An EqUlll Oppo,-tunhy , 'mployer 12/21/98 F.~ 510 484 8234 09:30 ! I ~. T.el I December l~, 1998 I ! CITY-PLEASANTON 14I 009/009 ATTACHMENT 8 . i Nelson Fiallio , I As~t to ~e City .lV!anager City of Pleasanton 123 :Main street Plcasanton. CA 514566 I I Dear N elsod: I Per our discUssion, TCI will relocate PEG cbanncl$ 69 and 70 in the Cities ofPlcasanton, Dublin, Ljvennore. <ind San Ramon to channels 2& & 29 adjacent to channel 30 (crvrrcI3p). The Cities acknov.-ledg~ that TO may be required to relocate these channels (as is currently thcic!ase with channels 3D, 69, and 70) 1?ecause offurure porcntiaI FCC "must ~ rights and retransmission consent requirements. However, in~thc event that FCC requirements n~e~itate a change in the PEG cbani1~llineuPT Tel will confer with ~e Cities beforehand and.disol!:!: :tlrermrh'e ch:mnel po~itions that TCI bOuld make ;lvailable in their place. ., Tel ~ill mo\re these channels during the nc^1: scl:lcdulcd channel change, but no lara ~ Jwu:: 30, 1999. Once the PEb channels arc repositioned. ~ Citi~s agree to develop their own channe~ identity separate " and apart froIn a cbannd number, similar to the viewership identity created by broadcasters and p'COgtWnmert With the eo~tinucd changes in to::hnQlogj": convergence thcn;of, and pbtential broadcaster digital must tarry rights, the Cities underst:"nd tbe potential for change e..rists, de..c.pite Tel's best: effortS to maintain the~roposcd channel lineup_ I Ptease call me if'yOU have any questions. I . Sincerely. ! I J'~~ I Tom Bak~r I Area Director Tel Tri- Vall~' I Cc: Ell~~ Axelrod, City of Livermore PaUl Rankin, City, of :Dublin Jeff!Eono, C.i.~ o:f"San Ramon RacheUe Guillen - Tel Kadri Noe - TCl I I I I ~B';l "'~;;:8V8v OJ.. . AN~r~ Nelson Fialho City ofPleasanton Tel 01 Calltornia 2$S~ Nlssel'l Drive Uvermore, CA 94550 (925).1L3-Oo170 FAX (926) ~S-36'S . Tn-Velley System O1l'Ic::e A" COull/ ~OI'/Vfll7Y I!tn(>lcv,,' A3Ii~nI~ !~J.. WO~ Wd9S:~a e661-~t-;;:t RESOLUTION NO. - 99 ATTACHMENT C . A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN ********* A RESOLUTION OF THE CITY OF DUBLIN APPROVING THE CHANGE OF CONTROL OF THE CABLE COMMUNICATIONS FRANCHISE WHEREAS, TCI Cablevision of Georgia, Inc. ("Franchisee") is duly authorized to operate and maintain a cable communications system in Dublin, California (the "System") by City of Dublin ("Franchise Authority") pursuant to a franchise (the ~'Franchise") granted by the Franchise Authority; and WHEREAS, pursuant to the Agreement and Plan of Restructuring and Merger among AT&T Corp. ("AT&T"), a newly formed wholly owned subsidiary of AT&T ("Merger Sub") and Tele- Communications, Inc., the parent of Franchisee ("TCI"), dated as of June 23, 1998 (the "Merger Agreement"), Merger Sub will merge with and into TCI with TCI as the surviving corporation in the merger, and as a result of the transactions contemplated by the Merger agreement, TCI will become a wholly owned subsidiary of AT&T (the "Transactions") and WHEREAS, Franchisee will continue to hold the Franchise after consummation ofthe Transactions; and WHEREAS, FCC Form 394 with respect to the Transactions has been filed with the Franchise Authority, and . WHEREAS, the parties have requested consent by the Franchise Authority to the Transactions. NOW, THEREFORE, BE IT RESOLVED AS FOLLOWS: Section 1. The Franchise Authority hereby consents to and approves the Transactions to the extent that such consent is required by the terms of the Franchise and applicable law. Section 2. This Resolution shaH be deemed effective in accordance with applicable law. PASSED, APPROVED AND ADOPTED this 5th day of January, 1999. AYES: NOES: ABSENT: ABSTAIN: . ATTEST: Mayor City Clerk H/cc-formslreso.doc