HomeMy WebLinkAboutItem 4.05 Transfer AT&T Comcast CITY CLERK
File # 1050-10
AGENDA STATEMENT
CITY COUNCIL MEETING DATE: June 18, 2002
SuBJEcT: Transfer of Control of Cable System Franchise from AT&T
Broadband to AT&T Comcast Corp.
Report Prepared by: Jason Behrmann, Administrative Analyst
ATTACHMENTS: 1) Resolution authorizing transfer of control of the cable
television franchise from AT&T Broadband to AT&T
Comcast Corp.
2) AT&T customer service information
RECOMMENDATION: ~ 1) Adopt the Resolution
FINANCIAL STATEMENT: None
BACKGROUND:
AT&T Broadband'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. In June
2001, the Cities each approved a 10-year non-exclusive cable television franchise with AT&T Broadband.
DESCRIPTION:
In February 2002, AT&T Broadband notified the City that its Parent Corporation, AT&T Corp., and
Comcast Corp. intend to combine their cable systems into a new public company, AT&T Comcast Corp.
Under the terms of the agreement governing the transaction, following an intemal restructuring, AT&T
Corp. will spin off its cable system assets and simultaneously merge them with Comcast, forming a new
company to be called AT&T Comcast Corp. Details of the merger include the following, as provided by
the joint AT&T/Comcast news release on December 19, 2001,
· AT&T Comcast will serve approximately 22 million cable subscribers, which include about 5
million digital video customers, 2.2 million cable modem (high speed Internet access) subscribers,
and 1 million cable telephony customers.
COPIES TO: Kent Leacock, Vice President, AT&T Franchising
and LoCal GgVernmentITEMAffairs NO. 4~ ~/~
· Control of AT&T Comcast will be vested effectively in the Roberts family, which currently
controls Comcast, and will have 33% of the voting shares of the mergedcompanyo Since the
remainder of the voting shares will be scattered among a number of stockholders, the one-third
block will constitute effective control.
· The merger assets will include AT&T's 25.5% interest in Time Warner Entertainment (which
owns Time Warne'r's cable systems), and Comcasts's equity interests in programming services
such as QVC, E! Entertainment, The Golf Channel, and others.
· On the liability side, the new company will assume almost $20 million in debt from AT&T plus $5
million of convertible preferred securities held by Microsoft Corp. Microsoft has agreed to convert
these securities into $115 million shares of AT&T Comcast, which will reduce the'debt but also
dilute the equity of other shareholders.
The Board of Directors of AT&T Comcast will include five members nominated by Comcast and
five nominated by AT&T and two additional members unaffiliated with either company. Brian
Roberts of Comcast will be Chief Executive Officer, and C. Michael Armstrong of AT&T will be
Chairman of the Board.
The City's cable television franchise ordinance requires City approval for a transfer of control of the
franchise. AT&T Broadband and Comcast Corp. 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 (AT&T Broadband) to request approval for a change of control from the franchising authority
(City). The franchisee must file with the franchisor FCC Form 3947 describing the transaction and
providing information regarding the new company (AT&T Comcast). 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 an extension is granted. AT&T Broadband submitted Form
394 on February 25, 2002. The 120-day review period expires June 25, 2002.
Assuming the new company does not request any changes in the franchise terms (and in this case AT&T
Comcast 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 Comcast) is legally, financially and
technically qualified to operate the cable system.
2. Compliance--Whether the existing company (AT&T Broadband) 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
contracted with Telecommunications Management Corp. (TMC), to review Form 394, as submitted by
AT&T Broadband and Comcast Corp. TMC is well respected in the cable regulatory industry and has
been retained on previous occasions by the four cities, most recently in the development and adoption of
the cities' new cable system franchise agreement and accompanying regulatory ordinance.
TMC's final report to the four cities includes an analysis on AT&T Comcast's qualifications to operate
the system, AT&T Broadband's compliance with the existing franchise, and what impact the merger may
have on cable subscribers. The following is a summary of TMC's findings:
1. Qualifications - TMC's review concludes that AT&T Comcast has the legal, financial and
technical capability to operate the system. With respect to legal qualifications, since the local
entities that actually hold the cable franchise will remain the same after the merger, and various
parent organizations presumably will be qualified to operate federally (with respect to FCC
licenses, for example) there does not appear to be any legal barrier at this time to AT&T
Comcast's assumption of control and oWnership.
Concerning financial qualifications, TMC concludes that there is no reason to doubt that the
combined entity will be able to continue current cable system operations given the combined
revenue of $14.8 billion.
Finally, with respect to technical qualifications, information in the Form 394 about the
qualifications of AT&T Comcast states that the communities ',haVe previously considered and
approved the technical qualifications, experience and expertise of your current franchisee, and the
combined company will further strengthen the current franchisee's technical qualifications,
experience and expertise." TMC notes that while this may be technically true, these qualifications'
may not result in more effective cable system operations, or better service to customers. These will
depend on how effectively the AT&T Broadband and Comcast management staffs are integrated,
and whether adequate resources are aVailable and allocated to correct past deficiencies.
2. Compliance - AT&T Broadband is currently in compliance with all existing franchise provisions.
There has been some concern over the past six mOnths regarding AT&T Broadband's customer
service. The City's current franchise agreement and FCC regulations state that "Under normal
operating conditions, telephone answer time by a customer service representative, including wait
time, shall not exceed thirty (30) seconds when the connection is made. If the call needs to be
transferred, transfer time shall not exceed thirty (30) seconds. These standards shall be met no less
than ninety (90) percent of the time under normal operating conditions, measured on a quarterly
basis." ·
From June 2001 through February 2002, these standards were only met approximately 50% of the
time. AT&T cites a number of reasons for slower than normal response times such as consolidated
call centers, NBC affiliate change, the excite('~_,home bankruptcy, and billing challenges. In order
to improve compliance, AT&T has initiated a number of programs to improve customer service
quality. It appears that AT&T's efforts are paying off as evidence by the customer service statistics
for April, where the standards were met approximately 93.8% of the time. Descriptions of the
challenges, new initiatives and April statistics are included in Attachment 2.
3. ImpaCt on Cable Subscribers - In their review, TMC suggests that the history of previous cable
industry mergers has not evidenced any slowing impact upon rate increases, and there appears to
be no reason to believe that the results of the AT&T Comcast merger will be any different. Some
economies can result from cutting costs, but the need to service the huge new debt resulting from
the merger will exert great pressure to increase rates. The only counter weight to this pressure is
the availability of Direct Broadcast Satellite (DBS) as a competitor for video services, and Digital
Subscriber Line (DSL) as a competitor for data services. To date, both DBS and DSL have not
slowed annual cable rate increases to any significant extent. It is important to note that the City's
regulatory authority is limited by FCC regulations to the Basic Service Tier (known as "Basic
Cable") and the equipment and installation services associated with this tier. The City has no
authority to regulate the rates of "upper tiers" of basic cable service.
After consultant review of FCC Form 394 Application for Franchise Authority Consent to Assignment or
Transfer Control of Cable Television Franchise, and of AT&T Broadband's compliance with the existing
franchise agreement, Staff and the consultant have found no reason to deny the application under FCC
guidelines.
RECOMMENDATION:
Staff recommends tl~at the City Council adopt the Resolution authorizing a change of control of the City's
Cable System Franchise from AT&T Broadband to a new entity, AT&T Comcast Corp.
RESOLUTION NO. - 02
A RESOLUTION OF THE CITY COUNCIL
OF THE CITY OF DUBLIN
CONSENTING TO THE TRANSFER OF CONTROL OF THE
CABLE COMMUNICATIONS FRANCHISE
WHEREAS, the cable franchise holder ("Franchisee"), in the City of Dublin ("Franchise
Authority") is an indirect subsidiary of AT&T Corp. ("AT&T"), and AT&T intends to merge with
Comcast Corporation ("Comcast") to create a new company to be known as AT&T Comcast Corporation
("AT&T Comcast") pursuant to the terms of an Agreement and Plan of Merger dated December 19, 2001
by and among AT&T Corp., AT&T Broadband Corp., Comcast Corporation and certain of their respective
affiliates, and a Separation and Distribution Agreement dated December 19, 2001 by and between AT&T
Corp. and AT&T Broadband Corp. (the "Merger"); and
WHEREAS, prior to the Merger, pursuant to an internal corporate restructuring, the cable
franchise or stock of the Franchisee, or indirect ownership of the Franchisee, may be transferred through
one or more internal transfers or mergers to another direct or indirect subsidiary of AT&T, or Franchisee
may elect as permitted by law to convert or reorganize its legal form to a limited liability companY
(together with the Merger, the "Transactions"); and
WHEREAS, following the Transactions, the resulting entity will be controlled by AT&T Comcast
but will continue to operate the System and continue to hold and be responsible for performance of the
cable franchise; and
WHEREAS, Franchisee and AT&T Comcast have requested that Franchise Authority consent to
the Transactions in accordance with the requirements of the Cable franchise and have filed an FCC Form
394 ("Transfer Application") with the Franchise Authority requesting such consent Transactions; and
WHEREAS, the Franchise Authority has reviewed the Transfer Application, examined the legal,
financial and technical qualifications of AT&T Comcast, followed all required procedures in order to
consider and act upon the Transfer Application, and considered the comments of all interested parties; and
WHEREAS, the Franchise Authority is willing to consent to the Transactions.
NOW, THEREFORE, BE IT RESOLVED AS FOLLOWS:
SECTION 1. The Franchise Authority hereby consents to the Transactions in accordance with the
terms of the cable franchise and applicable law.
SECTION 2. This Resolution shall be deemed effective upon adoption.
SECTION 3. This Resolution shall have the force of a continuing agreement with Franchisee and
AT&T Comcast, and Franchise Authority shall not amend or otherwise alter this Resolution without the
consent of Franchisee and AT&T Comcast. ~/.~. ~/~//~_
ATTACHMENT 1
SECTION 4. The Franchise Authority reserves the right to require AT&T Comcast to correct any
prior franchise non-compliance, known or unknown, at the time of the transfer.
PAS SED, APPROVED AND ADOPTED this 18th day of June 2002.
AYES:
NOES:
ABSENT:
ABSTAIN:
Mayor
ATTEST:
City Clerk
K2/G/6-18-02/reso-at&tmerger.doc (Item 4.5)
05-Z4-02 01:51pm From-CITY MANAGER 9253?35061 T-575 P.04/06 F-636
AT&T Broadband
Bay Area Market
Customer Service Statistics
Month of April 2002
Total Calls 585,518
'CallS~and0ned ............ t0,050
% Abandoned 1,7%
Calls Answered within 30 93.8%
Seconds - Normal
Trunks Busy O
Average Speed of Answer 15 seconds
ATTACHMENT 2
MAY-24-2002 02:41PM TEL)9253735061 ID)DUBLIN ClT
05-24-02 01=51pm From-CiTY MANAGER 9253735l)61 T-575 P.05/06 F-636
AT&T Broadband Customer Service
'Background and Improvement Initiatives
Bay Area Market
EVENTS T~-IAT HAVE ADV~.~$ELY IMPACTED CUSTOM.EI~
Consolidated Call Centers
· AT&T Broadband ~nsoli~ated mul~ple sm~l ~d large ~11 ~er~ i~o
·me large s~le ~11 ~ntem ffi suppo~ the ~llowing fun~e~:
Billing, In~und Sal~, and Re.ir and S~ for the BW ~ea Merit
from O~ber 2000 ~gh June ~ 2001. The ~lidaUon ~uir~
some adjustme~ time ~ no~li~ an~ ~lance ~11 i~d mana~e~
p~ses baleen centers.
NBC ~lia~ Ch~ge
· The Janua~ 2002 ~ange ~ NBC ~iiate ~flon In ~ ~y ~ ~m
San Fmn~s~ to $~ Jose ~ul~ inhigher ~an e~e~d ~11 volume
t~ugho~ ~e mo~ ~f J~ua~ 20~.
~ite~ome Bankm~
· T~ shut~n of the E~te~Home ~ul~ in a ~eep ingmaee In ~11
Io~s from D~mber 2001 ~rough J~ua~ 2002,
CS~lllng Pla~ Chaileng~
· From November 200~ thigh Janua~ 20~ wa ~pafien~d aign~
~all~g~ with our billing ~ystem inelu~ng oumges, sl~ne~ ~d
u~md~ to the sy~em. Th~ ~aileng~ put a sign~ $~in
a~l~ to ~wiee our ~mem due ~ incased handle ~me and
to mqu~t that cu~omem ~11 ba~. This issue has a signifi~nt n~aflve
impa~ on se~ce levels dudng this
I~TIA~V~.~ IMP~VE CUSTOMER
~ffing In Call Centare
· 8in~ O~r, 2001 a t~l ~ ~ 50 addl~ona] Customer
Represe~afives h~e ~ add~ to s~e our ~ustomem in ou~ ~1
~ntem. ~ls is a 100% incr~sa over ~ffing I~ele ~ So.tuber 2~1.
In our Repair and Be~ Cede? we h~ impmv~ ~r superoof ~
employee ?~o from 18:t ~ 92:1, which mp~enm an increase ~
HRY-24-2008 02:41PH TEL)9853735061 ID)DUBLIN CITY HGR OFFC PRGE:005 R=I00x
05-24-02 01:52pm From-CITY MANAGER
Supervisor positions. The resulta fror~ staffing and increased leadership
presence have ensured that service levels am met and maintained.
Training
· All new Customer Service RepreSentatives me..,eive ~ weeks of
classroom training ==up[ed with training on service calls with technicians,
New Customer Servi~ Representatives receive on the jot) training,
coaohing and testing prior to takil"lg "live= calls from customers
· Cult=mar Sen/ica Representatives 'shadow" field technicians in the call
=enter and the field as part of their training processes,
· A best in class quality monitoring process has been rolred out to all
employees in our conta~ canters called "Blueprint for Quality', This
program is a comprehensive service initiative developed with input directly
from our customers. All CaRs are monitored a minimum of eight times
per month and provided with coaching and feedback for improvement.
This program is focused on developing a strong service competency in our
¢e~ers,
Business Practices
· The service outage team has been expanded to provide for 24 hour seven
days a week cult=mar support. This team, lo=at=ct ir~ our call center is
direly linked with our network and construction departments to respond
to customer inquiries and concerns regarding service interruptions and
outages. New technology has been added to Improve response times.
· New IVR features have been added to our service offering. These
features give the ~stomm'the option to manage their own transactions.
These features include: appointment confirmation, pay by credit =ard,
determine if an out. ge Is o~..e, urring in their area, request information
regarding channel line up cards, m-authorize their digital converter box
and inquire about account balance,
· We are eontinuing to develop =ur IVR features and will be enhan=ing our
options in the next several mcmths to include multi language capability.
~ · AT&T Broadband has launched =.care for our High Speed Data and '
Telephone customers and plans to expand that to Video in June 2002,
Through our =.care option, oustomers ~an "c..,hat" with a live representative
and re~olve service issues, billing issues, inquire about additional services
and features or request i~ormatiorl.
MRY-84-8008 08: 48PM TEL)9853735061 ID)DUBLIN CITY MGR OFFC PRGE:006 R=100~