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HomeMy WebLinkAbout1985-10-03 City Council Summary Minutes• ITEM CITY council M1NUT€s Special Meeting October ",.1985 Item #1, Selection of a Cable Franchisee ADJOURNMENT: 11:55 p.m. CITY o� PAM(0 ALTO PAGE 6 3 8 7 6. 4 1 1 Special Meeting Thursday, October 3, 198, The City Council of the City of Palo Alto met on this date in the Council Chambers, 250 Hamilton Avenue at 7:30 p.m. PRESENT: Bechtel, Cobb, Fletcher, Klein, Levy, Renzel, Sutorius, Woolley ABSENT: Witherspoon SELECTION OF A CABLE COMMUNICATIONS FRANCHISEE (PRE 7-3) (CMR 517!5) Mayor Levy said that this evening Council lc d _ i y the Council � nviA It. discuss ati.iia� two categories of comparison: 1) Local Commitment; and 2) Services and Rates. He indicated the material that ordinarily would be covered by services and rates was no longer a subject of discussion because of the Congressional legislation which passed last fall. After the discussions were concluded, the matter would return to the Council for an overall discussion and final decision. Deputy City Manager Larry Moore said, under the provisions of the Cable Act, the staff negotiated for channel capacity, facilities and equipment, public, educational and governmental access. As the Cable Act significantly changed the cable television industry it would probably be helpful if Mr. Sinel, of Arnold and Porter, pointed out the relevant _actions of the Act as a framework for discussion. Norman Sinel, Arnold and Porter, said as you know when the Council started the process tnere was no Cable Act. One of the key purposes of the Act was to ensure the widest possible diversity of information, sources and services to the public. To accomplish that, the Act had two sections in it. One dealt with commercial or leased channels and the other dealt with a scheme for public, educational and governmental acce^s. Under the structure of the Act, Section 611 covered access and allowed the City to establish in its RFP, a requirement for channel capacity. It allowed the City to enforce requirements and a franchise dealing with facilities, equipment and services. Under Section 622 of the Act which was the franchise section, it grandfathered support funds for an organization in contracts which existed before December 1984. With resepect to a new franchise, under the franchise provision, it allowed that evaluation, the access channels and equipment not be offset against the franchise fee but it did not allow any support payments to an access organization to be made on top of franchise fee. The issue was whether or not the support payments were imposed by the franchising authority or governmental entity, either in the franchising unit or imposed by virture of the nature of the profits. The City had the right with its City funds or with franchise fee funds, to allocate them in whatever way the City processes determined which could include payments. At the same `time, the City had the responsibility to choose an operator which would best serve the public. Therefore, it was inapporpriate for the City to understand the applicant's commitments to the public which commitments might Include support, nor was it inaeneopriate for the City to assume that any statements made here in the public by an applicant were backed up by agreements which were binding. It was not appropriate for the City under the Cable Act to rose fees, grants or contribute dollars from the cable operator to an access organization. The franchise agreement was consistent with the public educational governmental access sections of the Cable Act which provided for channel capacity and facilities in the body of agreement and in the appendices.. Mr. Moore said the francrise agreement in Appendices E and F set forth the PEG requirements under the terms of the franchise. Section 4.2 of the franchise agreement spoke to the government channels. A minimum of two channels would be provided plus access to upstream capacity. The number of governmental channels could be increased to three under certain conditions.. Section 4.3 of the franchise agreement addressed the access channels. A minimum of three channels would be provided plus access to upstream capacity. The number of access channels could be increased to five under certain conditions, those access channels would be administered by the Community Access Organization (CAO) under rules which theCity could review. Appendix F addressed the 6387 10/3/85 institutional ca.;ie; A bandwidth was provided on the A cable and a bandwidth was provided_on the 8 cable on ite activation. Appendix E addressed the CAO and its purposes. Included among the CAO purposes was the responsibility to guarantee open undiscriminatory access to_ the _system and the ar_rnce channel for programming by the public which was subject only im reasoeable time .-place and manner restrictions and to protect the public interest in the development of public services and programming. The company in colaboration with the CAO was required to adopt a plan to be submitted for approval by the City Manager within one year following the effective date of this agreement. That plan should specify the facilities, equipment, staff and training the company would provide for the benefit of the CAO end the City. Section A -I on the view graph described what each company had included in Appendix E as the minimum contribution to the CAO. In addition to the PEG access, the franchise agreement contained provisions for leased access channels as required by the Act. Informationally; a recent court decision overturned the FCC -must carry rules haviii9 the impact of increasing by threet the number of leased access channels. Categories B, C and D of the view graph addressed the issues of regional and community programming plans, plans for nontraditional services suited to the community provisions for the participation of the community members in the governance uses and or development of the system. The three categories, 8, C and E. should be viewed as a reflection of the companies intent to explore buewiess and institutional uses of the system. The categories were not requirements of the franchise agreement. Vice Mayor Cobb referred to the letter from the City Cable Partners which was at Council places that addressed the CAO. It was ,signed -by the City Cable Partners and not by the CAO. He asked if City Cable Partners were to be awarded the franchise and later back away from the agreement, would that impact the award itself. Mr. Moore said no. The award itself would be governed by the requirements of the franchise agreement. If in the document the minimums were indicated in Appendix E and if the franchisee were to walk away from those minimums, they would be in violation ofthe agreement and the City would have an enforceable right against the company. To the extent it was more the minimums, there would be an arrangement beteegin the company and the CAO to which the City mould not he a party, and to which the franchise agreement would not be conditioned. Councilmember Sutorius wanted to understand when they talked about the drops, in one instance there would be discussion and commentary about the dollar amounts associated with the applicant proposal. In the materials, the case where five hundred drops and converters were expressed, there was reference to the value not including the universal service, i.e. approximately $75,000 and, in another piece of the material there was the reference of $54,000. There was the potential to misunderstand what a drop was and the potential to misunderstand what the method of allocating or assigning the drops would be. Whether they were talking about sites or whether they were talking about the potential for multiple drops at a single site. Mr. Moore said that in order to minimize confusion, the Council should consider the comparative dollar amounts relative to drops and converters, the Co -Op was committed to $75,000 and the City Cable Partners would provide approximately $50,000. He agreed with Councilmember Sutorius that in some of the information, not only from staff, but there might have been some confusion between the term drops and sites. It was important to note there might be multiple drops at e single site. Councilm ber. Renzel asked with respect to those matters which Council could request under the franchise agreement, what was the enforcement mechanism following the award of the franchise if obligations were not met. Mr. Sinel said that with respect to the obligations that were set forth in the agreement, if the obligations were not met and they were material obligations, the franchisee would be in material breach of the agreement. There was a fairly sophisticated set of provisions in °section 17 of the agreement ,which dealt with the City's options for .terminating or otherwise imposing essentially contractural remedies against the company. Councilmember Renzel asked for clarification of the downstream channel capacity that was beinn provided by each of. the ;applicants. 6388 10/3/85 Mr. Sinel said they would start with the minimums in the agreement. The minimums in the agreement are two channels for governmental access that could increase - to three after the fifth year and three channels for educational and ph {r arwswn }kit could incruze u LAS h fifth - voxr_ under er fain circumstances. The agreement for the minimums with respect to additional channels or the use of additional channels, given the regulatory environment, the company might well be free to decide how to program its charnels. The City would not be involved in the chores, so the company at that point could determine to allocate ten channels for a number of services. The companies could make any changes they wanted and that was the history of the background. They concluded two plus one and three :plus five were the right amount for the City to in fact mandate those sums. Walter Hewlett, City Cable Partners, said he wanted to talk about the commitment from all of those involved in City Cable Partners; the investors, beard members and advisors, to make sure the cable system they proposed would serve the community well. City Cable Partners was fortunate to be associated with a broad based group of people whu were recognized for their personal and professional accomplishments in the community. Their roots and history that year were indicative of their personal community commitment and their dedication to improving the quality of life. The primary commitment of the City Cable Part';ers specifically addressed the issue of educational programming and community access. City. Cable Partners was eager and committed to work with the CAO. For an undertaking of the magnitude they were talking about, $1.25 million in the first five years. It was important that a process be established to permit the subscribers to review the performance of that organization. The subscriber review process would help to ensure the CAO was addressed and met community programming needs. Another main concern of City Cable Partners was the question of educational use of cable. The community had a long and distinguished tradition of having the finest school systems. He was disturbed when he learned the CAO plans seemed to put a low priority on educational programming. He had met with prominent educators including Tom Clements, President of Foothill College and Julian Crocker, Superintendent of of Palo Alto Unified School District (PAUSD) to address the question of educational programming. In response to the needs expressed by those educators, City Cable Partners had suggested a special committee be formed to represent the school interests in educational uses of cable - - the School College Cable ,Resource Use Committee. City Cable Partners committed $100,000 to turn on tee -miles of the B cable with upstream and downstream. $50,000 in studio equipment, $50,000 for a microwave link to Foothill College, $10,000 for a survey of the plant design, and $5,000 additional dollars for additional drop over and above the $50,000 itself. City Cable Partners believed education must be a full partner in the cable system. No ma5.ter who won, he sincerely hoped a strong and productive relationship between the cable operator and the educational community would develop. Lisa Van Dusen said the . commitment of Cable Co-op to the community was really not in question and she would not take this time to address that, nor, was the basic structure as it provided for subscriber input and/or subscriber evaluation of services in question. She would discuss a Cable Co-op commitment to community programming and to advanced services. Many people including some Councilmembers had expressed concern that community programming would either go too far or not far enough. In the first instance, a company could end up spending toe much money on public access which did net carry its own financial weight or provide useful service for the majority of subscribers. It was usually the first service to go when a cable company encountered hard times. A well structured business plan could prevent that from happening. On the other hand, public access could provide_.a meaningful service for the community as well as revenues for the system_. The question was, "Where was the balance?" Three elements were necessary for thebalance to occur; 1) the people who wanted to watch it; 2) the people who wanted to produce what the viewersi wanted to'.watch, and ` 3) sufficient resources to make the twain meet. Cable Co-op was committed t6 all three without compromising the financial integrity of the system. They had provided positive incentives not negative incentives or roadblocks. Like any other product development, it took a certain up front investment; the right team of people, a business plan and a market. Cable Co-op had done the market research and was working with the CAO. She indicated the Wednesday group comprised of individual S' from the Council, City Cable Partners, Viacom and Cable -Co-op, all participated it* the 6389 10/3/85 redefinition of public access calling it, community programming. Cable Co-op regarded its relationship with regional cable systems including Mt. View, institutions and businesses within the service area as critical for the success of the plan. Accordingly, they had clear understandings with Stanford University, Foothill College, the schools, and medical community. They had an agreement with the Community Access Organization. Cable Co-op had structured marketplace input into the development of advanced services. They had done that through the Advanced Services ©e'elopment Committee which had representation from the CAO, from the City, as well as from the subscribers. They would establish the Cable Research Foundation which would provide for research and development efforts on a collaborative basis with many of the businesses and institutions in the area. The seed capital fund would provide for financial springboard for start-up services. Success in the business was not a measure of how much money was put into it, but rather how well they targeted the market and whether or not there were customers. Pacific Bell had certainly taken that approach in building their plan. Cable Co-op believed in the marketplace as an arbitrator of new product development and in subscriber based ownership structure to act as a barometer of what products and what services were worth providing. Money had to be spent to make money and commitments had to be ongoing. Cable Co-op had done all three. The City of Palo Alto had nothing to lose and a great deal to gain by awarding the franchise to Cable Co-op. Cable Co-op had positive incentives to make a successful, useful communications system. At the same time, they had structured the financial and their commitments to community programming to track the financial success of the system. She urged the City Council to award the franchise to Cable Co-op if they wanted vibrant and strong community programming and `,,clear commitment to develop the services and to build up slowly and responsibly throughout the term of the franchise. Hayor Levy returned the matter to the City Council for questions of either the applicants, the CAO or of the staff. Councilmember Klein said he wanted to follow up on Coilncilmember Renzel's questions with regaru to the City Cable Partner's letter. He asked what the changes were in the document. Michel Guite, City Cable Partners, said the document moved the four year date to the five year date. In other words, it provided the CAO with five full yearn, of operating with full funding prior to the date of the review. It meant a total of $1.2U million would be provided to the CAO rather than the $950,000. The numbers listed on page one of the document were the sameas before. The only difference was five years rather than four years. The other change was City Cable Partners had been asked by the CAO to provide them with tro further channels downstream and one further channel upstream in addition to those provided in the appendices to the franchise agreement. In discussions with the CAO, City Cable Partners requested instead of the allocation of additional channels being a flat` statement, it be contingent upon their using a , channel they initially had in the' existing appendices of the franchise agreement for 75 percent of prime evening viewing hours. Before the.CAO would move on to the fourth channel they would be making 75 percent use of the channels 1, 2, and 3. City Cable Partners developed, in cooperation with the CAO, a sliding scale support mechaniltm wherein at 100 percent support on the part of subscribers in the survey, they would receive approximately $400,000. Upon zero support, they would receive zero dollars with differing amounts in between. At the CAO's request, City Cable Partners modified that so the target CAO would seek to achieve was a 33 percent subscriber acceptance level. Fran a random survey of all subscribers using statistically relevant sample, one-third of those subscribers would have to answer the survey in the affirmative. Co4ncilmember Klein confirmed with City Cable Partners that it would not cost them any more money unless CAO was successful. Mr. Guite said that was correct. Additional support would be available if 33 percent of the subscribers favored the ,CAO. If the subscribers support Percentage was below 33 percent then a minimum guarantee of $100,000 per year wou l d be : in order. There was another change ' i n the document.. City Cable Partners previously discussed replacing -equipment in year ten with;$470,000 in new facilities. At the request of CAO ambers they guaranteed to put in $100,000 in new equipment in year one, another $150,000 in ,replacement 6390 10/3/85 equip Tent. lei year nine, $150,000 in replacement equipment in year ten and, then, a further $2b0,000 in replacement equipment in year eleven, subject to a subscriber survey that would at that time indicate that at least 33 percent funding. was -that i unld ng. i sic Lif i al rlibc was I hai< have decided on continuing funding at the request of CAO, City Cable and said that half of that was of all of that was approximately 15 years. That reflected all of subscribers were in--support-of fur Lees CAD in the earlier model, the subscribers would of the $470,000 in new facilities. However, Partners had essentially cut that in half guaranteed no matter What. The net effect $2.1 million was guaranteed to .the-CAO over the financial changes. Councilmemer Klein questioned City Cable Partners previous concern about making too much of a commitment to the CAO. He was intrigued by the philosophy reflected in the letter which was a departure from where they were. Mr. Guite said he did not believe it was a departure. Their objective wan not to limit the commitments to the CAO, but to require the CA) to perform at the highest possible level by having to answer to the ultimate subscriber. City Cable Partners felt that would happen and that the higher levels were probably achievable. Nonetheless, City Cable Partners also concurred with the argument made by the CAO that some minimum level was really fundamentally necessary on the grounds that the public access really was a necessary component of their public obligation. Councilmember Fletcher asked how did City Cable Partners expect the community support for the CAO to increase if the funding was decreased and subsequently programming would be decreased. Mr. Guite said there were two parts to that question. First, it was felt that five years with $1.25 million financing was a reasonable period to demonstrate the CAD's responsiveness to subscribers. Second, if at anytime the lower than 33 percent level was achieved then the $100,000 impact went into effect, but if a follow up survey after that Occurred a.d if at anytime higher than 33 percent rating was achieved then the funding level would go back up again to the amounts indicated. Councilmember Fletcher was correct, if the CAO results fell below 33 percent then it would be difficult. Councilmember Fletcher said regarding City Cable Partners' opinion about the commitment of the CAO to educational television, did they try to bargain with them to increase their commitment for educational television. Mr. Guite responded, City Cable Partners was concerned and took it on their awn initiative to meet with the educators and to discuss with them what they thought the problem was. The educators had very real needs in the area. There was the closure of a high school and the educators ; elt if they could get television link between the two they might be able to not have to drop some of the important classes. City Cable felt the educators needed to be right up at the front in the same location the CAO was to get those problems addressed. faeorge Stenpaneko, one of the incorporators of slid -Peninsula Access Corporation (MPAC), said City Cable Partners did not attempt to negotiate with them regarding education. In fact the latest proposal was one of a series of seven proposals which they had received in the last eleven days. Prior to that, City Cable Partners did not wish to negotiate with them on any of the matters. City Manager Ni11i o Zaner wanted to remind Council of two points since they were talking about the educational community. 1) The service area went beyond Palo Alto Unified School District. There was a large educational community involved. That gas one of the reasons why the Council, in its charter, gave the responsibility for public and educational access to the CAO so they would coordinate the activities. It appered from the proposal that perhaps that Coordination would not occur. There would be a separate educational group no longer connected with the.. CAO. The second point related to the item Councilmember Fletcher raised about strengthening the CAD's ability to function in the comity. There was no question the educational services was a major component of access. They all recognize it would be a very heavy user to the degree that when they separated tile educational services from the CAO, they could weaken the CAO because it no longer had that community component 6 3 9 1 10/3/85 working on its behalf. As he understood the proposal, in the fifth year, when a survey was taken, the support for the CAO would be less because the educational component had been :separated from it and had its alligence elsewhere. Councilmember Fletcher referred to Cable Co-op and said there had been some doubt as to Cable Co-op's ability to sustain the high commitment to community programming and their substantial coMmitment to the CAD's. She asked how could the Council be assured that if the commitment to CAO was kept and that it would not bankrupt the whole system. Mr. Kelley referred to an illustration and said it showed CAO commitments starting with $19,000 $185,000 - $217,000 $239,000, etc., that line represented the financial ,commitment that Cable Co-op had made to the CAO. There were two aspects of the agreement and their total financial package which was based upon the ability to meet those commitments while sustaining the overall economic viability of the system. The first was a clause that Cable Co-op negotiated with the CAO that stated very plainly, in the event there was a. reduction in the total operating me'gins of the cable Co-op, that their commitments to the CAO would be proportionally reduced. CAO was not only very understanding but very sensible in agreeing to such a provision and certainly you would not want to have the access commitment itself bankrupt the system. What the CAO thought was very important, access should not be the first to be cut, but that if cuts were made they should be proporationate to the overall loss of reven"es. The second point was the fact they had a separate line which was repressed in the agreement and, not explicit in the performance, except in the chart, which was for local origination funding. The funding would be supplemental to their commitments to the CAO. The bottom line of the illustrations the LO funds line was the line from which, if necessary, Cable Co-op could make additional deductions from the operating expenses to ensure the economic integrity of the system while maintaieing the commitment to the CAO. There were some other aspects of the charge which related to the total ability to defer certain expenses and to avoid certain expenses. Councilmember Fletcher said Cable Co-op had been charged with giving may the store. She wanted to know if from the figures the Council received, what the bargaining situation had been. Mr. Kelley said if you look at the numbers, what Cable Co-op did in bargaining with the CAO was to take the funds that were reserved for local origination programming which would be controlled by the Co-op during the first five years and shift that funding entirely to the CAO. It was important that if they were going to have a vibrant access function to see to it that it had sufficient funding in the intitial years to carry out its duties. Cable Co-op shifted approximately $30,000 a year from what was proposed in the draft franchise agreement from the LO funds to the access funds so the total financial commitment to community programming did not change. What did change was the allocation between funds that 'mild be directly controlled by the Cable Co-op and funds that would be controlled by the CAO. Councilmember Fletcher asked when a program was being aired who retained ownership of the program. Mr. L i sha said it depended on who the producer was _ and in terms of a comaun i ty producer, the copyright rests with the producer of that particular program. Councilmember Renzel said as a follow up to Councilmember Klein, if at five years, City Cable Partners begin to survey and, if for instance the satisfaction level was 85 percent the first year and so their ` 1 , percent times your $5,000 or $75,000 was it taken off of the amount they provided in their contract, i.e., did City Cable Partners expect to use those funds in some other form under their own control for community access. Mr. Guite said if there was an 85 percent rate there would be jubilation on the part .of al! of them but that would not affect the funding commitments to the CAO. They needed only achieve 31 percent to achieve 100 percent of all funding commitments to them for any - one year. Under no event would CAO receive any less .than $100,000 and 33 percent was the level below which trley. would receive only $100,000. 6392 10/3/85 Councilmember Renzel said the contract was signed by City Cable Partners hut it was not yet signed by the CAO. She asked if City Cable Partners was awarded the franchise, at what ooint would the contract be finalized. Mr. Guite said Mr. Lisha could answer that. It was binding on City Cable Partner's side and sunject to CAO's signing it, it would be binding on both parties. Councilmember Renzel said if in fact the satisfaction level of the survey came But at :3 percent or less, and the payments were $100,000, would it be your intent to use the remaining funds to develop their own community access system. a Mr. Guite said the whole separation of moving video pictures from information services in years would become increasingly blurred. They had a very strong commitment to use any available funds for the development of both information services and commuri b y programming ire the traditional sense services. So, if there were available funds from that category of spending then they would use it for development of their R&D for information and entertainment services. Councilmember Renzel confirmed that at 33 percent or more of subscriber satisfaction, the full amount listed on page 1 of the City Cable Partners' letter was provided. Below 33 percent, $100,000 was provided. The Council received a letter dated September 24, 1985 from Thomas Clements, President, Foothill College, regarding the educational portion of the community access. Included in the letter was a statement that it was a strong hope that those parts of the agreemcnts which were legally possible be incorporated in the final contract. She asked ifathere were any aspects of those features of the educational programming which could be included in the franchise agreement itself over and above what had already been included. Mr. Zaner said the facilities that were included in the contract which were for use by the CAO and the City include those facilities. They were minimums set forth in the contract including the facilities designated for education._ Those educational resources were to be coordinated by the CAO. They had been designated by the Council in the original charger, to work with the educational community throughout the service area and allocate those resources. There were no other arrangements in the contract. Councilmember Renzel said in the City Cable Partners' original discussion, they were quite emphatic that five years was enough time for a strong independent community access organization. As I recall it was one that you wished to create and she wanted to hear what brought about the new proposal. Mr. Guite said he did not understand the question. He asked if Councilmember Renzel understood. Did you understand that City Cable Partners' intent was to create their own community programming outside of the CAO. Councilmember Renzel said she understood City Cable Partners wanted to have a different CAO created at five years out. It was not specified who would create it but obviously it would be beyond the Council's preview at that point. Mr. Quite said he appreciated whence the misunderstandivig Occurred. They started with the general objective of ensuring responsiveness btween any local programming entity and the subscriber. In their opinion that responsiveness could be achieved in many ways. Their sole objective was to find a way that was fair and that benefited the community. City Cable Partner) initially talked wi:n' CAO members about, a subscriber ,urva . CAO had hesitation about being responsive in exactly that way. City Cable Partnaa s came back with a proposal of a consumer committee that would help to allocate the funds based on the subscriber survey. CAO was not in favor of the committee but they liked the survey. They looked at a sliding scale and in discussion With CAO came the proposed conclusion as' stated in the letter. The letter a so said they were herein bound by the offer made but City Cable Partners was willing in good faith to discuss with -the CAO, the City of Palo Alto, and other interested entities, other ways of achieving that feedback from;substribers. Councilmember Renzel asked Cable Co-op if there were any contingencies aside from the revenue picture where there would be a pro rata reduction in service limitations for community access. L'3 9 3 10/3/85 Mr. Kelley said there were two other limitations as such. the first was a positive incentive. Cable Co-op said in their commitment to the CAO, in the event that Cable Co-op exceeded their r€►venue projections, they had committed five percent of the net available profit to the CAO. That might be regarded more as an expansion rather than a limitation of the province of the CAO. Second, the City Manager on behalf of the Joint Powers Agreement (JPA) had the ultimate responsibility for seeing that the CAO carrieJ out its duties. That responsibility was expressed in two ways. First of all, the City on behalf of the JPA would appoint many of the members of the CAO. Through the appointment process with other civic boards, Council would have the opportunity to ;.iew the performance of certain members, of the CAO and help ensure that the communities sensitivities were expressed by the constitution of the CAO. The ultimate power of the City was to withhold the grant of the facilities and the equipment funding to the CAO if the CAO did not perform its obligation. Cable Co-op was quite satisfied that it was not necessary to have an additional check upon the CAO. City Cable was prepared to entrust the City, through the City Manager, with the responsibility for determining ultimately whether the CAO was doing what 't was supposed to be doing. Utilimately if they were to have an independent access oeganization, the City was in the best position to guarantee its i'dependence, Mr. Sinel said the City had to create programming. The City had the power to designation and redesignate a CAO. That worked. To make sure that occurred, the with respect to the way they were going to an independent body to run access designate the CAO to take away the was essentially ensured that access City reviewed the rules of the CAO run open access. Cc`uncilmrember Renzel askedeif the survey would be created by a mutually agreed upon third party. Mr. Guite responded yes. He alio said the purpose of going to a mutually acceptable third `party was to find an entity whose job it would be to carry out those questions and execute them. The exact nature of the aesign was hard to predict. However, he felt the gocl faith objective of the CAO and City Cable Partners would be to ensure it was done in a fair way. Furthermore, a questionaire was a common part of cable operations and presumably there would be some set of CAO questions amongst a larger set of questions that would approach the whole issue of how programming in general could be made more responsive - - What did subscribers like and did not like about cable altogether - - What did they like and not like about their customer service - - How the CAO could improve its performance. The objective was not in the CAO's mind or in City Cable Partners' mind to cut the CAO back via the survey or any other means. The objective was to help the CAO become responsive to the comity by producing programming the community wanted, The objective was to make programming which was aimed at highly specialized narrow segments that was really meaningful to a large proportion of the citizens. To make that outreach program really work meant there had to be a means of being really responsive. Los Altos and Boston both required it. Cities across the country were trying to require it and he believed Palo Alto should too. Councilmember Woolley asked Mr. Lisha to address changes in the comparison between Cable Co-op and City Cable Partners. Mr. Lisha said the chart compared the terms addressed in the agreement made with the Cable Co-op and under the City Cable Partners they,•-: had three downstream channelt and one upstream. In the letter the Couo it received, basically the only item that changed was the fact that City Partners would provide two additional channels provided there was 75 percent of ' prime time use inthethree channels that were already allocated to the CAO. Couecilmember Woolley referred to the attached proposal and asked if there was a guaranteed Channel 6 if the studio costs would remain the same. Mr. Guite said the equipment would remain the same. The control would be in the hands of Amfac. The operating capital was stated in the first page of the letter. Basically, in the first part of the five years, there was a firm commitment of $1,215,000 to the CAO. The rest of the monies as outlined, would be based on the survey. However, there was a guaranteed $100,000 funding for the remaining years from six to fifteen, regardless of what the results of the survey was. The equiprent replacement fund was a guaranteed 6394 10/3/85 $250,000 and the rest of the $230,000 would be allocated dependent on a 33 percent result of the subscriber survey being favorable. The numbers for the institutional drops and converters were the same. Councilmember Woolley asked if City Cable Partners,,would clarify whether a studio was provided. Lynn Simpson, City Cable Partners, responded the $350,000 was provided to the CAO to be used as they saw fit. City Cable Partners' assumption was that the CAO would be provided with a location perhaps at a Foothill location or a City location and City Cable Partners would provide $350,000. The (350,000 allowed for building improvements to accommodate a studio. Councilmember Woolley asked Cable Co-op if the $600,000 they had allocated was for a studio and space. Mr. Kelley said what Cable Co-op had 3100 square feet in studio space and the A studio, the B studio, editing and some other miscellaneous storage guaranteed with the CAO was approximately an equivalent dollar amount that included suites, storage space, engineering space space. Councilmember Woolley noted during the Council's working sessions. there were questions about sharing facilities between access users and the CAO and whether that actually worked. As she understood it, it would be a shared facility at least after five years and that could present problems such as equipment being shared. Mr. Kelley said Cable Co-op proposed building a studio in the Palo Alto area. The studio would be used not only by the CAO and the Co-op, but also by the City. There would be two equipped studios, the A studio and the B studio, and portable equipment. The use of the studio would be controlled by the CAO under terms that sti 1 l needed to be worked out between the CAO, the City and Cable Cceep. Cable Co-op committed to draw up a plan that dealt with the issues. One of the essential elements of the plan was to ensure some accountability by the CAO both to the City and to Cable Co-op, The agreement between CAble Co-op and the C,0 specified that CAO had to account for the monies used for purchasing equipment, for maintaining equipment, etc. Perhaps the most important issue that still needed to be resolved was how cable Co-op would coordinate 'he use of the studio at given times. It, was their opinion, and, the opinion of the CAO, that first of all there might be a difference in the times of day that people would want to do different kinds of programming. The schools, for instance, were very interested in using the studio facilities during the normal working hours. Access users might want to also use the facilities during working hours, but they could very well want to have access to the studios after normal working hours and on weekends. He felt in working with the City and the CAO, Cable Co-op would be able to deal with that issue very effectively. council e?mber.Woolley asked that since there was no funding, as I read your projections for the L0 in the first five years, did that mean that was an activity that would start later on. Mr. Kelley: said no. The funding shown reflected a total amount of funding that would be controlled by the CAO. In some sense, what they had given to the school district, was the right to direct certain programming be carried out by the CAO staff for essentially 25 percent of the time. Of that 25 percent, 10 percent was essentially committed to special education usage. The City and the CAO would still have to wrrk out the terms under which the City would join it the specialised use of the studios to support municipal programming. Mr. Zaner said as a follow up that not only were the two .cr;,panies committed to providing that kind of a plan, they were required by the franchise to provide t plan to the City which was subject to the sole approval of the City in regard to the sharing of the facilities. The City was responsible for review of the plan and to assure that the facilities be appropriately shared between the CAO, the City and the otheraccess organizations. Councilmember Woolley asked if the City would review how that was working later down the road. 6395 10/3/85 Mr. Zaner responded it was implicit in the plan. The City would require in the franchise plan submitted, a review process so that the City could review it periodically. The point was the distrihetion of the facilities and the sharing was a very critical issue that was subject to the City's approval. Councilmember Sutorius asked Cable Co-op to address the elements of its communications and commitment to the educational arena - - Foothill College and Palo Alto Unified School districts, etc. Mr. Kelley said Cable Co-op offered to reserve 10 percent of the 25 percent of studio time for educational programming to supple.ent what educational programming was undertaken by the CAO. Cable Co-op expected the educational institutions to deal primarily with the CAO and to come to us only if there was an additional need to support particular aspects of educational. programming. Cable Co-op was in support of what Mr. Zaner said previously about the need to maintain a strong unified CAO. In addition to that commitment, Cable Co-op planned to help install additional drops in educational facilities at the marginal cost of installation, so, if a school district wanted to exceed the 500 percent limit or the 500 site drop limit, it would be done at the least possible cost to the educational institution. Cable Co-op committed to establishing an interconnection, a bi-directional interconnection between Foothill College and the head in facility. The head in facility would also permit bi-directional communication between Foothill and the Palo Alto Unified School District. Once the system was operating, they might want to enter into similiar agreements with other educational groups. Cable Co -up had also committed to working with Foothill in the development of advanced cable services, such as electronic mail. Foothill had a very fine computer system and Cable Co-op felt it was possible to expand the computer system and thereby allow their computing facility to be used for certain demonstration projects. There were other aspects of the agreement that had been reached or offers to both Foothill and Palo Alto Unified School District. Councilmember Sutorius said the information was useful and helpful and appreciates what Mr. Kelly indicated and emphasized about the supplemental nature of the support and coordination, however, he wanted CAO to respond as to whether there was a difference in degree as opposed to a difference in substance as to how the coordination and communication with the educational field eras occurring. CAO indicated they were not involved in the communication; and coordination anu Mr. Kelley just indicated how they were approaching it. Mr. Stapaneko said their comments were directed at City Cable Partners. City Cable Partners did not talk with the CAO before they talked to the educational institutions. Cable Co-op did. City Cable Partners went to the educational community entirely outside of the scope of the CAO. Councilmember Bechtel asked City Cable Partners about their agreement with the educational leaders. Mr, Hewlett felt there should be a direct relationship established between the cable operator and the educational entity which had really been left or pushed down in the process. City Partners' commitment to the educators was in the outset the dollars that he referred to earlier. It was important the education receive support from cable. It was also very important that a direct relationship be established between the school systems - - Menlo Atherton, PAUSD, Foothill College, San Mateo College District, etc. Councilmember Bechtel asked if it meant City Cable Partners would not work through the CAO on educational issues. Mr. Hewlett said the schools felt in addition to their relationship to the CA0i that a separate relatiOnship with the cable operator be established. The schools asked for it and City Cable Partners egret(' it really ought to be done. Council or Fletcher asked the CAA to comment on their reaction to the new agreement from City Cable Partners. Mr. lisha said that under the circumstances after all the negotiations, itwas the final stage they had reached. CAO obje cted to the survey and this was something in the negotiating process, each .party was willing to give and 6396 10/3/85 take. It was still a sore point and they were in essence trying their be$.t to resolve the issue. Under the circumstances it was the best agreement CAO could come up with with City Cattle Partners. In comparing the offer of City Cable Partners with the agreement CAO had with Cable - - there was no question Cable Co-op was definitely the one CAO felt comfortable with. Mayor Levy referred to the comparison chart attached to CAD's October 2, 1985 memorandum. It seed to me the Cable Co-op agreement was reached and the offer -that City Partners had made was quite similar, except in a couple of areas. The first was the total CAO operating capital grants. The total from Cable Co-op was $4.5 million._ He asked what was the total from Cable Partners. Mr. Guite said it was $4.3 million. Mayor Levy clarified that City Cable Partners waT offering the Mountain View studio and that was why there was no separate studio being offered. Mr. Guite said no. Initially when City Cable Partners met with CAO, they said the City would provide a studio with a studio facility and what was missing was the hardware and electronics to put it in. City Cable Partners appropriated $350,000 to provide the electronics and other building improvements within the structure that might be required or requested. Mayor Levy said the in -kind assistance, i.e., mailing privilege, billing check -off would be provided. Mr. Lisha said eyes. The City Cable Partners' October 1, 1985 letter did not specifically state anything so they were taloiing about proposals with no commitments. The proposal showed the terms of the in -kind assistance which were listed in the figures. Mayor Levy asked if that was City Cable Partners i'nderstanding. Mr. Quite said oot exactly, but perhaps with a small amount of discussion it would be clarified. he said the mailing privileges meant the right of CAO to risert items into the monthly bill that were sent out to subscribers. City Cable Partners agreed to insert items in the monthly bills but CAO must pay any costs associated with it. City Cable Partners would also provide the pronram listings. It was virtually impossible anywhere in the country to get local programming built into the national programming. Mayor Levy asked both of the aiplicants to explain their other community commitments, including local origination and commitments to the educational community. Mr. Kelley noted the commitments expressed the letter dated September 23, 1985 were in addition to those of the CAO. What Cable Co-op tried to do was to indicate where commitments made to the CAO would probably meet the needs of the educational institutions. Ms. Van Dusen added that a lot of aspects of their structure provided for input and inclusion in the deployment of resources above and beyond the CAO commitment - - the Resources Development Committee was one example. In addition, there was a Board of Directors on which educational and other ,members of the community could participate. Mr. Kelley said perhaps the most important thing that was, expre!o d in the additional commitments was that at least from the point of view of the school district, the additional channel capacity. The school district was particularity concerned about .who would, be providing for both additional downstream and upstream capacity either on a leased basis for a nominal fee ($1.00 per year) or at no cost. Mayor Levy referred to the chart that illustrated local origination (LO) funding. He assumed that would be added to the CAO commitment and that Cable Co-op would handle it. He asked if those funds. would go to the community for some kind of community programming and, therefrsre, if they were going to talk about what the community got, should they add those factors to . Cable Co-op's commitment to the CAO. 6 3 9'7 10/3/85 Mr Kelley answered no. The LO funds as set forth in the franchi a agreement was basically for informational purposes only. In the event Cable Co-op did not. meet their financial target they would cut the money for the Co-op boar operations and if necessary, cut the money for LO origination first. The LO money was not a binding commitment that was made under the franchise agreement. What Cable Co-op indicated in the performances was if they met their financial projections they would provide an additional level of community programming. Mayor Levy asked how many channels does Cable Co-op propose to give to the educational community. Mr. Kelley referred to the September 23, 1985 letter and quoted: "Should there not be sufficient downstream channel capacity to meet demonstrated needs of educational institutions through the GAO, Cable Co-op will either provide one or more additional downstream channels for the use of educational institutions at no cost or at least such additional channels for a nominal charge (1.00) per year, these channels would be on the A cable. The channel numbers of these channels and other details- require additional upstream capacity) If these channels prove to be insufficient to meet the demonstrated needs, of educational institutions we will make at least two additional upstream channels on the B cable available at no cost for a nominal lease fee." Mayor Levy said City Cable Partners had apparently agreed with the educational community to make some commitments in their direr 'en and he asked City Cable Partners to elaborate on their commitment. Mr. Suite responded that a total of $265,000 was in a binding commitment. Cee of the components was ten miles of fully activated cable to be linked in a location that educators require to meet educational needs. The second component was $50,000 for studios. The third component was $50,000 for microwave, $25,000 for additional drops, approximately $10,000 for the third party consultant studies to examine the engineerins plan to ensure the location of each of the cables fit the long term plans for educational resources developing on the mid -peninsula. He corrected the total ;amount of CAO funding from $4.3 to $4.39 million. Mayor Levy said Councilmember Sutorius commitment and they came to $235,000 - $50K for the studio, $50K for microwave for additional drops. added up the figures for educational - $100K for turn up of the B cable, ,to Foothill, $101( for survey and $25K Mr. Quite said the B cable would 'be a two-way with 17 channels in one direction and approximately 25 channels in the other. The cost would be absorbed fully by City Cable Partners. Vice Mayor Cobb wanted to clarify if the CAO was not performing satisfactorily, then it would return to the Council for resolution. Mr. Zaner responded that if the CAO did not perform in accordance with the Countil's expectations, the ultimate authority rests with the Council to decertify them and to appoint another GAO. Vice Mayor Cob' said it was fairly clear from CAO's response that they were` not totally thrilled with City Cable Partners' letter in terms of the offer and the ` performance measure. A lot of very positive sounding comments had been made with respect to the educational community and he asked for a response as to whether or not the' proposition that had been set forth : by City Cable Partners with respect to serving the educational community was one that met with favor from the educators. George Beers, Foothill College, said he wasalso representing PAUSO. They did work together with both of the bidders and were pleased with what xis able,to be included in the doc ents. Mr' Zaner asked for clarification with regard to the question that was directed to City Cable Partners. The questioi was whether or not they would provide a studio to be used by the CAO. He thought the response was that the City was going to provide the studio. In the pro four provided by City Cable Partners, there was a sum of money for buildings, building improvem=ents and he assumed it was_ the'jropriate place for funds to provide the studio. 5398 10/3/85 Mr. Guite said in their pro formal they assumed leased space for a downtown store on University Avenue to provide space for a studio. City Cable Partners was informed of the initial philisophical. stance of the CAO. Their objective was to be genuinely independent which would allow the ability to negotiate with the City, for the City to contribute part of the fran' hice _fees for the ongoing support., for the City to contribute perhaps a housing for their studio and, for them to be a vigorous participant in their development. It was their belief that CAO seek full independence from the cable operator or at least full independence from City Cable Partners. Mr. Zaner concluded there was no studio provided. There was sq `are footage but that was a shell space. • Mayor Levy clarified the Cable Co-op proposal called for $600,000 and which would provide a studio of 3,100 square feet. The City Cable Partners' proposal at thi! point did not provide a studio. It provided for space. Woody Britton, Price Waterhouse, said with regard to the way the numbers were presented, City Cable Partners' $130,000 would be expended in the first two years of their proposal for building improvements. Mr. Guite said that when the numbers were put together, there was a studio facility to be built, but, in their discussions with the CAO, that component was not in fact requested and had not been part of the ongoing discussions. The $130,000 should be allocated to the studio development component. Mayor Levy clarified that there was $130,000 toward the studio costs and a was approximately 6,000 square feet. location and also the studio. a commitment from Cable Partners for commitment of the shell of space which It included the cable store, the hub Councilmember Fletcher said Cable City Partners brought up the topic of research and development and indicated they would fund it if it could be realistically self-supporting and generate adequate financial return. She asked how they could possibly determine that. Mr. Guite said City Cable Partners had given years and years of thought to what were the right R&D projects, their data downloading service called Express, the first proposed cable operator in the country to commit to the entity offering the service to make it available here. City Cable Partners was working with Bay Area Teleguide to provide two -gray interactive videc text. City Cable Partners would be the first cable operation in the United States to move two-way video text over a cable system. Thee were working with Zenith Electronics to move them to the place where the whole cable industry. was going, i.e., fewer' electronics in the home, a smarter T.V. set. They were working with Zenith for the imelementation of what was called 'the no converter cable T.V. converter.' Councilmember Fletcher said her question referred to the agreement that indicated all of the R&D programs were designed to be realistically self-supporting and to enhance the quality of service to subscribers. It was perceived as generating adequate financial returns. The company reserved the right to modify its R&D project to ensure that the objectives were met. Kr. suite said the intent was that R&D would move them ahead of the rest of the cable industry which would produce results and revenues.. City Cable Partners identified projects that fulfill that criteria. It was bold, innovative and, would be profitable because of a lot of careful planning_ and thought. Councilmember Fletcher asked if Cable Co-op had any contingency on their commitments on the R&D. Mr. Kelley said Cable Coo -op expressed their: commitments in the franchise a reement ' of approximately $240,000 for the head and eq iippent, excluding --the plant costs. _There was a committient of_$277,000. for .staff during the first couple of years of operation to support' the R&D projects. Cable co-op-- exor•essed a c' Itient of approximately $500,000 - to fund specific projects that would-be determined by the Advanced Services Develop ent Committee. That coaittee would involve four people designated . by Cable Co-op, two parties designated by the City on behalf of the PA and one designated by the CAO. He re 4erated the commitments were expressed in the franchise agreement along with the $400,000 of, ongoing support thi aughout the term of the franchise to support the ASTC plus lie percent of the profits. Councilmember. Klein said if the subscribers were dissatisfied with the CAO, given extreme circumstances, the Council could decertify the CAO and reappoint. He askedwhat would occur if the circumstancer were not extreme ones. What he thought Mr. Kelley referred to was that it would be the C^uncilxs responsibility to do something about the CAO if they just were not performing well enough, i.e., if the enerey was riot there or if they were not operating effeciently enough. It was not a question of philosophy or discriminating against, but a question of inefficient se) vice. He asked - nee that would be handled. Ms. Van Dusen referred to the contract Cable Co-op had with the CAO and preficed her remarks by saying the topic of ,accountability was one which took up significant amounts of time in their discussions. There was one particular clause in the contract which discussed the requirements that the access organization maintain strict accountability in administering the grants and other resources made available to MPAC on behalf of the community by providing quarterly statements, both financial and operating. In addition, she reieforced the earlier remarks that Cable Co-op have positive incentives for things to work. The agreement with the CAO had two parts to it. The first was what Cable Co-op would do and second was what MPAC would do. It outlined clearly CAO and Cable Co-op's responsibilities. The accountability could also take place through the Community Access Board of Directors. Councilmember Klein said that did not really answer the question. He sat on the P&P Committee and knew that quarterly reports did not solve the problem. If for example, the CAO gave a strict accountability of the funds and for instance it showed an expenditure of $1,000 for a piece of equipment, it was felt that the equipment waseorth only $500, what would happen. Mr. Kelley said it was important to recognize that the system they had created was an independent access organization which would not be under the preview of either cable operator. It was the intent of City of Palo Alto and he felt it wa.; a good positive intent. Basically the new federal law slid the City could not tell either cable operator how to program their system. However, the City retained certain rights in the access area. The City had created an independent organization. The Council determined whether the quality of programming on the independent access community pro"ramping channels were of sufficient quality or even the kind of programming they wanted. Mr. Sinel said it was more than likely that the cable operator would bring the problem to the Council. The Council had created an independent CAO and charged them with a basic program responsibility. There were few limitations and one of them was to protect the independence of everyone's opportunity to have access. A decision to undesignate a CAO aed to redesignate a new one in the absence of extremely arbitrary and completely understandable problems of the CAO, would: be a very delicate decision for the Council to make, giventhe nature of programming and the first amendment in their relationship to the entire process. He felt the Connell had to trust the community that it would be done well and that the Council would only in the most rare and abrasive circumstances take action. Mayer Levy called on staff for comment NO. Sinel sib:. he wanted to state for the record that the City Cable Partners, on. their own initiative,. created a, package to support the educational community, separate and distinct from the CAO package to support.- That package included some monetary support for activities _ as opposed to simply facilities. ,t might be important to ask City Cable Partners what the nature of that support would be. In their view that was not something the City had imposed, n ° was it something a government entity ha' imposed on the company. It was a voluntary contribution and it would in no way interfere with the five percent franchise fee limitation. If that was not the fact, then the Council needed to, consider,how to handle the matter. Mr. Hewlettconfirmed that it was a totally voluntary move on City Cable Partners' part and they were very proud of it. 6400 10/3/85 Mr. Kelley said as Cable Co-op outlined in their September 30, 1985 letter with Mr. Beers and Dr. Clements, in addition to the commitments they had made to the City, their contributions were voluntary and would not be counted against the `,,,,,.,.,.L1�� i,... - - - - ----- - - e 1 anch ee fee. Councilmember Renzel said the Council had heard new coemitments to the CAO tonight end as she understood it, the commitments to the CAO do not involve any additional. funds although they did change the level of commitment in the long term. She asked City Cable Partners if the commitment to the educational community affect the rate. charges. Mr. Gua i to said the commitment to educators was fully reflected in the September 29, 1985 financials. The commitment to education was $2:6,000. Recess from 9:45 p.m. to 10:05 p.m. Mayor Levy Said the final item on the- Categories on Comparaison was the Services and Rates which would be followed by clean-up questions. Mr. Moore said the offers from each of the companies were reflected in Categories A & B of the Services and Rates chart. However, under the provisions of the Cable Act, the City's ability to enforce offers with respect to specific services and rates had been virtually eliminated. The City's enforcement power was limited to a showing of continuation, a mixed level and quality of broad categories of programming voluntarily offered by the applicants. Both companies had offered an acceptable level of a mixed level and quality of broad categories of programming and as a result the staff felt it was opt a relevant area for comparison. Moreover, the City could not regulate rates and therefore, it was not necessry to focus on the applicants' suggested initial rates as reflected in the chart. Mayor Levy asked if Mr. Moore was suggesting the whole area of Services and Gates had really been rendered moot by the legislation that was passed last fall at the congressional level. Mr. Moore responded with respect to the City's ability to regulate rates, that was correct Mayor Levy asked what protection did they have against subsequent changes in the Cable Act that could take place from here on out. Mr. Sinel said there was a provision in the franchise agreement that dealt with subsequent Acts whether they be by the courts or by Congress or the State which dealt with the requirement that the City and the companies would renegotiate the agreement as appropriate to the extentthat anybody of higher authority adversely affected the rights and responsibilities under the agreement. Vice Mayor Cobb said the Council was faced with a trade off in toms of understanding rates and in terms of what they could and could not do, but clearly there was an impression of what wasgoing to go to the marketplace. The Council was being asked to choose between someone who offered a more elaborate service at a higher basic rate but assumes lower :penetration to someone who offered a much lower rate but,. much higher penetration. He wanted to know to -what extent did market data support both of .those positions as being equally valid or not. He said the trend had been for c panies toraise their rates to try and make basic cover a. larger portion of the re�'enue. Years ago essentially . the teaser wet to get the households to buy pay services. With the penetration of the VCR his sense was . the industry was in the process of testing and challenging the assumption they had heretofore used in order to market cable. Even between the signing of the agreement and the marketing. of the services, each of the companies would continue to look at experience in other markets and experiment with the best wey-to get their services into the household. It was really a kind of a life and death struggle now between the cable industry and various ' competing sources for entertainment and communications that had not shaken down so as we heard before. $33 a household was on the high end and 43 percent penetration was also on the high end. There were. many communities that charged $12, $14 and $15 for basic service. He recognized each of the two applicants would go to their own biases as to how they felt the market could be used. What they were seeing was twO different approaches to the market. 6401 10/3/85 Vice Mayor Cobb asked Mr, Britton if in his analysis there was a 15 percent cushion on revenues for Cable Co-rp ar.d about a 25 percent cushion on revenues for City Cable Partner% for their structures, and if in his professional judgment, it was a sufficient cuch1on Mr. Britton said the Council should remember that -experimenting with rates was in essence experimenting with the variables to got to the revenue -numbers that he based the 15 percent and 25 percent on. The cushion really did not relate to the individual components that made it up. The cushion related to the total dollar amount. Vice Mayor Cobb asked if Mr. Britton felt the 15 percent was an adequate cushion. Mr. Britton said the factors to consider were l) -there was a new cable market; and 2) Pac Bell and Cable Co-op's bank or National Co-op Bank have both expressed an interest and so they were going above and beyond the call of duty to make cable work. Council was also aware that both operating companies had very experienced operators who had reputations to protect in the industry. He personally thought. 15 percent was probably a managable contingency but 25 percent was obviously a larger one. Councilmember Renzel sa:d Mr. Sinel referred to the fact that there was a lot of packaging and differeet definitions of what was in the basic rate and so forth and she asked with regard to the independent companies what was included in the basic rate. That information would indicate to the degree of comparability of the numbers they were reviewing. I can wait for an answer. Mr. Sinel said in comparing the second tier deluxe for City Cable Partners for $8.50 with a second tier basic of Cable Co-op for $15 - — those were the kind of basic service comparisons. The figures were comparable out, again the operating company could change the list of services. They could change the individual services and the rates. The only thing they had to provide the City and subscribers with was a new schedule. He assumed the figures for the services were an honest reflection of what the company hoped to provide. Cnuncilmem er Sutorius clarified that in the staff material was a summary. In the City Cable Partners' column under monthly charge he understood the fact that the deluxe service was a combination of basic and the deluxe for a total of $10.50. Mayor Levy reminded the Council they did not have control over the rates and their discussion of finances covered the difference in terms of the total dollars that each applicant expected to generate in revenue and the total expenses that each applicant expected to incur. It was really a ;gay of yetting a handle on it. Councilmember Sutorius said he merely wanted to understand the rates. In the event of a line extension situation pre -subscription for a 12 -month period was one way of alleviating line extension charges. if there were 25 subscribers who pre -subscribe for a 12 -month period. So in order to be able to qualify for service under the LE without additional cost, the multipliers that would be involved would be a $25 installation charge and then basic service at $2 per month plus $1 for a converter. Both of those monthly rated figures would be multiplied by 12 so it would be a $25 non -recurring charge, $24 in 12 months worth of basic, $12 in 12 months worth of a converter rental for a total of $61 times 25 subscribers. Councilmember Bechtel said she wanted to make sure the number of eery ce people for Cable Co-op vs. City Cable Partners was about half as many. Mri Britton, responded that Cable Co-op provided and specified the number of service people the }roject would require and its a component of the financial plan. The financial plan which was submitted by City Cable Partners has a nueher for service but it did not specify the number of employees it wou l d require. Mayor Levy asked the applicants to comment and grade each applicant for five minutes. First Cable Co-op. 6402 10/3/85' Mr. Kelley said there had been a cream. 4eal of contraversy about rates. He said the Council needed to look not only at what the rates were but exactly what was being offered as part of the package. He referred to Chart Number 9 and said there were a couple of mistakes in the City Cable's charts, one of which had to do with their rates. He indicated the basic service was shown as $10.95 and it should be $10.50. The number at the bottom of the first line should be $24.6e for the individual subscriber and $21.97 for the average subscriber. He confirmed that City Cable Partners set of pro formes for basic service did not include the franchise fee. What Cable Co-op was offering as part of their basic service was a package that had unusual value and unusual attractiveness to members of the community. It included as a part of the $16 basic, remote control device, the program guide and a device which would allow the subscriber to hook up the VCR to the converter without any additional equipment. The converter included within itself a timer that would allow a subscriber time to tape certain channels while watching others and to conduct it without having to turn on and off the converter. That was the service they intended to offer as their basic package. He did not know what City Cable planned to charge for the VCR connect:on. In City Cable Partners' pro formas, they indicate they were charging $2.50 for remote control and $1.50 for program guide. He said they looked at the weighted average and it came up to $21.97 which included the franchise fee. He reiterated numbers shown on. the chart were off by about fifty cents. He also took into account the difference of the penetration figures. If Cable Co-op assumed City Cable Partners' penetration factors, they could charge $13 for the basic service and $10 for H80 which wou l d hold for the period through 1992. He felt the rates could be reduced further in the later part of the years which was somewhat comparable to City Cable Partners' model in that they shower. holding the pay prices constant at $14 after a certain point. The effects in the models turned out to be fairly reasonable. He said if you looked at the total package and the average weighting that the Council assumed City Cable Partners had they were ;corking with the same penetration figures, about $24 and City Cable Partners was about $21.97. If the Council looked at the bottom of the chart, under the same penetration assumption in 1986 it was $26.07 for Cable Co-op per member b ciuding the equity contribution ano $25.78 for City Cable Partners. The individual subscribers took the additional packages that were included, the remote control device, the program guide, then the comparison would be between the $28 to $26 figure. Cable Cc-op's penetration assumption was about $30 in 1992 vs. about $28.86 for City Cable Partners' package. Lynn simpson, city Cable Partners said, the rates and services category was net important. The important thing wes not the Council's ability to control the categories but the ability of the company to fulfill its obligations as far as service and to hold its rates down. The Council had heard a lot about the importance of responsiveness in the operation of the cable system and the importance of operating the cable system as a sound business. There had been some suggestion that the two concepts were mutually exclusive. The Council had been told that a business existed to maximize its profits often by failing to adequately service its customers,. Common sense told City Cable Partners that nothing could be farther from the truth. The only way they could create a successful and profitable business was to satisfy their customers. The customers' satisfaction depended on the value judgments regard;ng the programming as - well as the prices charged and how well they treated the customers. Several Councilmembers had already expressed their concerns about the difficulty of marketing cable in the area. Cable progremming must be carefully selected and marketed to distinguish it from other entertainment options ; in the market of customers. At all times the cable operator must be sensit#►e to the needs end interest of customers and ready to adapt to ch}nges in the marketplace With rate deregulation, it was important to find a mechanism to control state increases. Of necessity, City cable Partners priced their product based on what the market was willing to accept. City `able; Partners' rates reflected that price sensitivity. The system would be expensive to build with high capital costs per subscriberand high operating costs. Theeir financing ,elan' with -its 40 percent equity translated into lower interest payments whiz.% translated into lower revenue requirements. their calculation means the cost to subscribes would mean are extra $7 a. month. Their relationship with Viacom in mountain View means they did not 'nave to duplicate expensive facilities and they could save_by spending operating costs over'a.larger subscriber base. it enabled them to reduce costs to subscribers by approximately $2.70 per month. The subscribers had a way of telling City Cable Partners their prices were too high. Each subscriber could vote every 640 3_ „10/3/85 • month when they paid their hill and decide whether they wanted to pay for another month. It was called checkbook democracy. One subscriber, one vote. The third element necessary to satisfy subscribers was responsive customer service. John Dolan, General Manager, Mountain View, said he had actual cable T.V. operating experience. In order to provide good customer service it took people. People equipped with the right tools to do the job well. It was meaningless to espout dedication to customer service unless people and facilities were in place. Cable systems providing first rate service require 3-4 employees for every 1,000 customers. for a system the size of the one proposed translated into 55.60 employees. There were systems and companies which provided far fewer staff but almost without exception their level of service left much to be desired. In addition to the appropriate number of highly motivated and well trained employees, there definitely needed to be first rate equipment and facilities in place. For instance, a sophisticated telephone system that could hdadle the traffic in the most efficient way. A system that would let them know how busy the phones were, whether people were wa `ting too long, whether people were abandoning the phones, etc. There also needed t0 be a+ out t i e computer management system. The . system was the foundation upon which their customer service operation was built. It allowed them to keep track of the status of each customer including billing information, programming choices and schedule work orders for installation or repair. The alternative was an antiquated system that simply did not provide the proper efficient response. Those on-line facilities were in place in Mountain View. They were operated by a highly trained local staff and was backed up by very substantial corporate resources in nearby Pleasanton. Mayor Levy opened up questions from the Council to the applicant. Councilmember Fletcher asked each applicant what their plans were for marketing. Mr. Dolan, City Cable Partners said the new build marketing process included an education process to deal with the potential customers. The customer needed to'be educated about what was available. The most effective was the direct sales force approach. There would be supplemental marketing efforts through direct mail and the media. In the first three years of operation, the billing the system was the most critical element and the highest cost element. It also required the greatest number of staff. Cable Co-op, said marketing would be a key to the system. There was absolutely no doubt abut it. They were very confident in their plan to market the Palo Alto system. In fact, the p eo formas submitted by the two companies, showed Cable Co-op proposing nine percent more funds for marketing in the first three years than City Cable Partners. That had not necessarily translated into staff because of differences in structure and the way the two companies would market the system. Cable Co-op were excellent marketers of cable television becausethey did not do it the same uay other companies did. They had a regional marketing staff that was responsible for Palo Alto. That was part of ttw1r agreement with the Cable Cooperative. Additonally, they used staff - - commissioned non -employees, as part of their marketing efforts. They had a very innovative approach to the community. VCR's had become very important and what they were offering was a remote control with the basic service package with a time converter. it wts a very saleable package. They were concerned because of the simple fact as shown in the City Cable Partners' publication, it was not to be en easy sell for the. cable operator because of the large number of broadcast channels available, off air consumers did not need a simple reception service. It would be a tough sale, but they could make their projections for penetration. Councilmember Fletcher asked Viacom if in the event City Cable Partners did not get the franchise and the occasion arose where there was some service or facility or property that Cable Co-op aright want to lease, whether Viacom would be willing to lease it. Ed Bennett, Viacom, responded that they had not considered it. Councilmember Fletcher asked what Viacom's subscriber rates were projected to be in Mountail. View in the franchise agreement and what: they were now. 6404 10/3/85 Mi. Delon said their original franchise agreement celled for $9.95 which would be the full and most expensive basic service which was proposed about five years ago and currently was $12.45. Councilmember -Renzel- noted_ that Vi ' letter to Bruce r Viacom's rc►.�ee to �.�n+cs�, of{!, Mountain View City Manager, of a year ago requested a rate increase. She assumed it was granted and r°ould become eff'stive January 1986. That brought the basic rate to $14.95. Mr. Dolan said the second portion of that rate increase was schedued to go into effect in June 1986 and would bring the full basic rate to $14.95. Councilmember Renzel said in addition, there would be a $2 converter rental. Mr. Dolan said there would not be a $2 converter rental. Councilmember Renzel asked how they perceived the market to be so different to cause a $4 to $5 difference in the basic rate. Mr. Dolan Alto vs. systems. beginning and after said there were a couple o4 ways to look at that. First, given Palo Mountain View, different companies were involved and different From the marketing perspective lower rates generally occurred in the to encourage higher penetration. Their rates were initially $9.95 five years were increased to $12.45. Vice Mayor Cobb referred to the statement to "this kind of community" and asked what that meant. There was an amazing diversity in the service area between Atherton, Palo Alto, East Palo Alto and Stanford. He was curious about the type of service. It seemed that for East Palo Alto, the cost of service would be a very important consideration. In Atherton obviously, it would not be. Mr. Kelley agreed with Vice Mayor Cobb. It was necessary to look at the diversity withie a service area. There were a vew characteristics which hold for both East Palo Alto and for Atherton. This was a very educated community as a whole. There was a loteof competition from other programming sources. Those were two factors that were likely to make it a difficult market in which tc sell the '.find of services. Another factor was statistically, Palo Alto was well below the national norm in terms of the number of hours of television was watched. it was an area they wanted to address in terms of marketing the basic services and the pay services as a total package. It included benefits such as remote control and the VCR connection. Mr. Bennett said the concerns they had at Viacom, since they had marketed urban areas and Simi l iar communities to Palo Alto was that the cOmmunities were up scale. Television as such was rot very desirable. Cable had to be different television. One of the largest, most significant threats to the cable television industry right now was the fact that there was competition.' VCR's had made tremendous in roads to the cable television business. He said that i:e7ha:ps 30-50 percent of the households in Palo Alto had VCR's right now. One of the reasa'ns was because cable had not been available here. It was not available in 1985. Penetration tended to be'highest where cable television was not present. The basic rates for Cable Co-op was $10.00 and -City Cable Partners was $14. The average revenue per subscriber per month and all of the cable systems that were ranged from $18.80 to the highest of $27.20 which was for -Milwaukee. Viacom was optimistic in that their average revenue per subscriber would be $27. ee Coucilmember Renzel asked of the cities that were listed, approximately how many of the communities were now serviced by cable. Mr. Bennett said they all had cable, MOontain View was the youngest of their system .with three years . ats9 percent penetration Milwaukee was the second newest with their four years of operating experience at the 52 percent. Councilmember Reneel asked if the houses were passed -.with cable in each of those comeunities. Mr..,Bennett referred to San Francisco, and the 20,000 hones that were available for cable but the homes were not made available to Viacom through subscribership. 6405 10/3/85 Councilmember Renzel confirmed there were approximately 20,000 units that were cable -ready but because of landlords who owned the property, they had not given them permission to serve the subscribees because they wanted a separate arrangement with them for access. Mr. Bennett said that was correct. Councilmember Renzel asked if the other communities listed were fully wired also. Mr. bennett answered yes. Mayor Levy said that concluded their questions related to the area of Services and Rates. At this point -general questions would be in order. Councilmember Bechtel said her questions related to the relationship between the applicants and Pacific Bell. She asked staff to comment on whether Council , directed staff to negotiate any agreements between the two applicants or whether the applicants should negotiate directly with Pacific Bell. Mr. Moore said that was correct. Councilmember Bechtel said one of the applicants aid respond that the City required them to negotiate with Pacific Bell and she wanted to confirm that was never a requirement. She wanted both of the applicants to indicate if they did in fact negotiate with any other builder. Mr. Bennett said they had a construction agreement with Cable Cooperative. However, they could not compete with the system that was being proposed by Pacific Bell. It was at that point that Cable Cooperative negotiated with and concluded an agreement with Pacific Bell. Mr. Guite said City Cable Partners went to every major contractor in the U.S. Virtually all of the cable plans in the U,S. required a third party. There were a half dozen major firms that really did almost all the work. At different times they had gotten different proposals from Pac Bell, American Savings, State Construction, smaller firms, and New York Stock Exchange firms and they had found in negotiations with the companies that the prices really varied. The most recent price from Pac Bell was the moil favorable price of the fifteen percent. Pac Bell felt it could get the system build by the third parties at the price of $14,500 per mile. There was a possibility that City Cable Partners could get a third party other than Pac Bell but at the present time Pack Bell with their high quality construction standards and their commitment to a fixed price really was the preferred alternative. Councilmember Bechtel asked did that have to be a lease or could it be eventual ownership fund. Mr. Guite responded that the model Pack Bell offered them was the same model the Washington, D.C. Phone Company offered the Washington, D.C. cable operators. Under that model the cable operator paid for the plant at the time of construction and received the tax benefits as if he was the owner of that plant and the ultimate title remained in the hands of Pac Bell, so, in effect was a Pac Bell lease but the cable operator was assessed. The one remaining issue City Cable Partners had with Pac Bell was at the end of fifteen years, how would the ,'able operator rece're assurance the next fifteen year lease would be something that they could live with. Councilmember Bechtel asked what would happen if they had an agreement signed for 1 stance, with Cable Co-op and down the road they went belly up and the residents came to City Hall and said they wanted cable. She asked what would happen if the wires were owned by Pac Bell. Mr. Sinel said the National Cooperative Bank and Pac Bell would count on a stream of lease payments for the access equipment in the ground. The senario would probably be that the two major creditors of the system would come to, the Council and try to work out replacement of a new franchisee to operate the system. As was the case in any situation where there were hard assets in the 6406 10/3/85 ground and the cowpaisy railed, it was the creditors and the City that responded. Pac Bell might have less of an interest if they had much of the money paid up front but there would be a bank that would hold the mortgage on the property. It would still require negotiating with creditors to keep the system afloat. Mayor Levy'said the worst case was not bankruptcy. The worst case was the struggle they would go through to tryto avoid bankruptcy and the possibility the service would be cut back during the prime time. Councilmember Fletcher said regardless of who the cable franchise was awarded to, there was the same risk the City would be liable to take over the system. Mr. Sinel responded that the City would not take over the system in either event unless the system had been abandoned. Under the agreement the City had certain restrictions as to how it could purchase the system either in agreement with the parties or by default. Councilmember Fletcher said they were being told by some members of the public that the financing plan of a limited partnership was much more secure and a much better arrangement than the arra.gement that Cable Co-op worked out and she asked why would they not op.t to go with a limited partnership. Mr. Kelley said a new build situation was a risky situation. Limited partnership markets could not be based on the tar, basis anymore but because of the risk, a very high rate of return would have to be shown based on a return basis. It would be a mistake to attempt to finance the system with a limited partnership offering. In reviewing the entire proposal with Heritage and in revising their penetration estimates, they lost confidence in the ability of heritage which had had extensive experience in that type_. of financing and their brokers to actually carry out the placement. It was impossible to finance a system such as that with either limited partnership or venture capital financing but, it would be very difficult in the limited partnership market and that some of the assumptions that were incorpoeated in City Cable Partners' proposal, particularly having to do with the marginal rate of return on the tax investment credit would be unrealistic from their ;perspective. Cable Co-op also felt City Cable Partners underestimated the transaction costs involved in a limited partnership offering. From their point of view, the most important point was to secure the financing plan at a fixed rate of fifteen percent. That would also save a lot of money. If they went to verdure capital market they expected to pay a rate of return of approximately 20-25 percent and if that was carried over and the compounded rate of interest carried out for eight years, the total cost of financing could double. Councilmember Fletcher said that Cable Co-op had some financial experts or economists go over their plan. Mr. Kel ley 'said it was reviewed extensively, not only by the chief financial officer at Heritage, but also from brokers of Peabody and from E. F. Hutton. Councilmember Fletcher asked with regard to buying of shares by either applicant, and the offering of shares, what was the intent of the shares. Mr. luite said the real incentive according to their shareholders was to participate in a community company and invest in a company that was community owned. That was the main incentive. They had als6 proposed a small return of four percent on the Class A shares. If that shareholder had all of his shares for a very long time, approximately 15 years, they would receive worthwhile capital gains. The main objective would be ..o unity participation and further objectives would be tax depreciation and a wall amount of income. Mr. Kelley said the specific benefits that were - offered by membership in the Gable Cooperative are first of al1. s Katy to build the system. In terms of the overall financing, themost important point they had to offer in that regard was the fact that they had all the financing committed to begin the system. As new members join cable cooperative they would be holding certain equity contributions that were made each month from .One dollar. to _five .dollars potentially returnable to subscribers. The subscribers accruedtwo benefits._ First of all, compared with non-members there was a potential return of the equity which also had the effect of displacing some of the costs . associated 6 401 10/3/85 with the service. There was approximately a ten percent return over a -four year rate on the equity that was held if someone discontinued service. The more important point was_when the -system became profitable, if in fact it did become profitable, _thee would than nffer p p1e whepertieipated i -the member equ ity pi.n µate uite to Tunas Wen cn they estimate to be approximately 12 percent at the end of the franchise.- Councilmember Fletcher said there was a market ,for those shares. She asked Mr. Sinel about the possibility of Viacom to buy out the City Cable Partners. Mr. Sinel responded City Cable Partners could choose to change the ownership of the system by coming to the council on the franchise agreement and seeking the Council's consent to transfer ownership whether it be to Viacom or the XYZ Corporation. The always had that right. It-eas Council's right to -review the transfer and approve it or not. Councilmember Klein said as he understood it, if the contract was negotiated and signed and the franchise awarded, then the franchisee came back very shortly thereafter saying, "things had changed and they needed to renegotiate the following provisions in the contract" - - Mr. Sinel, first was that a common occurrence and if so, what have we in the agreement that protected them against having to have another hearing. Mr. Sinel said his experience nad been with franchise agreements which were no longer realistic in today's market. He said there was no way to protect themselves against a company asking for consideration of an amendment. The contract always allows the right of the parties to return to negotiate changes. He did not know of any way to protect against that in the agreement. Councilmember Klein said he was concerned about being placed in the awkward situation of after the franchise has reneged to having the other company say they could handle operation better. The Council specifically indicated they had no interest in having .r-ything agreed to that they thought could not be provided and all they had was good faith. Mr. Sinel noted two instances wherecompanies returned to Council for changes in tie agreement with regard to new build and the placing of the equity. Councilmember Klein asked City Cable Partners whether their underwriters had reviewed in depth the agreement and all the financial projections that went along with it. Mr. Guite said Payne Webber had reviewed City Cable Partners' financial projections. Councilmember Klein asked City Cable Partners if they felt absolutely comfortable with the agreement as drafted and could they conceive of any situation where they might ask for an amendment that would be in the next six months and, if so, what that would be. Mr. Guite said City Cable Partners was completely comfortable with the deal as it now stood. He did not see a need for any modifications. He was under clear instructions from their Board of Directors to only make proposels they could commit to. Couflcllmember Sutorius said the concerns expressed by Councilmember Klein and others had to do with risk or disappointment and were all very valid. ;There were many protections hu i l t in to the franchise agreement and the appendices. There were many steps that had, dates associated with them or rather "clocks" associated with them certain tasks to -be performed in a given time. The one problem he had was that nothing started the clock other than granting the franchise. In particular, there was nothing that starts the construction clock. As he understood Appendix B to the agreement, the start of construction would begin with the securing the permits for pole attachments and so forth. It indicated how much construction would be completed within six months after the commencement of that construction and how much within 12 months, and 18 months after and so forth. However, there was nothing that started the first clock that had a date associated with it. He suggested the mutual approach to a franchise regardless of applicant was the successful franchisee should have some kind of a> date indicated when construction would start. Therealso should be a penalty associated with failure to begin construction on a specific date. He wanted to find the proper way to incorporate that into the agreement. 6408 10/3/85 Mr. Sinel said Appendix b showed commencement of construction to occur with execution of the proper pole attachements leading to the acceptance of the engineering design. The engineering design was supposed to be submitted within five months and approved within a month after that. There was also in Appendix B -an acti v i t i un date which was set at 52 weeks after the effective date. He said it would be appropriate for each company to address whether a six-month date would be an acceptable target date with an appropriate out if certain events occur. Mr. Kelley referred to page three of Appendix B where they set forth the construction schedule. It read in paragraph four that construction would be completed by the 24th month and paragraph 1 said they would complete construction within an 18 -month period. In reading those two paragraphs of the contract it meant construction had to begin within six months. He said if they wanted to add a new paragraph saying that required starting construction, barring the act of God clause, within six months Cable Co-op would agree with that. Now what I was going to do was elaborate on what we could do if we wanted to change things to reflect the date of the award of the franchise. Let me ask if that concept is satisfactory to Partners. Mayor Levy confirmed they would add to the agreement that construction would have to start within six months of the effective date of the agreement. Mr. Doi said taking a careful look at the construction start up side in their discussions with Pac Bell, it appeared the most purdent thing to do would be to put an eight -month start up date in the agreement because as Mr. Zaner pointed out last night, the City must review the system engineering architecture plan before construction commenced. It could be done properly by Pac Bell within six months and would be appropriate to allow an additional two months to start construction. Mr. Zaner said there was no requirement in the agreement whereby either of the companies certified any way that they, in fact, had their financing in place. It would be possible for example to have :Jai financing in place to :begin construction and then fail to get the balance of financing or hav6_ the financing fall through. The City would be wise if the Council was going to require a start up date for construction, that it may also consider having some date certain by which the successful franchisee must produce evidence that, in fact, the financing was in place. Mayor Levy said he did not think the Council should get into great detail in the questioning period about that. Councilmember Sutorius might want to follow up and ask the applicants if they have a problem with the fixed period of time and to conform that financing would be in place. Councilmember Sutorius said it was an area of concern. Mayor Levy suggested the Council complete all questions tonight to either the applicants or the CAD or their consultants Mr. Sinel and Mr. Britton. He personally felt the work the consultants had done deserved, as well as his colleagues, the highest commendation. MOTION: Councilmember Bechtel said okay, it's been moved, and seconded by Councilmember Fletcher that Council complete their questions this evening and continue the discussion and selection of the award of the cable franchise to Monday, October 7, 1985 at 7:30 p.m. Counc i lmember Bechtel encouraged her col l eagures to come ups with a whole list of additional questions on Monday. She wanted the Council to finish their discussion as early as possible on Monday. Councilmember Klein stated that the regular Monday October 7, 1945 agenda would be taken up after completion. of the cable item. There might be a necessity to continue One or two items to another agenda. NOTION PASSED: The motion passed unanimously. Me. Zane said there was provision in the agreement which specified that the compinies must have their financial plans completed within one year. Failing tin do that would mean the City had to collect on the security fund in the amount of 75O,00. 6409. 10/3/85 Vice Mayor Cobb asked if the agreement also indicated the financing had to be essentially in accord with what they had proposed in their business plan. Mr. Seel said no. ultimately the financing plan had to be acceptable to the City. The company would have to resubmit their financing plans. Vice Mayor Cobb said he had the same concern as Councilmember Klein. He asked at what point would the award of the franchise_ be null and void if the agreement was changed several times. Mr. Sinel said' there was a mechanism for modifying the agreement, and having airendments in an apporpr i ate way. He assumed and most of the cities he dealt with had amended the agreement when it was required. It did not require a new franchise in order to do that. It required whatever your normal procedures were for dealing with the amendment to a contract. Vice Mayor Cobb asked if there were any substitive change if that, in effect, caused the agreement to be null and void. Mr. Sines said no, they had signed an agreement. Under the federal Law, there were two amendments. One dealt with the effort to change the services and the other was a contact modification based on commercial impracticability. He felt the franchise had the right to ask tie City to amend the agreement and the City had a right to say they had no interest in amending the agreement. If the terms of the agreement were violated, the franchise would be in default and the City had remedies to go after them for defaulting the agreement. Vice Mayor Cobb said the Council had heard from the CAO and City Cable ;Partners had been very slow to arrive at an agreement with the CAO or Pac Cell. He asked City Cable Partners response. Ms. Simpson said it would be easy to say yes. However, City Cable Partners will not promise anything that they cannot deliver. The question of responsiveness had to do more with what they honestly thought they could do. They were trying to evaluate what was prudent in terms of the quality of their offer, how responsive it was to the' various needs that were expressed here, whether it was truly something they could do and those were answers that could not be answered overnight. They were all trying to be responsive, prudent and realistic because they did not was -t to come back in a few months\ asking for changes to the ayreement. Vice Mayor Cobb said City Cable Partners had a document, before the CAO, that they were not thrilled with it but at least it was a document. There was also an agreement with the educational community. Should City Cable Partners be aearded the contract he wanted to be assured that essentially the form the contracts were in would remain as such. Mr. Guite said building a $20 million cable system was an enterprise that took a lot of very mature thinking and careful meticulous work. City Cable Partners started four years ago working with the Bank of America, Payne Webber and Viacom. The entities they had worked with all had signed letters of intent and now were contracts. Everything they said they woulddo over five years, City Cable Partners had done. Their relationship with the CAO caused sore distress because of them' attorneys involvement and concerns about making commitments for ongoing operations fbr community programming. City Cable Partners evercame their attorney's advice and made the commitments leaving aside the CAD which caused some delay. They had proceeded in an orderly, cautious manner in all cases with every agreement up to now and hoped it would continue that way in the future. He said the agreements with the . educators were binding. The agreements to the CAO were binding., The agreements to the City of Palo Alto end the franchise agreement were binding. Yes. There were agreemenes with Viacom, 640 of America and Payne Webber. Vice Mayor Cobb referred to City Attorney Diane Lee and said the Council had heard of a new plan to syndicate out a portion of city.Cable Partners which would hive the restriction that shares resold would be restricted to people within the joint partners. He 'wanted. to` know whether or not that was a legal condition for selling those interests. 6410 10/3/85 City Attorney Diane Lee said she had nut dune any research but she understood the attorneys for City Cable Partners had looked into that and were prepared to give an opinion with respect to that. Vice _ Mayor _ Cobb _ rp.► ,. x-11- that the question wai whether the restrictions meant they could only resell to people that live within the served area. He said the answer was yes. They could definitely_ make those restrictions and in fact it would be beneficial to them to have restrictions of that sort for en interstate offer to insure shares would not he sold outside of the state. Mayor Levy said according to the agreement, the City had the right to first refusal if the franchise changed hands. It was very possible that in the case of City Cable Partners where they had individuals or shareholders those individual shareholders would sell shares such that the control of the company could pass to a different entity. It might be called by the same name but the effective control would have changed. He "'L-'` if the C4ty had any right to first refusal in that type of a situation. Mr. Sinel responded that the right of first refusal referred to if the company was basically transferring effective control of itself outside of what it had indicated in its exhibit that described its oenership. So, if the company were determined to pet itself on the block and to sell itself, then under Secion 14.1 of the agreement, they would have to give the City a right of first refusal. The City would have 90 days to exercise its right. If the company told the City they were going to sell the shares, that would not trigger the transfer of control provisions in the agreement Mayor Levy said he was concerned if someone sold 30 or 40 percent of their shares, would the City be in any position to have a right of first refusal on that.' Mr. '`Sinel said it would depend upon whether those shares were being sold to another person in a block so that the effective control of 40 percent of the company would go to somebody else with 40 percent of the company. It could trigger the control prevision. He would have to study that further before he could answer. it. Counci lme ber Penzel said when Council was provided copies of the franchise agreement and the appendices there were various analyses that were put forth that compared the two companies. She asked if staff contemplated in the franchising process that there would be that Filch change following the submision of the appendices. In other words, were they now into a little more different process. Mr. Zaner said when they concluded the negotiations with the two applicants ther asked the applicants to initial those agreements and the appendices. Staff also indicated they would recommend to the.. Council the adoption of the agreements as they stood. Staff,. did not anticipate substantial changes from either the agreement or the appendices. It did not preclude the eppllcants from submitting additional material but it was not anticipated it would be as large of an amount as it was. Counci lmember Reuel asked if what they received amounted to substantive changes to the agreement. me. Diner responded no. Theywerenotsubstantivechanges to the agreement. The Council had received a substantial amount of- information with regard to arrangements that the companies were making. with the CA01, for .example, the. edutatienai institutions which were outside of the agreemment, However they were not substantive changes to the agreement. Mayor Levy thanked the applicants and the public who had sat with them through the hearing. The comment had been made any times that the public in the area had been exceptionally well informed and that was very helpful to the Council. ADJOURNMENT: 11:55 p.m. ATTCS CtyCerk 6411 10/3/85