HomeMy WebLinkAbout1984-06-18 City Council Summary Minutes7-5= --.111L717,11M19rgrrITIArr'
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CITY
COUNCIL
MINUTES
CITY
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AI TO
Regular Meeting
Monday, June 18, 1984
ITLI-i
P A G E
Oral Communications 4 6 4 9
Consent Calendar 4 6 5 0
Referral 4 6 5 0
Action 4 6 5 0
Item #1, Resolution Approving Application for Grant 4 6 5 0
Funds Under the Roberti -Z Berg Urban Open Space and
Recreation Program
Item #2, PUBLIC HEARING: Cable Television 4 6 5 0
Consideration of an Ownership Model and Possible
Selection of One or More Proposals for Further
Negotiations for a Cable System Serving the Cities
'f Palo Alto, Menlo Park, Atherton, East Palo Alto
and Stanford University
Adjournment: 12:00 a.m. 4 6 7 3
Regular Meeting
Monday, June 18, 1984
The City Council of the City of Palo Alto met on this day in the
Council. Chambers in City Hall, 250 Hamilton Avenue, Palo Alto, at
7 30 p.m.
PRESENT: Bechtel, Cobb, Fletcher, Klein, Levy,
Renzel, Sutorius, Witherspoon, Woolley
Mayor Klein said a Closed Session re Personnel was held at 6:00
p.m., in the Personnel Conference Room, and an Fxerui, i ve Session
re Litigation would be held at some point during the meeting.
Mayor Klein informed those in attendance that after addressing the
housekeeping items on the agenda, the Council would address the
cable television issue. With regard to the cable television
hearing, the tentative plan was to receive a brief overview of the
process by the City Manager, and then receive presentations by the
four applicants. The order in which the applicants spoke would be
determined in a random drawing by the City Clerk. The applicants
would be allowed 20 iiiieutes for the presentation and Council would
then turn to members of the public who desired to speak. He asked
those who wanted to speak to promptly fill out a . card and give it
to the City Clerk. It was expected the meeting would end at 11:00
p.m. or 11:30 p.m., given the number of cards received. Another
meeting on cable television was scheduled for the following
evening, and he hoped public testimony could, be completed that
evening. The matter would return to Council on Tuesday night for
questions to the consultants, staff, applicants (where appropri-
ate), and deliberations. Speakers other than the applicants would
be limited to five minutes each.
ORAL COMMUNICATIONS
1, Tim Guilford, 829 Forest, referred to the Council decision to
grant a remapping of 619-625 Guinda. Working with his neigh
bors and a group of concerned citizens against the proposal,
he was told that although an exemption was required legally,
nothing could be done; one Planning Commissioner reviewed the
setting and suggested he develop his own backyard and .another
explained how developers could avoid applying for an exemp-
tion, The developer benefited by several tandred thousand
dollars from the decision to grant an. exception against the
desires of over 300 citizens. After being informed by the
Mayor that it was out et order to --pose questions to a specific
Councilmember, he said he understood at least one person had
free office Space for her campaign for County Supervisor in a
building complex, developed and owned by the applicant for the
r-ernapping. He read from the June 1, 1984 American Medical
News that any physician receiving any benefit, even free pen-
cis, for referring patients to one..partic,ular laboratory
risked.Federal prosecution. He asked:what constituted a con-
_flict of interest, and who benefited --from a Councilmerber
decision. One member -excused himself rather than be in a con-
f11ct, and he asked the Council to suspend its decision to
remap 619-625 Guinda----until it looked into. the motivationT
,behind the perceived biased decision.
CONSENT CALENDAR
MOTION: Vice Mayor Levy roved, seconded by Setari es, to approve
the Consent Caiesdar\Ite. 1.
Referral.
None
Action
ITEM #1, RESOLUTION APPROVING APPLICATION FOR GRANT FUNDS UNDER
-c p�nu �nun� vr�n �rn�� nnu % PROGRAM (P'k
• • /
Staff recommends that Council enact the resolution approving the
application for grant funds under ti•,e Roberti-Z'berg Urban
Open -Space and Recreation Program.
RESOLUTION 6271 entitled "RESOLUTION OF THE COUNCIL OF
71-7 tITT OF `HALO ALTO APPROVING THE APPLICATION FOR
GRANT FUNDS UNDER THE ROBERTI-V NERG URBAN OPEN -SPACE
AND RECREAT1On PROGRAM FOR PALO ALTO GOLF COURSE
IMPROVEMENTS PROJECT"
MOTION PASSED unanimously.
ITEM #2, PUBLIC HEARING: CABLE TELEVISION CONSIDERATION OF AN
UWNERS-HIF MODEL ANIT POSSiBIE EleCTION OF Of `
City Manager Bill Zaner said the primary purpose of the public
hearing was for each cable television applicant to have the oppor-
tunity to present a proposal to the City Council and give the pub-
lic an opportunity to comment. At the conclusion of the hearings
the following evening, it was anticipated the Council would target
one or more applicants for franchise agreement negotiations, or
direct staff to develop a municipal participation implementation
plan. The City's cable television (CATv) process was fair, open
and .orderly Based on comments from residents, businesses, and
institutions of the service area, public iearings and written com.-
ments to the City, a draft request for proposal (RFP) of the
objectives and a minimum requirement system for CATV operation was
prepared_ and a series of public meetings held to obtain comments.
The draft RFP was refined as a result of those meetings, and the
City's RFP was issued in July 1983. Four applicants, Cable Cu -up,
City Cable Partners, Marsh Media and Pacific Bell filed proposals
in response to the RFP on October 12,. 1983 One other applicant,
Century Federal, filed a letter objecting to providing almost all
the information requested. Arnold & Porter, together with its
financial consultants, Price Waterhouse and its engineering con-
sultants, Atlantic Research, analyzed the applicants' proposals in
relationship to the City's minimum requirements and examined the
risks and benefits of various Municipal participation options.
Arnold & Porter presented the results of those analyses in its
evaluation report dated May 24, 1984. The evaluation report was
circulated to the City. Council, members of the Joint Cable Working
Group (JCWG), City staff, the applicants, and a copy was on file
in the City Clerk's office, ,and available t ,: the general public,
On june 6, 1984 -.each- applicant was- given the opportunity to meet
with Arnold A Porter and City .staff to comment on the evaluation
report and determine whether it required any -clarification.
Arnold Porters supplemental memorandum on :the meetings also
described information and materials the Council might consider in
its decision -making process and -was circulated to the --Council`,
JCWG members staff, the applicants, and a copy was placed in the
City Clerk's office for use by the general public. After submis-
sion: of the evaluation report, the JCWG reviewed: it and made` rec-
ommendations to the Council regarding the CATV process as provided
in the Joint Powers Agreement (JP.A) between the several partners.
The recommendations were based on the evaluation report, and it
w as judged.,Jthat the City could best meet lts objectives and ensure
development of =a CATV system as: a public-service tool through
acttve participation, and that the City had' the means to reduce
financial and legal risks while meeting its objectives. The JCWG
✓ ecomarerrdations, dated June --14-, 1984, were placed in the Council
packet and made avai lAble to the public, The Main issue .before
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6/18/84
the Council was the form and structure of CATV ownership, and to
determine the process by which City staff would implement the
Council's decision regarding ownership and structure --whether one
or more companies should be targetted for franchise agreement
negotiations, or how a municipal participation plan was to be
developed. The JCWG report gave recommendations on those issues.
The Council had the applicants' proposals, evaluation report, sup-
plemental memorandum, and the JCWG recommendations. That evening
Council would hear from the applicants and the public, and should
be in a position to make a policy judgment on what form and struc-
ture of a cable system ownership would be in the best interests of
the City and service area at the conclusion. He suggested that
each applicant have up to 20 minutes in which to make a presenta-
tion. All applicants were notified of the opportunity, and should
be ready to respond to Council questions. The Council could ask
questions at any time, although it might be preferable to hold
questions until an applicant completed the presentation or until
all were completed. All applicants were asked to have a repre-
sentative present at all times during the hearings to respond to
questions or issues raised by the Council. After the presenta-
tions, there would be an opportunity for public_ comment each
limited to five minutes, the Council's standard rule. It was
anticipated that the presentations and public comments would be
completed that evening, although, if necessary, they could be con-
tinued the following evening. Normal Sinel and Stephanie Phillips
of Arnold A Porter would be present the following evening, and he
recommended Council hold questions of Arnold & Porter or Price
Waterhouse until after the presentations and public comment. He
introduced Mr. Sinel and Ms. Phillips, Cable Television
Coordinator Jeanne Moulton, Assistant City Manager- June Fleming,
and Senior Assistant City Attorney Anthony Bennetti.
Mayor Klein asked the applicants to draw a number to determine the
order in which they spoke.
John Lockton, Executive Vice President, Marketing, Pacific Bell,
was accompanied by the Vice President of Sales, Al Boschulte, and
Anne Jones, former Commissioner of the Federal Communications
'.:ommission (FCC), who now represented Pacific Bell. Palo Alto
would be best served by keeping its options open, and he would
detail the practical, working advantages of Pacific Bell's pro-
posal, and Ms. Jones would put to rest the regulatory issues
raised so often. Regarding Palo .Alto's impact On the future of
telecommunications and cable in the United States, as president of
Warner Amex Cable Communications, he constructed and operated a
high capacity cable plant in Dallas Houston, Cincinatti, and
Pittsburgh, which were state of the art for many .years and he was `.
convinced that telecommunications invrlved a partnership of cable
and telephones to ensure a future wired city. The best of both
cable.and telephone would enable Palo Alto to lead the world in
infori,,,tien in the era. Pacific Bell would construct a system far
in advance of others, with standby power and the maintenance
expected of a telephone system, with construction extending to 100
percent of haves. The vision described.in the RFP was addressed
by -Pacific Bell's leading position in -high speed data transmittal,
fiber optics and.innovative telecommunications technology for the
future. Pacific Bell installed more fiber Optics, the previous
year than any. other company and were -the most advanced in tele
communications technologies, which would +ead to the it;formatl_on
age. Pacific Bell was starting a metropolitan area network to
enable businesses and -homes to plug in computers, without the use
of modems, to. reach anyone or any -data base. Should Pacific Bell
win the bid, that and other developments could go to Palo Alto and,
make it the development ground - for the future of :telecommunica-
tldns. Telephone alone could not do it- cable= -was needed to bring
a wider variety. of entertainment and many- kinds of broadcast data
to the home The `Pacific Bell/Palo Alto to proposal meant a partner-
ship, a better system than any other in America, a strong cable -
operator and the opportunity to' beat the center of advances. The
system would move forward, but a number of concerns were n.ot fully
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examined. Palo Alto would not go ahead with a lease from Pacific
Bell unless it was for a long term with a fixed rental cost. The
City would require the same from a cable operator, and wowed not
sign either agreement unless the spread was guaranteed with no
risk to the participating communities. The real risk was in the
joint venture alternative, and recent history showed that high
capacity cable systems of unproven technology could be risky.
Pacific Bell would not deprive t:tie City in building the I -Net.
Only one I -Net made money, and cable companies were trying to get
rid of them, There were far more regulatory problems with a joint
venture cable company than with leasing to Pacific Bell. A system
operator under direct sublease would give the greatest control,
and the Cable Co-op and City Cable Partners would not be operating
the system. Although Viacom and Heritage would, they were only
linked to the City by a management fee type arrangement. There
were other concerns, and he requested that Council talk to Pacific
Bell, ask questions, and negotiate before reaching a final conclu-
sion. It would be a shame if the wired city of tomorrow war pre-
vented because time was not taken to get to the bottom of such
questions. The communities deserved to be special, and to be the
place where cable and telephone partnered. Regulation questions
co;..ld be answered by Ms. Jones.
Mr. Boschulte, Vice President of Sales for Pacific Bell, said he
had often discussed major issues before legislative committees and
in public arenas. The crossroad was between the conventional
approach as recommended by the JCWG, and -the new less risky
approach which offered more capability, Pacific Bell was not
rated perhaps because of its nontraditional approach. The conven-
tional approach had unanswered questions, and he asked whether
Cable Co-op or Heritage Communications offered sufficient support
for local programing, whet►`e'r City Cable Partners or Viacom
Cablevision could meet local communication needs, and whether the
City would realize substantial revenues from a joint venture with
them. Arnold & Porter noted the contributions required of the
City by Cable -Co --op and Heritage Communications was not stated,
and he asked if the bidders could live up to their cost estimates.
Arnold & Porter believed Cable Co-op's per mile construction costs
might be difficult to achieve, and he asked who would handle pos-
sible overrun. Palo Alto might face:financial risks and liabili-
ties under some models of cable system operations, and referring
to the JCWG recommendation for joipte venture structure, it was
important to eecognize that joint ventures irvoived joint risk,
management, liabilities and performance issues. Although terms
and conditions were carefully studied and negotiated the risks
would be substantial, and initiatives such as Jarvis 4 would
increase the complexity. There were offers of free services and
subscriber entrance rates of only $2, but in the long run free
services were always 'paid for so they ceded careful study.
Pacific Bell offered a fixed term lease, eittear by household or
under various price terms and conditions. Pa i-fic Bell would be
there for the long pull. Residents should : 'ae served 100 percent,
and Pacific Bell was committed to do so within 18 months. Others
spoke of 70 percent, or one in three. Pacific Bell would start to
serve _the residents within six months, and would not --pass by
peoples' homes, but would provide an entrance facility to them.
The system --should interconnect with other systems, yet be
localized to meet thee, needs, of the communities of the JPA.
Pacific Bell`s proposal was flexible and deslgned:to permit local
programming. The issue was not raised, but the members of the JPA
wanted localized >p.ogra_mming within its own subcable systems A
primary thrust of Pacific Bell's business was to foster,' promote,
and sell interconnection to other systems and institutional net-
works, so :the proposed system Would be part of an organs zaton
th.t knew how to interconnect.. It was :the only system that
started off with_ a fiber optic backbone, -and "the' most important
issue .was City -control. They. separated how a .signal was trans-
ported and the -type and mix of the program carried by it; The
Pacific: Bell approach gave more optiOnte to deal with -the two
principal factors in the CATV- business, and gave the finest
state-of-the-art transmission system and distribution. The City's
options and public benefits would be magnified it it dealt with
the issue of programming mix and who would operate the system. It
was not a complex management issue. Pacific Bell was approached
by cable operators interested in having Pacific Bell provide the
distribution while they handled the programming and mix. It was
not a limitation, but provided the City and constituency with more
options and benefits. The system could work easily with a minimal
financial risk. Financial assurance was not a worry with Pacific
Bell and their system would not require collateral. If Pacific
Bell were given the go-ahead, after three months of contract
negotiations there would be a 100 percent covered, fully opera-
tional system within 18 months, well within the consultant's time-
tables. The program facilities and operators would be chosen by
Palo Alo and in place, and the system would start as a two-way,
fully enhanced system upon cutover. The system would give full
access to the citizens to opportunities and capabilities in the
information age, without fear of a risky or prematurely obsolete
system. Regulations and regulatory delays were a non -issue. The
period of formal comment for the 214 filing with the FCC had
passed; Palo Alto had the authority to choose; the system would be
built for Palo Alto; all other activities would be complementary
to the City's maximum use of the system, and system complexity
would not be an issue. The issue was the development of a system
to truly meet the original goals and serve the community needs.
He believed that by holding the options open and entering into
negotiations with Pacific Bell, Council could ensure the cable
system created would serve the citizens of tomorrow in an "excel-
lent" manner,
Lynette Simpson, Director, New Market Development, spoke for City
Cable Partners, She introduced Brian Owens, Vice President of
Programming and National Director of the National Federation of
Local Cable Programmers and President of Programming for Valley
Cable TV in Los Angeles. _ He was a leader in access programming
and its development for a decade, and completed the Harvard
Business School Advanced Management program. She also introduced
Michel Guite, a founder and consultant in the cable industry since
1973 and a specialist in two-way uses of cable technology; Stephen
Cinelli, Vice President of the Palo.Alto Corporate Banking Group
of the Bank of America; Israel Switzer, Vice President of
Engineering, with over 30 years in the cable industry and a highly
regarded design engineer, one of few with significant operating
experience in the design and construction of dual cable -two-way
systems; John Dolan, the General Manager of Viacomn's Mountain View
sytem since the beginning; Walter Hewlett, a co-founder, investor
and specialist in German organ music who was working on computer,
ized musical analysis. She was delighted that City Cable Partners
was one of the two companies recommended by both the consultants
and the City staff. She believed' City Cable Partners could best
meet the City's needs, and had the most to offer because they came
closest to meeting the requirements in the RFP and offered the
highest level of service for the lowest rate as shown by a com-
parison of the estimates, It offered the community more in every
respect --104 channels of subscriber service, compared to 80 from
Pacific Bell; 77 from the Cable Co-op; and, 58. from Marsh Media.
They had a dual cable systems running throughout the service area,
or two cable with 125 downstream channels and 22 upstream channels
to pass 'every home, institution and business in the service area,
and no other applicant_ could make that claim. The introductory
rate of $2 ,would last for the first three years of the franchise
to encourage maximum participation of basic -subscribers, because a
subscriber who refused was difficult to. approach .later -Through
the low rate, they hoped . to reach almost 100 , percent . penetrat f on
and encourage maximization of the number of pay , units, a major
snfirra of revenue-. -it-Would be easier to market two-way services
later as the connection wouid'be in the house. At the end of year
three, the rate was scheduled- to go to $14.10 for basic services,
and would still be the lowest in year four asethe.others increased
in the interim: There would be discounts for the elderly and
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handicapped not met by any other applicant. Throughout the delib-
erations,. Council heard about the importance of community program-
ming, and City Cable Partners commitment to local programming pro-
vided a level of funding that was essential to the success of a
high -quality operation. It offered over $1 million for
programming equipment plus two percent of gross revenues annually
for staff and operating expenses, or about $10 million over 15
years, to which no other applicant came close. A major require-
ment in the RFP was a wide range of interactive services, and City
Cable Partners was composed of several experts in the area with a
significant Vision of what the future held and saw to it that the
future would have substantial financing. It budgeted $I million
for headend, interactive equipment plus $500,000 for a two-way
wired: city experiment to test a variety of services and identify
which two-way services had the most immediate applications in the
area. The Cable Co-op's proposal said specifically that
interactive services were not included in their financial pro
forma and would have to be financed separately, which meant inter-
active services could not be provided initially and possibly
never. Financial liability was clearly fundamental to a success-
ful operation, and in terms of financing in the current market,
one requirement in the RFP was a 20 percent Contingency Fund to
cover cost overruns. Any cable system being built at that level
of technology probably experienced cost overruns because the tech-
nology was so new it could not be priced. They estimated the
highest capital expenditure, which was considered realistic, and
provided for the' 20 percent Contingency Fund, or $5 million dol-
lars, which meant they had $31 5 million available. In the cur-
rent general market it was necessary for the partner to put up
guarantees in order to protect limited partners' investments..
They provided a $3 million guarantee, and since two applicants
were not limited partnerships, the only other affected applicant
was the Cable Co-op, which had no guarantees. It was normal that
the general partner ' or an affiliate provide the limited partners
with a guarantee equal to,at least 20 percent of the capital
required, and the Board of City Cable Partners was committed to
providing the necessary guarantees, but ,-lot the 20 percent .since
it was not then required. Management fees also showed substantial
differences. City. Cable Partners estimated $2 1 million over 15
years; Cable Co-op $8.2 million; and Marsh Media $3.8 million.
City Cable Partners offered the most significant opportunities for
local investment. Limited partnerships would account for 50 per-
cent of the financing of the system, and they planned for invest-
ment units as small as $1,000 each to be available to allow the
small investor to participate. The other investment possibility
was the joint venture, and for an investment of $5.75 million, the
city was offered a half -interest in `the partnership nand a half -
interest in the limited partnership. If Palo Alto chose to par-
ticipate, it would. get half the-sy:stem. Otherwise, 40 percent of
the system would be owned by City Cable Partners -and 60 percent by
the public in limited partnerships, with some in the small incre-
ments. A major part of the offer was the responsiveness to the
RFP request for information on the 50/50 joint venture. They gave
'exactly what was asked for, and offered a significant investment
opportunity that met tre criteria but was not a requirement. They
were prepared to build and operate the system alone; or if it
made financial sense to the City, they would go .= ith a joint ven-
ture. In year one the City would receive the payback -for - the
$6.75 million investment, pies =hopefully a significant return in
year eight -when the limited partners were .bought out. The City
would remain a general partner throughout ethe life of the fran-
chose and would influence --the system for the 15 -year period. City
Cable Partners estimated that -the City could gain up to $44 mil-
lion, but used the consul:tant's estimate of $34 miili.on. The
Cable Co-op offered the chance to -buy 49 ;percent of the cable
system at fair market value. in approximately ejear eight -when the
limited partners were bought Out '. air market' value" meant e
substantial increase: in the buy -in -cost, which the -Co-op estimated
.eat approximatei_.f $11 to $12 million. The benefits were. not esti -
mated,_. -and no co -management role for tine City was .anticipated.
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They stated that f rar4chi se fees over 15 years were worth $9 mil-
lion. Under Pacific Bell's plan the City could rent dual cable,
coaxial plant, with the benefits estimated. at $11.5 million.
Marsh•Media-offered a structure quite -similar to that requested in
the RFP. Those were._ the major benefits perceived in- City Cable
Partners' application. Their significant expertise, both in
engineering and in two-way services. Mr Switzer was recognized
as an expert in -the field, and would describe the- system they -
hoped -to build -for Palo Alto.
Israel Switzer, Vice President of. Engineering, had 30 years of
experience. in cable television and was now an architect who -spe-
cialized in cable television systems, A cable system for Palo
Alto would cost about $25 million ---comparable to the price of a
good-sized, mixed -use building, and would start with a solid
foundation --a dual 550 MHz coaxial cable network. Design and
material were based on substantial direct experience over a 30 -
year period, with roots in systems for Atlanta, Los Angeles,
Chicago, Washington D.C.; Pasadena, etc. Prudent material would
be used in putting it together and it would have the capacity to
optimize handling the triple A clients, entertainment services,
because it was their revenue thait would pay off the mortgages A
good foundation meant additional spectrum capacity in a cable and
it would be left open since the tenants were unknown. They
learned from experience not to be too application -specific i,n the
planning, and built a wide spectrum for flexibility to handle
whatever application services proved viable, for which hardware
became available, and for which a demand could be generated. City
Hall was aesthetically beautiful, functionally useful, and prob-
ably did not contain radically new material or basic engineering
design. It was built prudently, and he urged Council to use the
same prudence.
Ms. Simpson. said the evaluations stopped on October 12, 1983, the
day the proposals were submitted. Since then, City Cable Partners
and Viacom entered into a Joint Service Agreement, Viacom was the
eighth largest cable company in the United States, the largest
cable operator in the Bay Area, with 250,000 subscribers, and had
significant experience in building and operating dual cable, high
capacity, two-way cable systems,
John Dolan, General Manager, Viacom, Mountain View urged Council
to kook at the bidder's expertise in design, construction, and
oper�.rtiorti when considering implementation. Viacom also had vast
experience in design and operation of state-of-the-art systems,
and Council, shop.=:id consider the financial strength of the bidder
and its ability to develop a viable system. There was .a differ-
ence between writing a proposal and building a $20 million net-
wurk, or promising every service imaginable without the necessary
means. State-of-the-art systems were more complex and demanding
than traditional systems most companies operated. Up-to-date_
experience was crucial, and few companies had Viacom's experience
in that area. They designed and built three high technology sys-
tems including one in _ Mountain view, and the first 108 channel
addressable systems in the country. Through experience, signifi-
cant design changes were made in Mountain View, which resulted in
the most advanced, technically sound, cable system in the nation.
Viacom's know how was developed over the years in many communities
and could be in Palo Alto, and Council should consider the reality
of new cable systems. A network was built: to meet communication
needs of a community for many years ,but required payment in the.
near term by existing entertainment Services. It was important
that new systems. take advantage of cost savings wherever pose'
sible--through management expertise, access to large corporate
discounts, programming and hardware, and economies of scale.
Creating a regional system could achieve substantial savings and
allow a higher level of .`customer service than any single system
could afford. Viacom could. make * difference to the-franthfse.
City Cable Partners' financial strength was demonstrated, and
Viacom's operating experience could provicle the ideal combination
to fulfill the expectations of cable television in the community.
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Tom Passell, President, Cable Communications Cooperative of Palo
Alto, Inc. (Cable Co-op), became concerned about getting quality
cable service in the area in 1972 when he began a two-year term as
Chair of the Council Committee on Cable. He was thrilled with the
progress and believed the Cable Co-op would bring the finest,
economically feasible cable service to the Peninsula and Palo
Alto. Lisa Van Dusen, Project Manager, would speak on the unique
advantages of cooperative ownership; Rod Thole, Executive Vice
President of Heritage Communications, Inc., the management
company, would describe the strengths of the management team and
the overall system deli nn; Hollis Booth Russo, Treasurer and
former President would speak to the community benefits; and dames
Cownie, President of Heritage and a director of the National Cable
Television Association would point out the financial implications
of the system and the necessary key decisions...
Ms. Van Dusen said people on the mid --Peninsula were excited about
getting CATV and the possibility of owning the system. The Cable
Co-op ownership structure was its fundamental advantage, and only
existed to provide the finest possible cable service for the com-
munity at affordable rates. Under cooperative ownership profits
and control stayed with the subscribers of the communities and it
offered the greatest flexibility for municipalities and citizens.
The Cable Co-op shared concerns about new sources of revenue and
long-range decisions in a climate of deregulation, and were
committed to working with the communities. A co-op was a business
owned and controlled by the people it served, both the providers
and consumers of cable services. It was democratic, with one vote
per member, and profits were returned to the subscribers and the
co„i iuri i ty. Its approach stressed education to promote consumer
awareness of how cable could make a positive difference. The
annual planning process translated the cooperative concept into a
successful enterprise, and integrated the concerns of all
involved --subscribers, Board of Directors, advisors, committees,
the independent Community Programming Board the members of the
JPA and the users. The Co-op surveyed subscribers continuously
and estabished policy objectives. Heritage would submit a plan of
operations, and the';!Co-op would review and amend as necessary
with Heritage making any necessary adjustments to ensure financial
viability. Local governments were encouraged to participate
during the planning process. Members in whatever capacity played
a vital role i.n determining Co-op policies, and participation in a
two-way cable system increased communication options dramatically.
Subscribers had access to information about Co-op decisions and
could help determine the rates and range of service offerings, and
how profits were distributed. The big difference between the four
bidders, as outlined in the staff report was what happened to the
profits and who made the decisions. The Cable Co-opensured that
profits were retained in the community in the form of rebates or
services. Advantages of cooperative services were that it served
as the buying agent for subscribers and were more responsive to
changing community needs and technologies. Flexibility was
intrinsic to a system where the bottom line was_meeti-na the -public
_
need, the Cable Co-op cable system offered genuine local control,
and participation was central to its existence. The commitments
of local residents were long -,term without incentive to sell to
outside parties, and to shares ownership with the users. The
importance of long-term perspective -increased as the system became
more profitable, and once fiduciary responsibilities to limited
:partners were meti profits could be used to help the community,
retire debts early, or return profits back to institutions and
individual 'subscribers. Heritage was selected as the management
company because of its reputation for superior customer service,as
cited in the Arnold A Porter report, its excellent -relations with
franchising authorities its financial integrity and realistic
operating approach; end - its willingness` to work with others to
develop innovative services to meet unique community needs.
Rod Thole, Executive Vice President, Heritage Communications,
Inc., had extensive background in management and public television
programming. There was a need to refute statements made by other
bidders, but he suggested it not be done during presentation time.
Implementation of _ the_ plan as discussed by Ms. Van Dusen was
important, and the management and operations company needed the
know-how and experience. Heritage was a broad -based
coifmunications company with primary emphasis in cable television.
It was the eighteenth largest cable television company in the
United States with over 12 years operating experience in 225 com-
munities in 15. states, including California. It provided service
to 380,000 basic subscribers and 270,000 pay TV units. In 19'd3,
Heritage's annual revenues exceeded $100 million on a total asset
base of $150 million. It was a public company which traded on the
New York Stock Exchange, and had 7.6 million common shares out-
standing and over 6,000 shareholders. It was a recognized cable
television operation with all sized systems in all areas, and
exposure to all types of problems. It operated conventional and
high .tech systems and was proud of its work with franchising
authorities and communities. Heritage was committed to operating
and maintaining a good technical plant, its track record was
strong for maintaining and operating superior systems, and it was
financially responsible. Regarding "more is Feuer," the key was
the right number of channels and technology for the ,lob in the
community served, and Heritage brought experience in developing
and managing limited partnership cable television operations
having developed eight. It had 150,000 subscribers and almost
100,000 pay TV units under limited partnership systems with a
revenue the previous year in excess of $21 million. The total
equity raised over the years exceeded $37 million, and total debt
placed in excess of $70 million. Its experience in developing
limited partnerships was important, and he said $11 million would
be raised in debt through the Co-op bank and the Citibank of New
York for the system proposed Limited partnership equity dollars
would be placed through E. F. Hutton for $9.5 million; equity
raised by the Co-op of almost $500,000; and funds from operations,
bringing the sum to approximately $21 million for the capitaliza-
tion needed to build the system. Heritage would bring profes-
sional, experienced, cable television management and experience in
developing limited partnerships; marketing knowledge; technical
and engineering expertise; financial strength; programming and
equipment discounts. As a large management support organization,
it could negotiate major discounts and be more efficient and com-
petitive than single entity systems; with a commitment to working
with community groups. The 550 MHz bi-directional system was
unique in that it passed every home through three independent net-
work systems, but fiber optic cable could be provided if the
capacity were needed. The subscriber rates were not the lowest
.but were right for the system, and a manager would be. a community
member to deal with local control and decision -making, with a
commitment to working with third partes; particularly in the
institutional area and to make it happen': in the best interests of
the raid-Peniasuia area. Local: origination and access was a large
commitment, and Heritage was committed to innovative use of tech-
nology, the system, and financing.
Ms. Hollis Booth. Russo, Treasurer, Heritage Communications, Inc.,
worked on the project for'three and a half years. City Cable
Partners was created to establish the best possible cable system
after considerable community input and thought about what the sys-
tem should do, and its, proposal was financially sound with minimal
risk to the City. It would help the City implement services on am
institutional network such as library circulation management and
water pressure monitoring. The, five percent franchise fee would
provide at least $8 million over 15 years, and additional revenues
Could be earned .investment in ='the . system in contributions or
cash. Profits would be retained locally to fully develop the;sys--
tem, and not siphoned ; to st oil systems elsewhere. It would pro-
duce its own educational channel with programs purchased ; from
local educational inttitut:1ons such as. Foothill College and
Stanford University. Schools would be provided with free hook-
ups, equipment discounts and systems of program development, and
ample channel capacity for both subscriber and institutional net-
works. It committed $11 million to community programming, most of
which would be spent on local origination as the community groups
were interested in producing quality local programming but, did not
have time to become video experts. It would also purchase pro-
gramming from many. independent local _producers, and had separate
access studios in Palo Alto, Menlo Park, East Palo Alto and
Stanford. Its staff would provide a comprehensive training pro-
gram, and money was available for materials and grants to access
producers. It reserved $300,000 for demonstration projects such
as connecting various community agencies on institutional network
to share information and other resources. For business, the pro-
posal included both an industrial network to serve high volume
--users, including Stanford University, and institutional networks
to serve other businesses and institutions throughout the com-
munity. It would purchase the best computer and information ser-
vices available from companies such as Tymeshare, and it had sev-
eral leased access channels local entrepreneurs could use to pro-
vide video, audio, and two-way data services. A nonprofit cable
research ,foundation would develop new technologies and applica-
tions,.and its system would allow people to purchase what they
wanted --data or FM radio services without television
entertainment. Programming and services would be obtained from
numerous vendors and the purchaser guaranteed the best available.
Co-op members would own the system and be entitled to patronage
rebates, lvere committed to consumer education and would provide
all with the opportunity to participate in the decision --making,
The Board of directors was responsible for ensuring that the plan
developed wass implemented by Heritage. ,City Cable Partners
listened to individuals, community groups, educators, entrepre-
neurs, and the City Council. The proposal included what it
believed belongedrin a community cable system, and had the flexi-
bility to adapt to changing community needs. It was realistic,
innovative, and locally controlled, its Board members were and
would continue to be citizens of the community, and committed to
seeing the proposal implemented as promised,
James Cownie, President, Heritage Communications Inc., said
although sceptical when first heard of. the project, after getting
to know the City, the area, and members of=•the Co-op team, he was
comfortable with the concept and fully committed`to the idea of
supporting the Co-op. Fiscal responsibility was important, and
with it, co-op ownership could represent the best of municipal
ownership, in which the area was interested; and private owner-
ship, in which Heritage was interested. The industry traversed
many different stages and was now to a settling process, and many
earlier mistakes were corrected. Many people .were required to -ask
.city councils -for relief and forgiveness for overzealous franchise
promises, in which neither Palo Alto nor Heritage wanted to be
involved. He bel i eved the industry would survive, but a lot of
uncertainty existed, which environment was not right for a joint
venture or pure municipal ownership. Their proposal. gave the City
an opportunity to purchase up to 49 percent of the system after it
proved, to be the soundest of the four ideas presented. An advan--
tage was the -flexibility to join the system as owner rafterethe
revenue proved to be,s"ounder than gambling constituents' - money` up
front... The system .would `be deli fined `such that not too much -money
would be spent initially in order to subsidize future. expenses,
but --the disadvantage was that it was never tried before. Heritage
would contribute its expertise to the system, but in order to make -
the institutional -network possible, a careful Marketing study was
essential. The gall of the overall plan..was income, services, and
growth, and It would include direct -sales calls and surveys of
potential users video presentations, and hands-on demonstrations
of the System's capabilities,'- The residential network would pro-
-tilde both information arid entertainment services. For $4..»95 per
month, residents- on:limited- income or those -..wanting minimum
service$ would receive 13,local broadcast channels, 4 automated
service and 6 public and leased access channels, for a total of 23
channels. For $9.95 per month subscribers to all services would
receive 2 additionally imported superstations; 17 satellite chan-
nels; 1 local origination channel; and 5 pay TV options for a
total of 48 channels. For an additional monthly fee, subscribers
could choose from five Pay TV options. To ensure quality presen-
tation, a main studio would be located on -site and equipment for
automated message channels would be at the main communications
control center. There would be mobile production with photocasts
for broadcasting, and full-time employees for local programming
and public access studio would include a program director, studio
manager and.a video engineer Additionally,- interns and volun-
teers would work as camera operators and audio personnel, etc. A
television production course would be available to Palo Alto resi-
dents, and divided into 13 sections -to cover all aspects of tele-
vision production. Marsh Media and Public Service Cable wanted
Palo Alto to enter into a joint partnership with as much knowledge
as possible, which made its proposal unique. It wanted Palo Alto
to enter into full partnership with 50 percent of the ownership
that would not cost the City anything. Palo Alto would get a
state -of -the -.art cable system from a combination of its expertise
and the City's needs. Representatives from City government,
schools, local access groups, hospitals, businesses, and an
experienced cable operator would ..design the ideal system.
Technical details of the presentation, together with figures and
financial statements were given in response to the City's RFP. It
wanted to enter into full partnership, and believed it was a tre-
mendous opportunity for both parties to have -a long, unique and
profitable cable operation. Mr del Pastillio stated the proposal
to jointly plan, design, and construct the system and conduct the
day-to-day operations. It represented a unique opportunity for
the City to offer its citizens the best CATV possible and to
receive 50 percent of the gross profits. As 50 percent owners,
the community could design the system it wanted. The design must
be'viabl.e and offer the City a unique opportunity to fully parti-
cipate from the beginning, and it was the first opportunity fora
city to design,:,build, and operate a system on a day-to-day basis.
It envisioned the formation of a design committee --a group of
citizens to plan the system, design the services, and decide on
the rates, which the company would build, putting up all the
money, and sharing 50 percent -of the gross profit with the City.
Since the City did not pay income taxes, it represented approxi-
mately $2.25 to $2.50 of revenues for every dollar earned. If the
Ci-ty carefully examined the opportunity, it would find the most
they could lose was a few weeks in negotiation time, but could
gain tremendously. it was willing to enter negotiations, and as
soon as the design teas completed it would 'produce Letters of
Credit from banks to show the money required to build the system
was available, which would eliminate.any financial risk. It was
the only p'roposal committed to further updating to state-ofethe-
art when fiber optics and video switches became proven technology
and could be felp.lemented. Marsh Media and Public Service Cable
would design1 'thing viable, finance it, and give the City 50
percent of th; irofits. He asked the City Council not to rush,
and said a (eat weeks of negotiation was sufficient. If the
Council determined it could not produce as promised, negotiations
could be broken.
COUNCIL RECcSSED TO A CLOSED SESSION RE LITIGATION FROM 9:20 p.m.
TO 9:45 p .m.;.
Mayor Klein said when the concept of CATV began over two years
ago, he did not participate because a year earlier he represented
Mountain View TV. which was somewhat of a predecessor to City
Cable Partners. He had not represented them for over ;two years,
and had no financial or other type of interest. The City's legal
authorities ,advised that he was eligible to participate, and he
would therefore take part,
1
i
iittOd
Councilrireirrb r Sutorius Said he way retir=ed from Pacific Telephone
after over 30 years. His official retirement date was March 17,
1951, and as a pensioner of Pacific Telephone, he was fully vested
in a recognized pension plan. There was no ...y his pension could
be affected by any action on the part of Pacific Telephone, nor
could ne influence the outcome of his pension by any action he
might take, and, therefore, there was no conflict of interest. As
an employee in the bell system, he participated in the employee
investment plan, and his financial disclosure: statements were
properly filed for a number of years while he served on the
Architectural Review Board (ARB) , Planning Commission and now on
the City Council His holdings in AT&T were disclosed, and sub-
sequently, through divestiture, his shares resulted in his owner-
ship in a number of regional telephone companies. Because of the
ownership which resulted in Pacific Telesis aMounted to more than
it 1,000, he was required to dispose of excess shares, to bring his
holding to a market value below $1,000, and it was not a conflict
of interest for hire to participate in the proceedings.
Vice Mayor Levy said his wife, Arlene, was employed by AT&T when
he first met her and ended up with 151 shares of stock by the same
process as that described by Coencilmember Sutorius. During the
devestiture they sold their 15.1 shares of Pacific Telephone and
had no interest in Pac-Tel.
Mayor Klein introduced the Mayor of Davis who would speak to his
experience regarding cable.
Bill Kopper, Mayor of Davis, 322 Leon Place, Davis, California,
said Palo Alto was an outstanding city in California and the
nation. He sympathized with the Council in the process, and said
it was difficult to select the proper cable system for a city.
Davis studied cable television for four years before taking any
action, and the citizens of Davis voted to see whether the desire
for cable existed before going forward. The City considered munii.
cipal ownership, a private system, and the cooperative. It ulti-
mately selected the cooperative approach which proved to be work-
able in the City. Sacramento started looking for a system after
Davis, and its company, United Tribune, promised many things that
uavi s could not produce with its cable system. When it was time
to sign the contract, United Tribune could., not finance the system
and Sacramento had to go back out to bid with a. system that
offered less features titan the Davis Cable Cooperative system.
Sacramento had still not broken ground, and six months after
groundbreaking, the Davis system was 95 percent complete and would
be complete in a month. The progress was rapid with the coopera-
tive approach once selected, and it offered advantages that he
believed were important in making the decision. A private company
might offer a public access board,- but the board was not respon-
sible as a governmental agency. If there was a system where the
people who owned the system elected the governing board, the city
did not have to be involved in fixing rates, and it was not a
political issue for the City Council. The board fixed the rates
itself, and if the subscribing people did not like the board or
the programming, it changed the board and put on the desired pro-
gramming within certain guidelines._ It was not an issue the City
Council had to deal with because i t was a matter for the coopera-
tive. He believel those were important advantages offered by the
cooperative, and over the long run, it was cheaper because the
profits stayed with the ,subscribers and were not passed . to the
governing cooperation. Davis selected the Co-op and was pleased.
After deciding on a system, the Council had to deal with
"pedestals," which were little green thi nge that went in where
there was an underground system. The people of Palo Alto --like
the people of ev1 s prided themselves on landscaping, and the
issue would be fun for the Council.
4 5 5 0
6/18/84
Councilmember Sutorius said several Councilmernbers were guests in
Davis recently, and he noticed direct cable being placed under-
ground. He asked if the Davis negotiations actively directed an
undergrounding plan beyond that originally proposed or whether
there were stipulations which mandated more undergrounding.
Mayor Kopper said the City demanded undergrcunding where under-
ground utilities existed. He understood there were many under-
ground utilities in Palo Alto, and where there were above ground
utilities, PG&E and Pacific Telephone lines, Davis had above-
ground cable and found that technology was such that there must be
pedestals. Davis checked with every conceivable engineering firm
and the federal government, and the fully underground systems did
not work. Those systems were now being converted to pedestal
systems so it was something a city had to live with unless the
technology changed between now and when the system was installed.
Bob Kahn, represented the Cable Cooperative Board in Davis, Fifth
and "F," Dais, California. He served on the Board for two years
as a member of the Board of Incorporators, and found it to be a
tremendous experience. A most attractive aspect was the oppor-
tunity to work with the City of Davis. He pointed out that a city
had the opportunity, as it considered a cooperative, to place an
important value on social innovation. There was a lot of talk
about technology, and he believed if the technology was carefully
reviewed, one would find the questions involved with technology
were more straightforward to answer than the. socially related
ones --management, finance, and control. In Davis, it was found
that a socially innovative cable cooperative provided the
opportunity for .people to maximize their involvement in the cable
communications system, an opportunity for people to make the most
out of state- of -the -art technology, and the built-in assured
accountability of having local citizens involved in the
decision -making about their telecommunications system was hard to
beat. He believed social innovation should be assigned a value at
least as great as tecnnology.
Councilmember Bechtel asked for a detailed explanation of the
green pedestals.
Mr. Kahn said the -green pedestals generally went in the public
utility easement; and right at the lot line. - Occasionally, the
pedestals were slightly larger boxes which provided transformers
for a neighborhood. The pedestal allowed the cable system t.o
switch on or out the household should it chose to be on or off the
cable. It lent itself .._to being landscaped over, and Davis was
considering a competition:'. about the best disguised pedestal. They
were unattractive, but when a decision was made about a state-of-
the-art system, one went for the pedestal. Davis was the second
city in the country to install pedestals, and when people arrived,
peoples` antennae would be taken down. .Each household shared a
pedestal because it was at the front lot line.
Councilmember Bechtel asked whether other bidders planned "ped-
estal" or "nonpedestal" systems.
Mr. Kahn . said regarding social innovation, . some people in Davis
were upset about pedestals and approached the Board. The Board
responded _rapidly to peoples' questions, and in negotiations with
the City -Council it agreed to move the pedestals back another
foot so that people would have a better opportunity to landscape.
Mayor Klein thanked Mayor Kopper and Mr. Kahn for coming from
Davis to attend the meeting, and said the Council appreciated the
cooperation and concern.
i reg Franklin, 672 Hamilton Avenue, was a Palo Alto resident and
taxpayer and concerned that the City receive a high -quality
financially successful cable system. Over the past couple of
years, cable franchising activity was plagued by broken promies
4 6 6 1
6/18/84
regarding channel capacity, charges, customer service levels,
etc., and he was delighted when he discovered one organization
bidding a mid -Peninsula franchise which represented the subscriber
and taxpayer. Consequently, he became involved with the Cable
Co-op. He believed_ the hallmark of the Cable Co-op's bid was its
reality for channel capacity and charges. Its blue-chip
management, banking, financial and legal counsel were as weak as
its successful taxpayer orientation manifested by the conservative
financial projections. Even if financial projections regarding
penetration rate and revenue stemming from the advanced services
was low and too conservative, it was great news because then the
taxpayer subscriber was the beneficiary. He believed the Council
was too astute to be swayed by bidder slogans because if the
slogans were wrong, the mid -Peninsula lost. He urged the Council
to award the cable franchise to Cable Co-op.
Don Wilkins, 2142 Belview Drive, 24 -year resident of Palo Alto,
was active in Ch i l drens' Theater productions, and was co-founder
of Off London Productions. Regarding cooperative cable televi-
sion, there were possibilities of bringing productions into penin-
sula homes in order for others to see the fantastic productions
currently being made. Theater was growing, there was a lot of
first-rate productions, Palo Alto was moving toward a "wired city"
and television could be used for many things.
C. E. Duncan, 865 Thornwood Drive, wanted a system that made it
easy for anyone to express an opinion or desire to his representa-
tive. Two-way cable excited him, and he believed Palo Alto had
the potential for a good communication network. If he were
listening to KZSU or watching the TV government channel, he ima-
gined pushing a button to say "yes" or "no" and Council could get
instant feedback. He suggested that Council seriously consider
the Cable Co-op proposal.
Duane Bay, 2261 Columbia Street, 20 -year resident of Palo Alto,
and one of 35,000 Palo Alto Co-op members, was a former Cable
Co-op Board member, and believed Co-op was good for Palo Alto, and
he urged Council support.
George Olczak, b6 Newell Road, was a video film producer with
Stanford Instructional Television and was involved with the uses
of technology and especially formation systems. He said it was
important to remember the use of technology in a community for
human values. He spoke of the system in Redding, Pennsylvania
Where the system allowed people to interact with their government
and -be involved. Technology was a wonderful gift to be used in a
positive way in the community and the Cable Cooperative system had
the best chance to provide it in Palo Alto.
Byron bel i tsos, 567 L. ncol n Avenue, #3, was enthused about the
Cable Co-op. He worked with a Group W Cable in Santa Cruz, since
he was a community producer at Channel 3 in Cupertino, and was now
at Channel 1U -A in Mountain View. Cable community producers were
fragile, and i n order to be nurtured, one needed community control
over the system and a strong in-house video support staff. He
believed one of the best ways to safeguard local production was to
have it controlled by the consumers and local producers, which was
done through a cooperative structure. As a producer, he would be
part owner of the system on which he produced, and could go to the
local programming board and provide suggestions. Througn his
vote, he could influence the cable board or sit on committees to
ensure the producer's point of view was represented. He dad not
see those opportunities in the other proposal', Regardin in-
house support, Cupertino had an excellent $1,0`0,000 state-of-
the-art system, but lacked . adequate support staff. It ' was.
important in the cooperative proposal to have in-house support
staff commitment. Regarding equipment, Dorothy Faddamen, a local
producer, produced a nationally well-known show called "World
Peace --R Local Issue," which was shot on half -inch video equipment
and was now being shown on Channel 9. It won national awards, and
4 6 it 2
6/18/84
see those opportunities in the other proposals. Regarding in-
house support, Cupertino had an excellent $1,000,000 state-of-
the-art system, but lacked adequate support staff. It was impor-
tant in the cooperative proposal to have in-house support staff
commitment, and regarding equipment, Dorothy Faddaman, a local
producer produced a nationally well-known show called "World
Peace --a Local Issue," which was shot on half -inch video equipment
and was now being shown on Channel 9. It won national awards, and
she was an example of a local producer and a human resource. The
equipment was not needed as much as the people, and the Cable
Co-op provided people to support creative local producers. The
ownership structure of the cooperative and the strong in-house
support video staff would build a loyal and competent community of
local producers who wound grow up around the system and provide
quality programming for many years.
Denny Petrosian, 443 Ventura Avenue, spoke as President of Cooper-
ative Housing of Palo Alto, who endorsed the Cable Co-op proposal.
As with housing, cooperative ownership provided the best response
for those who used the service. Because the interests of the
users and owners were identical, the public, there was no gap be-
tween public service and private fain. Cooperative ownership and
participation were built in incentives for success in reaching the
goals, and a check and balance to ensure public responsiveness,
and what might essentially be a monopoly of an important way in
which to communicate with each other. The decision before the
Council was sobering, and within communication control was the
issue of information control, where there was an inevitable
thought control. Whoever was awarded the cable system franchise
would exercise tremendous power over everyone's life. The City
was fortunate to have the excellene resources of a community -owned
and controlled cable system that offered the maximum possible pub-
lic access and control, as well as the highest technical capabili-
ties. The City should support its own local cable cooperative and
capitalize on the unique opportunity it provided. Many people
faced the possibility of becoming increasingly isolated from each
other in their electronic cottages because cable television pro-
videe another,reason to stay home and away from the life of the
community. It was important that a cable system not undermine the
wider life everyone shared, and a cable system owned, operated,
and utilized cooperatively would best promote the interactive vi-
tality of public life for which Palo Al to was known.
Jean McFadden, 407 Ferne Avenue, quoted from Dr. James Peter
Warbash,"...in what does cooperation deal --with food, clothing,
housing, and all the material things that humans want. The most
important material thing with which cooperation deals ,is the human
being itself. To supply this human being with the things for
which it hungers and to place human beings in more harmonious re-
lations with one another is the purpose of cooperation. In this
endeavor, men and women are seen working together with the mater-
ial products of industry, and at the same time, employing these
substances to nurture in their own lives the flower of higher
ideals. The aim is that life shall grow sweeter and character
more fragrant in this field of mutual service." She represented
the Board of directors of the Palo Alto Consumers Cooperative
Society, . served as past ; president, and was currently a member of
the board. She spoke of the cooperative grocery which operated
four markets in the area, and said there were member shoppers in
the entire area that would be involved in the cable telecommunica-
tions service being considered. Over the 50 years of the Palo
Alto Cooperative's life, there were many spin-offs, a credit
union, funeral society, health Care group, and housing, along with
numerous buying _ clubs and briar -patch type stores. The Cable
Co-op started as a twinkle in the eye of Co-op member Nancy
Samuelson and soon became a California Cooperative Corporation
with an iMpressive Board of Directors representing a wide spectrum
with relevant experience and talent. It embarked on a broad mem-
bership and . education program along the lines of the Roachdal e
4 6 6 3
6/18/B4
principles which guided co-ops everywhere. The Board of Directors
of the Palo Alto Co-op were so impressed last year that a loan of
matching funds was made to assist the Cable Co-op in preparing
its bid. They continued to admire and support the hard, work, co-
operative spirit, and responsiveness to community needs. She
urged the City to award the franchise to the Cable Communications
Go -op. She paraphrased Ur. Warbath, "...through cooperation, life
can grow sweeter and character more fragrant in this field of
mutual service.
Stew Plock, 917 El Cajon Way, was on the Board of Directors of the
Cable Co-op because he believed it offered the best opportunity to
move quickly into the new technology. His children needed; to use
the library for information retrieval , and schools should be able
to tie into available technology. The Co-op proposal would pro-
vide services to the community and schools that would continue to
make Palo Alto's schools the best.
Philip Geller, 2140 Yale Street, worked for Bell Northern Research
which was not affiliated with Pacific Bell, and was a telecommuni-
cations software engineer. The cable research foundation was an
exciting proposal, and the nonprofit institution would bring money
and talent into the area for research and development in the cable
field, and cable users would be benefited by increased services
and technology. Working in a Silicon Valley company, he saw an
advantage to having the foundation accessihle as a test market,
and believed it would be a privilege to stay in Palo Alto and test
a new product. The opportunity for public input should not be
terminated when the franchise was awarded, and local control of a
cable system was best served by an ownership structure that re-
mained responsive as new technology surfaced. A cooperative own-
ership system would guarantee that the door to the cable system
was left open. A few weeks ago he attended a Cable Co-op Board
meeting and liked what he saw. He believed it had the best inter-
ests of the community in mind, and he urged Council support of the
Cable Cooperative.
Athene Hall, 1901 Manhattan, East Palo Alto, said she researched
the bidders ano found the Cable Co-op most accessible and respon-
sive to her inquiries. Accessibility and responsiveness to con-
sumers was as important as technical sophistication and financial
feasibility, and she believed the Cable Co-op would provide the
best service to the diversified target areas.
C1 arri ssa Kitchen, 849 .Clara Drive, lived in Palo Alto for over 40
years. Each time she paid her utility bill she was grateful for
municipal ownership, and it gave her confidence that the City
could venture into running CATV. She believed there was suffi-
cient talent and expertise in the community to tap the best avail-
able technology, financial structure, and business arrangements to
make such a -System work. Her co-op number showed she was a long-
term member and older than most oe' the clerks who served her.
Palo Alto staff was capable of running CATV and the profits should.
stay in Palo Alto.
John Gage, 2822 8ienvenue, Berkeley) Director of the Science
office of Stanford University Network ' Microsystems in Mountain
View, said the company grew from nothing to almost $50 million in
two years. The provision of advanced communication networks was
to. be discussed, and his company provided the most scientific
work station in the world, based on work done at SRI, Xerox,
Stanford and OC Berkeley to interconnect hundreds of computers at
high speeds to move images, graphics, and sound. It carried them.
to a major position in the market. They erected new buildings and
communicated with them, and attempt€j :microwave and cable link,
but found only the fiber optic lick to be feasible. They called
Pacific Bell, in January,and in February the fiber optic link was
installed. There were now many computers i nterl i nked, and they
did not have to be conce.ned with the workings of it. One of the _-
purposes of the hearing was to decide . whether Pacific Bell might
4 6 6 4
6/18/84
be excluded from further consideration. His company was con-
sidered daily by some large scientific firms in the country, and
he urged that those with proven capability in providing reliable
high capacity networks not be eliminated. The Council held his
company's commercial future in its hands since its customers were
in Palo Alto, and the decision would directly -impact the way it
did business. uozens of other companies with the same background
would be similarly impacted, and he suggested all players be kept
in place throughout further negotiations to ensure the highest
quality system for the community.
David Brewer, 130 skylonda Drive, Woodside, worked at Two Palo
Alto -Square, Suite 150. He said the subject was complicated, but
he was concerned about community control. There were many argu-
ments in favor of the cooperative approach, but from the presenta-
tion and material, Heritage appeared to play an important role in
making final decisions. The plan was subject to Heritage veto on
any fiscal issue, and the letter of commitment for the loan from
Citibank to Co-op showed how important Heritage was in the final
decisions. He wanted the community to control the system, but the
.bank believed Heritage should totally manage the system as. long as
any money was outstanding under the loans. He did not know if the
system could be run otherwise under the Co-op, but currently it
was similar to the four other profit entities.
uavi d -iarri s, 455 Margarita Avenue, said the consultants' report
indicated it was harder than he first imagined for the City to
become directly involved in the system. The governance issue was
recognized as important, and the cooperative form had an advantage
in that it could substitute direct ownership by the citizens for
City participation should Jarvis 4, etc. pose insurmountable prob-
lems. He was torn because City Cable Partners showed extreme
skill,, experience and commitment to data communication and
exploitation •,of the new possibilities. The advice from the JCWG
was excellent', and the possibility of using computers or any other
equipment from home to home was not available initially under any
of the systems. It was partly due to lack of standards, but one
trick of setting up standards was to keep costs down. It might be
possible to have acre kind of communication device for computers
with compatible versions made by different competitors, and was
done some years earlier by the FCC by setting up a mechanism where
devices could be certified as safe to use with the system. It was
worth considering such a mechanism so -that alternative equipment
such as modems could be legally attached. The question of split-
ting the cable into a house arose because traditionally one cable
entered, went to a converter box, and attached to one television.
If one wanted to use the computer and watch television at the same
time, it was legitimate to. buy a splitter box. It was technically
plausible to allow that type of splitting, but the cost was bring-
ing the cable into the house. If. there were pay services, and
only one addressable converter box, he saw no problem for split-
ting noncherged services. It might be allowed and explicitly dis-
cussed during negotiations. The ease of use of a video cassette
recorder should also be discussed, and whether there was a way to
activate pay -per view machinery_ if the person was not there to
press a button -to do so.
Alison. Lee, 1241. Harker Avenue, was excited at the cul ail natl on of
a three-year process, and remeiab.ered earlier conversations about
whether the coil unity was .interested in the cultural quality of
CATV since there was no empti ties s to be filled by. CATV due to the
full and rich community life. It was an -opportunity for, enriched
community life,. and she was concerned that if the decision -making
process of commercial television operations was brought into p1 ay,
Palo Alto might-' say i t already had -sufficient coamerci al TV. The
excitement of data p`rocessi og and computers might be /insufficient
to generate and support a system of its own, and the was inter-
ested, in the: Cabe Co fop from the beginning, witched It-- +develop
and'Grow and was iMplessed by the professionallsm, citizen respon-
slbi l #ty, one rill i_ngness to charge and . grow. _ Palo Alto had the
opportunity to beAl leader in -an exciting format for CATV .
Jim Fink, 876 Ca Para, lived in Palo Alto fur,three years and
worked in video tape production for eight years. He reviewed the
cable situation in Palo Alto two years earlier, and -found only the
Cable Co-op. He was impressed by its work to determine the commu-
nity's cable needs, and he attended the Board of Directors meet-
ings and followed them closely. During the last year, many board
members worked ten to twenty hours weekly without gain other than
providing the best possible system and found a sound company to
help in the endeavor. He was concerned that local cable service
reach every person, and was pleased the basic cost would be $4.
Good local programming access and production money was important.
His career centered around video tape production, and he was
pleased the Cable Co-op would produce adequate money for local
programs, He would be excited to help produce programs for local
theaters and teach community members. He expressed his support
for Cable Co-op.
Bob Smith, 2291 Greer Road, lived in the area for almost 17 years.
He spoke of the cable priorities of the average consumer, and
said most citizens were not "high tech." He was not a spokes-
person, but did not believe public access was important, and re-
ceived little play nationwide. Interactive services were complex,
and had technological and marketing problems for which people
might not want to pay. A further issue was public participation,
which was of great concern to the Council, but most people would
not buy the system because the City made money from it. There was
a lot of marketing data available, but reliability was very impor-
tant. People would complain if the company behind the system,
Viacom or Heritage, turned out to be unreliable, The sine qua non
would be the satellite services offered. When Princeton, New
Jersey considered CATV, it had large charts and lists comparing
the systems and showing which company offered what independent
networks. He was disappointed Palo Alto had not done that. Only
City Cable. Partners showed a slide demonstrating its services.
Speed was important, and the law required that Princeton install
the cable within four months, and there was a lawsuit there too,
Speed was desirable, and he hoped Palo Alto would end up with a
standard cable system, which was what he believed the people
wanted, He asked the Council to.give it consideration.
Charles Warner, 528 Patricia Lane, was Director of the Maes Commu-
nication Pronram at Menlo College, and spent 22 years in show
business as a Vice President of CBS and NBC, running the second
largest radio station i n the country. During the last two years
he represented many of the largest cable operators in the busi-
ness. He urged the Council to not go mi th Pacific Bell because it -
had not proven any knowledge about show bosiness.. He suggested
that Council also not get involved in show business, and go with
the people with proven management track records. .His experience
in cable showed that any of the four applicants would be back
within a short period for more money. It happened in every situa-
tion, and he suggested the franchise be given to the managers with
the best track record for giving people what they wanted.
Heritage and Viacom had the best records in marketing HeHe was not
asked to speak, but., wade his recommendation because they were ,the
largest with proven ability to _build and manage systems and were':
long-term players in the business. He recommended the City Cable
Partners in partnership with Viacom.
Bob Moss;, 4010 Orme, spoke as a member of the Board of Directors
of Cable Co-op, and with more than 20 years experience in; design-
ing and building communication satellites, including broadcast
satellites. He commended the proposal,- of the Cable Co-op and
urged its adoption.. It provided the ;highest level of cormmuni ty
involvement with him on the Board. It ryas a socially responsive
organization and provided continuity, and the Council need not
worry about giving the _franchise to someone who would sell it toea
third party. Cable Co-op would be there in the future. He asked
the Council to be cautious about- a large complement of City owner-
ship. The Supreme Court decision said the government could not
i ritel r ere wi th the pr'd9rammi riy over ‘able systems, and if passed,
Jarvis 4 might limit the City's ability to raise fees, including
cable fees. If the City were a majority owner, there could be a
real legal problem, and by taking a minority position, fee in-
creases would then be the responsibility of the Cable Co-op, and
the City would be insulated from the effects of Jarvis 4. City
Cable Partners made a point of its. $2 initial fee for hookup, and
a system in Boston had such an initial low fee, and after two
years, asked the Council to raise the fees to stop them from going
bankrupt. The fees were raised to $10 in three years, and when
fees were raised, between 40 and 60 percent of disconnections oc-
curred, which were fatal. Congress would probably pass a cable
deregulation bill to totally deregulate new franchises after four
years. It was important to chose ari organization with the con-
sumers' well-being in mind and which would get positive consumer
feedback. Cable Co-op was a cooperative organization so that
people who got the service basically owned the system, and could
get rid of the Board of Uirectors and management. That was the
type of participation to which Palo Altans were accustomed and
deserved. He urged support of Cable Co-op.
Tony Carrasco, 4216 Da rl i ngtoe Cuurt, said the cooperative system
was a good way to allow all members of the community to partici-
pate in the way cable was run in Palo Alto. Because . of the com-
mitment and participation, the bollards to hold the cable put up
by Cable Co-op would probably look the best, and there would be
fewer complaints about unsightly lines. He urged the Council to
support the financially sound Cable Cooperative.
Jim Uinkey, 3380 Cork Oak Way, urged the Council to look at the
entrepreneurial spirit in the Valley. He was lucky to be involved
in six startup companies. There would be many additional services
to come out of a cable system --"bulletin boards," of which there
were over 5,000 in the U.S.; specialized data bases over and above
what Lockheed offered to handle a lower and less expensive level;
and special event notifications --small companies to remind people
of special services. Small b„sinesspeople used the cable for
their own services, and might provide the funds so that school
football games could be televised, and the small entrepreneurs
would satisfy the requirements of public access of such people.
There would be specialized tutoring,- and :zany other things that
would not provide any profits for the system itself. The Council
had to De careful about how it provided for the nurturing of such
small buss nma aec He went through it, and it was well worth it.
John Schaefer, 1487 College Avenue, said he did not watch much
television because it did not meet his needs He was intrigued
when he met - some of the Cable Co-op board members and found there
to be energetic, enthusiastic, sincere, and hardworking people
with potential to bring excellent television to Palo Alto. He
believed Council should support the Co-op because the organiza-
tional structure permitted people interested in good television to
assure the Board responded to those needs. People with other
cable systems advised that other cable systems were unresponsive
to their needs, ano he did not believe that would happen if Palo
Alto had a co-op. The Co-op could provide everything any other
system could provides and, in terms of management, technical
expertise, and financial viability, the Co-op was second to none,
and had overwhelming local support. Several other bidders men-
tioned the lost opportunity if one company were not; chosen, and he
believed the lost opportunity would be to not permit . the Co-op
system to fully realize the potential the citizens of Palo, Alto
could bring to their own system. He urged support of the Cable
Co-op,
John Mock, 736 baron Avenue, was a systems programmer for the
Center for Computer Research in Music and Acoustics and worked
with computer networks for 10. years. He was interested in home -
to -hope computer communication, home -to -institution, and home -to -
business coMmunication. He noted from the Arnold & Porten report
4 6-6 7
6/18/84
that no one bidder actually ..let the requirements for ups treem bans
except maybe Pacific Bell. Moro than entertainment was needed,
and more that currently shown or. television. The Palo Alto users
were technically sophisticated, and many already owned high
powered computers at home. There were significant institutional
and industrial users in Palo Alto such as SRI, Digital Equipment
Corporations, and Hewlett-Packard, and it was crucial that Pacific
bell be passed over as the cable vendor because another vendor
allowed the opportunity for competition in the area. He hoped
that would provide the best chance for the highest quality com-
munication at the lowest prices. He believed Marsh Media was
largely interested in entertainment and did not seem to be commit-
ted to interactive use by non -institutional users-, According to
the Arnold & Porter report, the information it supplied did not
seem to respond to the RFP, and consequently, he wondered how
responsive it would be to the City and surrounding communities.
The Arnold & Porter report also said City Cable stated that the
performance values for data communications would be individually
negotiated with each user based on the modem used by the user and
the data rates supplied the use, He worked with computers, and
different modems for a long time, and the problems with the tele-
phone company were phenomi nal . He hoped s -a1 o Alto would not have
to go through Pac Bell for data communication. It was pointed out
that the institutional cable supplied by Pacific Bell would be
wholly owned by them. It was an important resource in the commu-
nity, and cne in which the City should have control. Council
should discuss with the vendors the type of access residential
users would have to the system for data communication purposes,
and the problems of limitations on upstream band width. If the
upstream was saturated, would additional capacity come from the
institutional cable and would that cable then have to be run into.
the residential areas.
H. J. Smith, Jr., 720 La Para Avenue, was pessimistic because of
the many advantages he heard about would be there for a while and
would gradually fall. None of the presentations he heard about
cable television convinced him that he should indulge in it. He
was content with NET, supported two local public broadcasting
systems, and saw no reason to change.. A possible concern arose
when the gentlemen from Davis said ell the aerials went down
because no one needed them. He did not intend to take his aerial
down because he wanted to continue with public broadcasting, but
if his aerial was the only eyesore in the neighborhood, his
options were restricted. He wanted to continue as an individual,
and he suggested that Council be careful about which, if any,
system it adopted. He urged that Council not put too much stock
on features of primary interest to special interest groups because
the people of Palo Alto would not want to pay for a large local
area network for special interestgroups to use.
Charles Hayden, 201 Safi Antonio circle, Mountain View, followed
the Mountain View cable onslaught a few years ago with great
interest, subscribed to the cable and enj oyr:d it. The Viacom
Cable Television system was chosen in Mountain .View a couple of
years ago, and it did an amazing job. It did more than put in the
cable system, and there was a public access channel system of
about six channels. A public board was appointed by .the City
Council, and was responsible to it. To his knowledge, not one
program, group or areaof concern of the public had not found time
on : one of the many public access channels. He sensed the strong
sense of pride in the public and cooperative ownership, but the
experience in Mountain View was, such that any group wanting input
into, the public _access channels had all of the access it could
take and more. He slid not believe the people were cut out by not
going with a co-op. When telkingfabout the millions of dollars,
Council must look at its responsibility_ to the public, which meant
going with a proven system nationwide. Viacom could put it
together. Mavis had good luck with a co-op systel, but he pointed
out the sense of going with :e proven. leader such as Mountain View
did, and having the system contiguous from south Mountain View
4 5: 6 8..
6/18/84
HedwucA City. the people from Davis pointed out how well their
system was run, and he pointed out that the co-op bodies who ran
the system were more apt to change, flex and be different than a
proven, long-term, national company. He was pleased with the per-
sonnel at Viacom_ from construction up through the top, its in-
volvement in the City, service clubs, willingness to film events
any time, and its commitment to the City was probably the strong-
est he ever saw in any group. He strongly urged Council consider-
ation of Viacom.
Chris Fleming, 700 Mayvi ew Avenue, said the authority delegated to
Pale alto through the Joint Powers Agreement placed each Council -
member in a unique position as public trustees, Its concern did
not rest with the City of Palo Alto, it rested with Stanford
University, East Palo Alto, Menlo Park, and Atherton. Each entity
brought its own unique set of needs, concerns, hopes and desires,
and as Council considered which service should be awarded the
franchise, if any, it should remember the many disparities among
those entities. If it became necessary to trim services, he ques-
tioned whether the axe would fall on the heads of the information
rich or information poor. He asked Council to carefully ensure
that it not foreclose on the ability of small, local businesses to
take advantage of the opportunities for television advertising and
marketing. As was seen in broadcast television, economies of
scale foreclosed on the ability of small local businesses to use
the unique marketing capabilities available in television for the
development of local commerce. Small businesses shielded the
United States economy and provided 60 percent of the new jobs in
the nation, and 50 percent of those new jobs were provided by com-
panies with 20 or fewer employees. Based on a projection of $100
an hour of advertising on a 24 -hour broadcast day, at 365 days a
year, it amounted, to $877,000 that could be raised through adver--
tising-T In the wake of Jarvis 4 and trying to maintain equitable
and nondiscriminatory rates across-the-board, advertising should
be considered as an essential part of the City's efforts. None of
the bidders included income projections for advertising from local
businesses in their bids. The Council was entrusted with the
responsibility to safeguard opportunities for minorities and women
in the system, and he did not want to go the way of the broadcast-
ing industry which saw fit to cut equal employment opportunity
laws which provided opportunities within the last ten years for
those disenfranchised groups.
Carroll Harrington, 630 Melville Avenue, spoke as a member of the
Working Group sometimes called The Wednesday Group," and as a
resident of Palo Alto. The Working Group represented different
points of view and background, but it was clearly understood that
its opinions did not officially represent its affiliations. Its
goal .was to study cable television policy issues as seen from a
community perspective. The full report developed by the group was
presented to the Ci tv of Palo Alto on April 18, 1983, and was also
made -available to the Joint Cable Working Group. It was also con-
tained in the document "Cable Television --What it Means for You"
which was distributed to the City Council , the bidders, press and
interested citizens. She was not advocating one bidder over the
other, and focused on certain specific recommendations contained
in the Working Group report. It was concluded that a governance
structure with broad community participation was necessary to set
basic program policies, determine band width allocations and
resolve other issues. The structure must also respond to com-
munity concerns about first amendment questions raised by a pos-
sible municipal'interest in the system. A governance structure
was proposed which consisted of a charter that' woul d set forth the
yowls and structures of the system and establish means of assuring
broad community guidance; a Community Cable Board with wide repre-
sentation and -general authority to establish principles and poli-
cies for the operation of the system; contracts between the Commu-
nity Cable Board,, municipalities and the private companies; a
separate local programming board to oversee both video and data
programming; and a qualified professional staff to manage and
operate the system. She stressed that the Commonity Cable Board
would create a necessary and complimentary balance between the
-Municipal and operation entities that managed and operated the
system. The representative board would be responsible for uphold-
ing the charter, serving as a forum for community review and dis-
cussion, and would have other powers as agreed upon in a Joint
Powers Agreement or joint venture. The board would also serve as
the principal adjudicator of program and service problems involv-
ing such matters as free speech, fairness in access, obscenity,
deceptive practices, and first amendment issues. Given the long-
range communication needs and strategic objectives of Palo Alto,
the task force believed a separate board should govern local pro-
gramming with respect to both video and data services, a separate
local programming board would insulate the Community Cable Board
as well as governmental entities for direct programming decisions.
The group reco-nmendeo that the local programming board participate
in setting design and equipment specifications for community local
programming. Because of the special importance of information and
data services to the communities being served by the proposed
cable system, the group emphasized that the conventional defini-
tion of community program services should be expanded to include
new information services and should facilitate those services as
they became part of the viable economics of cable.
Jerry Yanowitz, ,ember of California Cable Television Association.
(GCTA), said it was the trade association which represented about
95 percent of the cable operators in California including the
Cable Co-op of Davis, and a municipally owned system in San Bruno.
CCTA sent a memorandum to the Council, which was on file in the
City Clerk's office addressing many of its concerns with regard to
the Pacific bid. He was involved in the process for about a year
and throughout that time, one of the City's principal concerns was
to be an active participant in the development of a cable system
in Palo Alto and to ensure local control . He believed Pacific `-s
proposal ran contrary to those interests, and it was clear that
ultimate approval for both rates, and type of system to be built,
was with the Federal Communications Commission (FCC) if Pacific
was chosen.. Pacific stated that approval of the system`by the FCC
would be profunctory, and that it filed for its 214 Construction
application with the FCC on March 9, 1984, and no one objected.
Three months later the FCC still had not acted on the application,
even though there was no objection at the time. Wisconsin Bell
had an application pending going back to January for a system
which was not acted on six months later. Pacific was looking for
a partnership with the City, and yet according to the public file,
the comoanY did not_notify the City until two months after the
June 14 application that it even filed such an application. The
CCTA intended to file informal comments in opposition to Pacific's
proposal in Palo Alto with the FCC, even though the formal time
for comments was past. It understood from case history and con-
versations with people from the FCC that the comments would be
given serious consideration. It was al so possible that other in-
terested parties might file informal comments. Pacific went out
of its way to get publicity, and CCTA subscr.i bed to several press
clipping services, and nowhere was there any mention of the 214
filing. He said-the.214 application illustrated many areas of
financial risk to .the City should it choose Pacific's proposal'.
Pacific's proposal stated there was a -fair amount of financial
risk to the City, the manager of the cable system, And itself. He
believed the City's consultant did a good job of pointing out
those -risks on page 115 of the- report. Pacific stated there was
little risk to__ the .City because it was Willing to set a flat fee
for lease -of the channels over the life of the agreement-, which; he
believed was ' a l audible notion with no legal basis whatsoever..
Legal.. counsel for CCTA, staff _of the California Public Utilities
Commission (PUC), - and the FCC with whom they spoke, advised-, that
:, Pacific soul d not voluntarily waste i is rights to .seek an i ncrea'se-
even :by sign.ing a. contract to do so. Pacific clearly "believed it
could lease all .80 echannel s to the City on., an exclusive basis and
rested tt+ belief .on the factthat the Cal i forni a Constitution
4 b 7 0
6/18/84
under 5306 clearly gave the City Council the right to grant a
franchise for a cable television system. It was ironic since
Pacific clearly stated that it was not seeking a franchise in Palo
Alto and had the right to build the system, whether or not Council
granted them the franchise. The Pacific was keeping 32 channels
for itself, and he believed it was possible that Pacific would
lease those channels to other parties who expressed an interest,
and that they would be in direct competition with what the City of
Palo Alto might choose to do with its 80 channels.
Cal unnevehr, 1081 Sierra Urive, Menlo Park, President of CMU
Associates, a consulting engineering firm, personally did consult-
ing work for CATV companies for over 25 years, and his specialty
was rate and valuation work. The financial viability of any CATV
system depended on its saturation --how many customers stayed at-
tached. (Jae problem that a CATV company frequently ran into was
that some unforeseen emergency threw the system out for a while
and immediately a few borderlines dropped off. To maintain finan-
cial viability, it was essential to maintain good service. The
biggest locally oriented service organization was Pacific Bell,
and he recommended that Council give serious consideration to the
service point alone because it tied to the financial viability.
He believed there were two parts to state-of-the-art, the capabil-
ity of the cable .system itself and the electronic equipment that
went with it all down the length of the cable. Today state=of-
tine -art to match all future prognostications when getting to the
cable half lied entirely in fiber optics which was conceded by one
company who mentioned consideration of fiber optics, if necessary.
Bell invented went
micro -chip and was ahead on the bubble memory--
items that % wen L into the eec tf V±7 i c side of the art today --and it
was still on top in that field. He recommended that Council give
Pacific Bell serious consider tion. Regarding the pedestals, more
often than not, it was one pedestal for two houses.
Mayor Klein declared the public hearing closed.
Councilmember ienzel said Council was shown various charts that
evening, and there was some dispute about the validity of the com-
parisons in those charts. She asked whether staff or the consul-
tant might be able to prepare something for the Council that would
be agreed upon by the various parties as a representative view of
about how the system would work. She believed it would help for
the Council to be able to see on a chart the comparative figures
of the various companies from an unbiased point of view.
Vice Mayor Levy endorsed Councilmember Renzel's request. He asked
for more information about what a 49 or 50 percent ownership for
the City meant in terms of control, and the antitrust
of a 50 percent ownership. There were questions about the City's
-ability to raise tax free debt for a cable television system and
that the City would run into IUB limits. He asked if it was
possible to get a wathr of those DDB limits or whether those
limits stopped the City from raising tax free .funds over a certain
amount of money. He asked about what happened if a .franchiser
sold the system, and the City's rights and recourses. He wondered
about the effect_ of the Jarl►is Initiative on the City's ability to
collect franchise fees and believed .Council should be clear as to
the effect of the Jarvis Initiative on the City's ability as an
owner or part . owner in -setting general fees, Schedule A-2 indi-
cated the joint venture had a lower ?resent value for distribu-
tions to the City than a.private franchise, which was incongruous
to him because a joint venture provided the City with franchise
fees, and distribution over and above that. He assumed a joint
venture had a higher present value for its distributions. He had
questions -about . the investment under municipal ownership, and in
schedule A-1, no investment was shown for municipal ownership and
he assumed it was because municipal ownership was all debt rather
than equity,' but in the municipal world, heequated debt with what
4 b- 7 1
6/18/84
the City's risk would be. He wanted to know the C i y' s dollar
commitment in the various municipal participation choices and what
City assets were at risk. He asked about the -basis for the calcu-
lations as to sale costs or revenues 15 years out. In a municipal
participation alternative, he assumed the City would not sell if
it had either a full ownership or part ownership and he wanted to
be taken through, whether it was relevant to calculate_ revenue
from a sale 15 years out or whether there was' another way to cal-
culate the true rate of return for the City. He heard a lot about
changes in the last year or two in_cable. television subscriber
rates nationally, and he asked to be brought.up to date as to what
happened during the past two years —particularly in suburban up-
scele communities --to help analYee the risk of a municipal parti-
cipation.
Councilmember Cobb shared the concerns already expressed by Vice
Mayor Levy and _Counci lmember Renzel, esReci,al ly the Jarvis 4 im-
plications, and he wanted a clear understanding with respect to
the different options available to the City. He was interested in
knowing the_ degree to which the various bidders who proposed dome
form of joint ownership would be interested in..forms other than
the specific numbers that provided -the -by percent or 49 percent,
that is, a smaller share for the City and how small was too small,
He was interested in whether Pacific Bell was the City's only op-
tion that provided :the opportunity to go with fiber optics out
front rather than later, and whether going with a coaxial system
no._w put the City at some risk of assuring near tern technological
obsolescence. He was interested in knowing more about the track
record of both Heritage andIIViacom operators, and some specific
schedule commitments with respect to both the Co-op and Cable
Partners` bid. He was interested in the concern expressed partic-
u i erly in the Co-op proposal with respect . to emphasis on quality
programming, and while he shared that concern and interest, he was
concerned about whether there would he similar focus on duality,
up market kinds of programming and that commercial viability of
the system plight be threatened because the bread and butter might
not get the attention it otherwise deserved. His emphasis was
about whether the system would remain -financially viable even if
it meant putting on more of those things that were net as inter-
esting to the focus on the _up market. He was interested in any
current market survey data available with respect to what Palo
Alto.wanted, what it would buy, and at what price.
Coueci lmeraber Witherspoon said le addition to the financial con
cerns expressed, reading through the proposals of the Co --op and
City Cable, she believed Council should be concerned about to what
extent those with proprietary interest in being bought out at the
end of the eighth year could transfer those rights. She believed
there was a possi bi l.i ty of the bank and some other institutions
taking over those rights and she wanted a -clear understanding
uout who the City's partners would be after year eight if the
City went with that optionoptione She was also concerned about having
some kind of .a provision for a perforaiance bond, both as to bui l d -
f ng thesystem and what would happen if, the original f i Hanoi ng
fell through.
Councilmember Woolley was concerned in general with the ability of
the various applicants to follow through because it was how the
City woui d avoid being , as -,ked to raise the rates or -- postpone. a
.feature.- - She asked fo , an evaluation on the design- 'the City
heard 450 Mhz-. versus 550 Rahn --and there. seemed :to be some di ffer-
e nnce es -to- which was realistic. The cost estimates for the system
were- not the same --for each applicant, -and -she asked fors an eval ua-
t ion about what was realistic. She was concerned about market
penetration._ or- revenue projections and the financ',al package.
Counci lmember ' Fletcher asked about the trade-offs if the City did
not go with fiber optics, or the° value pf, fiber optics with the
4 i ey having to-\gi ve in on soave other factors. She,asked about the
problems with the FCC which were referred to by the Cable Trade
Association. She wanted to know whether Proposition 4 of 1980,
which limited revenues that cities might absorb, would limit the
City's ability through direct ownership or franchise fees to
actually keep the revenues raised.
Mayor Klein asked for a report from the consultant on the status
of the caol a television legislation and how it would affect the
various proposals before the Council.
Councilmember Sutorius emphasized that he interpreted the request
for Jarvis 4 information to be a comprehensive - requestrecognizing
it was on a complex subject with nuances that could not be pre-
cise. He believed Council wanted to know, in the best ballpark
sense, whether the Jarvis impact was on each of the models so it
could distinguish those impacts, and likewise on the appropriation
limits of Proposition 4 mentioned by., Councilmember Fletcher. He
was interested in the costs to the City to date and a projection
of_ the costs up to a contract or final decision point and how
those costs --which he understood to mean the RFP process, and the
selection process --would be affected depending on the model with
which the City moved. He understood there were certain successful
bidder responsibilities which extended through the process, and he
wanted to know how that was affected by which model the City ended
up with. He was interested in knowing from the City's consultant,
and he invited bidder comment, the effect from a marketing., rev-
enue and cost standpoint on another system that might be the even-
tual selectee if Pacific Bell proceeded with the provision of an
institutional cable under its own processes with the institutional
cable it described. He did not see it spoken to in the materials
and was interested in knowing those impacts. At some point, he
wanted to make sure everyone was talking about the same general
responsiveness to the number of underground miles included in the
proposals. He was beginning to be concerned for some of the other
communities involved in the JPA because if Palo Alto had 71 miles
of underground already and the system proposals contemplated
somewhere between a low of 86 and a high of 120 miles, it meant
Palo Alto must have major undergrounding already in place and that
the other communities would have heavy aerial involvement.
City Manager Bill Zaner said an attempt would be made to have as
many of the questions answered tomorrow evening as possible, but
it was 3:00 a.m. for the consultants having arrived from the east
coast that afternoon, He suspected that answers might not be
received to all of the questions, and that Council might have to
consider moving without all c�.f the data or moving at a' later` time
when the `rest of the data was, received.
ABJOBRNMFNT
NOTION: Councilmember Bechtel moved, seconded by Cobb, to
adjourn the meeting of Jon* 18, 1984 to 7:30 p.wt, Jena 19,
X984
NOTION PASSED unanimously. _\
Council adjourned at 12.00 a.m.
ATTEST:
Assistant City Clerk
4 6 7 3
6/18/84
CITY
COUNCIL
MmurEs
CITY
of
PAI
ALTO
Regular Meeting
Monday, June 18, 1984
Adjourned to Tuesday, June 19, 1984
ITEM
Item #2, PUBLIC HEARING: Cable Television -
Consideration of an Ownership Model and Possible
Selection of One or More Proposals for Further
Negotiations for a Cable System Serving the Cities
of Palo Alto, Menlo Park, Atherton, East Palo Alto
and Stanford University
PAGE
4 6 7 5
Adjournment: 12:02 a.m. 4 7 0 7
}
J 3 1f _ _ t t -
Ad urtied Mee+. i i1 of
Monday-, Jape 18, 1984
Tuesday, Mine 19, 1984 -
The City Council of the City of Palo Alto met on this day in the
Council Chambers at City Hall, 250 Hamilton, Avenue, Palo Alto, at
7:30 p.m.
PRESENT: Bechtel, Cobb, Fletcher, Klein, Levy,
Renzel, Sutorius, Witherspoon, Woolley
CLOSED SESSION RE PERSONNEL
Mayor Klein announced that a Closed Session re personnel was held
at 5:30 p.m. in the Personnel Conference room.
ITEM 12, PUBLIC HEARING: CABLE TELEVISION - CONSIDERATION OF AN
TIVIEKS11 FP MIME -LW ""mn" M
(CMR :354 :4)
Mayor Klein introduced City Clerk Ann Tanner; City Manager Bill
Zaner, Assistant City Manager June Fleming, Senior Assistant City
Attorney Anthony Bennetti, Consultants Normal Sinel and Stephanie
Phillips of the Washington law firm of Arnold & Porter, Cable
Television Manager Jeanne Moulton, and Woody Britton of Price
Waterhouse, Certified Public Accountants.
Mayor Klein declared the public hearing open and said the hearings
were advertised for both Monday and Tuesday evenings.
Sid Landes, 714 Wildwood, said he lived in Palo Alto for 22 years
and returned from mainland China two days early to attend the
hearing. He believed in the free enterprise on which the nation
was built, but did not believe cities belonged in the CATV busi-
ness. He was impressed by City Cable Partners' presentation,
which stave specific figures, and offered to send him a copy.
Residents could be shareholders, the company would get a fair
return, and it had credibility. Issues such as CATV should be put.
to the voters of Menlo Park, Palo Alto and the Stanford communi-
ty.
-David Coward, resided on the Stanford campus, and was a high ener-
gy physicist who used Computers extensively at home and at
Stanford Linear Accelerator Center where he was employed. He
would not lease a cable television line for entertainment ser-
vices --the electronic revolution was happening so fast that.. he
wanted a' line to permit electronic data processing, mail, and
other futuristic ideas that might be reality in five years. Con-
ventional cable television would miss an opportunity for the come.
munity to do sonething'unique and far-reaching.
Mayor klein declared the public hearing closed. He suggested the
Ci;ei----Cnsultants; Arnold & Porter,. and City -Manager Bill Zaner
respond to the questions asked the previous evening, and'then pro-
vide their reports.: which would be followed by' additional ques-
tions. The applicants would be given three -_minutes -each .to
respond with -answers to questions only --not a repetition .of the
presentation or a synopsis -and limited to comments on factual
matters they believed were mistaken. Finally the Council would:
deliberate and hopefully come to a decision by midnight;''4ther-
wise, he recommended the;item -be continued until the following
e veni n.9.
City Manager Bi.l.l Zaner said Norm Sinel and his mssociate would
attemOt to respond to the questlons on which he h.d information,
and -he :Would cover the -others. Some questions were duplicative.
Norman, S1 nel , Arnold a Porter, said the consultants tried to break
the questions down into three areas --legal, financial, arrd struc-
tural or, technical. There were a series of legal questions deal-
ing with the effect of the new legislative deregulation effort on
the City's decision -making process to grant a private franchise or
a joint venture. The National- League of Cities,- U.S. Conference
of Mayors, and the National Cable Television Association (NCTA)
entered into an ayreernent on Memorial Day to establish a series of
principles upon which legislation should be based to go through
both the House and Senate. The effort to translate the pros of
the agreement into a legislative document ran into mary difficult
points during the past 10 days as both the industry aid city rep-
resentatives attempted toensure the legislative drafting reflect-
ed the principles on which they .agreed. It was a short legisla-
tive session, and the legislation could be derailed at many
points. For example, the telephone company issues to be resolved
in the committee would not be a subject of agreement. i n advance,
and the access: issues --the public's right to purchase access
tine --was not yet resolved. The cable industry and the cities
took different positians on the. issue, and the previous day the
united States Supreme Court handed down a decision on Oklahoma's
effort to have advertisements dealing with alcohol stripped from
the program as they were carried by the television stations. The
Supreme Court might have gone further than necessary by concluding
that the cities' rights to deal with programming, at least .in that
area, were preempted by the Federal;` Communications Commission
(FCC). He understood that the cable industry, as a result of that
aec i si on, might reevaluate its commitment to the legislative
process, so it was possible there would be no legislation before
the term- was up. If there was legislation, it would not immedi-
ately affect the structure of the system that Palo Alto attempted
to put into place. Various aspects of the legislation --its renew-
al provisions, its rate regulation provisions or nonregulation
provisions- -would apply to Palo Alto and any other new franchise.
It was assumed the effective date of the legislation would be when
it was passed --before Palo Alto entered into a private franchise
agreement --or on a date either six months or one year earlier, so
tne legislation would apply to the Palo Alto franchise. He could
detail each of the provisions, but suggested that as the City went
forward with respect to a franchise negotiation, the Council bear
in mind the legislation and the way it was drafted. Without the
actual wording, it was difficult to know how the legislative
drafters would translate the agreement between the cities and the
cable industry into legislation, so it was extremely difficult to
pinpoint the effect of the legislation on the City's private fran-
chise. If the City elected to participate in the ownership of a
franchise, the legislation would -obviously apply to Palo Alto to
the extent it spoke to federal policy and the impact of that poli-
cy on how CATV di.d its "business and its rights vis-a-vis a city.
However, as owner of a system, depending upon the city's partici-
pation, policy-mak i ng and control, and to the extent issues were
resolved tn. the federal legislation allowing cable operators to
come before a Ce,rnc.1 to seek modifications in franchises or shift
things without Council approval , the Council. could ensure the sys-
teaa operated in a way i t be i_i eved to be in the public interest.
The Council'_s capacity to continue regulation, participation, or
structure the cable system in a way to meet its view of the public
need, :without interference from the federal government, would
ci.early be 'heightened to the _extent Council had a participatory
.vole in the ownership -of the: system. Regarding Pacific _Belle the
FCC,eand other regulatory issues, he understood there was --another
letter from Pacific Bell and Commissioner Jones who: was with the
FCC for four years-. Arnold a Porter believed Pacifie Bell was a
uti l i t.y regul aged by the FCC, the California Public Utilities Come
rai ss,iod -(PUC) , and a Court consent decree, and offered risks Coun-
c i 1 wou l d have to assess- when determi nl ng the freedom _with which
I t coui d deal with the company Parties weight try -A0 to throw road-
blocks in Pacific Bell's way, without any concern about the effect
on Palo Alto,. in- the tel ecommuni cats ons struggle to parts ci pa.te .
4 6 7 ;5
./19 /84
and provide services. With regard to potential antitrust implica-
tions, it the City entered into a joint venture with Palo Alto's
franchising activities, the Ninth District Court held it to be im-
mune from antitrust challenge, and expressed expansive views con-
cerning a community's immunity from antitrust challenges. He an-
ticipated that the long running process would continue, and did
not believe there were antitrust difficulties with respect to en-
tering into a joint venture. The laws were factually based, and
the implementation of any City action would be carefully reviewed
by the City Attorney. Senior Assistant City Attorney Anthony
bennetti would respond to the effect of the Jarvis proposed amend-
ment on both franchise fees and the potential for City participa-
tion in a joint venture.
Senior Assistant City Attorney Anthony Bennetti said Vice Mayor
Levy pointed out that the Jarvis amendment had ambiguities and
suffered from the same ambiguities of the original Proposition 13;
but was more tightly drafted in that the City would have fewer op-
tions. To the extent it fit within the definition of "a fee for
services," "a.fee for benefits conferred"' or "a fee for regula-
tion," a franchise fee for a joint venture or a private franchise
would require two-thirds approval by the voters. Similarly, if a
totally municipally -owned system was chosen, a two-thirds vote.
would be required to impose fees on subscribers. The amendment
was clear that with respect to fees or taxes imposed after August
15, 1933, a two-thirds voter approval was necessary. With respect
to return on the investment, either for joint venture or municipal
ownership, -the question was unclear. The amendment did net speak
to sales or leases, and he could not say Whether such would be in-
terpreted as fees. He believed it was somewhat tortuous: to efit
leases and sales into the categories of fees for services or fees
for benefits conferred. It was possible that a true lease or true
sale would not come within the ambit of the amendment. Likewise,
a lease of the public rights -of -way aright also not be within the
ambit of Jarvis. It was a question of interpretation, and staff
did not expect to have the agreements back before the Council pri-
or to November, but would try to structure the final agreement to
put the City in the best possible position to withstand an attack
under the Jarvis-- amendment. With regard to the Gann initiative,
the City treated Uti 1 i ti_es Department transfers to the General
Fund as proceeds from taxes. If funds represented a return on the
City's investment on the utilities, and although the City had no
legal determination, the transfers were proceeds of taxes as
defined by the -Gann initiative which treated anything over and
above the direct cost of providing a service. or regulation as a
proceed of a ta.x for purposes of calculating the revenue limit.
because the City exercised caution with utilities, he assumed it
would exercise the same caution with respect to nanyejoint venture
or municipally -owned CATY. The ''Fy fell below the. Gann limit in
the current proposed budget by about $3.3 million, and assuming it
hit revenues from returns from investment i n cable, i t did not ap-
pear it would exceed the Gann limit. With respect to the fran-
chise fee, the FCC rules required that franchise fees be used to
provide or reimburse the cost of administering cable servicestervicese and
to the extent they were a recovery, they did: -not fall within .the
Gann definition of -proceeds from taxes because they would not ex-
ceed the cost `of providing the services.
Mayor Klein clarified that the Gann initiative was passed by the
voters some years ago, and the Jarvis issue would be on the Novem-
ber ballot and many -hoped-At would be defeated. With regard to,
the effect -of Jarvis 4, there was a - question concerning the:
language that fees charged had to be limited to the direct costs
Of the governmental entl ty involved.. The_ Council wanted to know
if that 1 anguage would :apply to fees charged. to subscribers if. the
Gi ty: of Palo. Alto was an- o finer,_ i n whole or in part, of .the sys-
tem, If -the' the answer was "yes." .he -::asked! whether the City -.was pre-,
cluded from making any profit frog th_e system since the fee would
De 1 imi ted to the meaning of direct costs,
i
4.6 7 7
6/19/84
Mr. dennetti said since there would have to be an election with a
two-thirds approval to impose the fee, presumably the City would
propose a fee and tax together, setting a rate of return on the
investment made in the system. If the voters were willing to ap-
prove a fee, they would, in the same election and in the same
measure, approve a tax that would approve the rate of return. The
definition included •;n Jarvis 4 was that, "to the extent any fee.
exceeds the cost of providing the service, it was, by definition,
a tax." Therefore, if the voters approved the tax, the same two-
thirds vote would approve the fee.
Mayor Klein said he understood that to obtain h profit, it could
be a separate item on the ballot and l aeei ed a tax.
Mr. dennetti said it could also be presented as a package so that
voting '°yes", on the fee would mean voting "yes" on the tax, and
vice versa, indicating if Council desired, that it was not inter-
ested in having one without the other, and taking the risk of
municipal participation.
Mayor Klein asked if Mr. Bennetti believed it would apply to a
system in Palo Alto if the City was a minority owner.
Mr. Bennetti said it was unclear. The amendment said a fee was a
charge by a City, agency, or instrumentality of the City. If the
City was a minority participant, the question of whether the joint
venture would be a city instrumentality or agency was open.
Mayor Klein asked if that meant another lawsuit.
Mr. Bennetti said yes, and he did not know whether they ct ul d
structure a situation where it was said that the cojoint venturer
imposed the rates, and the City was a passive partner. It would
oe a difficult proposition.
Vice Mayor Levy asked for clarification that to the degree a cable
system returned funds to the City over and beyond the cost of the
service, a two-thirds voter approval would be necessary any time
there was a change in rates.
Mr. Bennetti said yes. If the City instituted any new fees
regardless of the cost of living index, a two-thirds voter
approval would be required. The effects of the amendment were
drastic, but no different for cable than any other municpal •ser-
vice.
Councilmember Bechtel was glad Mr. Bennetti mentioned the cost of
living increase because it affected the City whether it was for
swimming pool fees, library overdue charges, etc. The Council
took a strong stand the previous December in opposition to the
amendment. She asked for clarification regarding "fee" and "rates
charged to the subscriber." Mr. Bennetti used the terms inter-
changeably, and she believed they were two separate issues. Col-
lection of a. franchise fee would require a two-thirds vote, and
the rates charged to the subscribers would also require a two-
thirds vote at the time.
Mr., Bennetti said the rates charged to the subscribers would be
approved by the voters only if the rates were -set by the Council
in a municipally owned system or, :arguably, by the joint venture
with municipal participation. With a strictly private franchise,
presumably the private franchisee could set the rates without
voter approval as long as the. Council did not regulate the rates
nor cause the franchisee to be an agency or instrumentality of the
City. The :franchise fee would still be subject to voter
approval
(:ouncilmember Bechtel saldAhe negotiation process was predicted
to be from four to eleven, months, and Council would know the
results. of aarvis 4 before it wade the final decision.