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HomeMy WebLinkAbout2000-03-20 City Council (18)City of Palo Alto C ty Manager’s Report STUDY SESSION 1 TO:HONORABLE CITY COUNCIL FROM:CITY MANAGER DEPARTMENT: ADMINISTRATIVE SERVICES DATE:MARCH 20, 2000 CMR:177:00 SUBJECT:STATUS OF CABLE TELEVISION FRANCHISE RENEWAL AND TRANSFER OF OWNERSHIP PROCESSES This is an informational report and no Council action is required. BACKGROUND In 1983, a Joint Exercise of Powers Agreement (JPA) was entered into by Palo Alto, Menlo Park, East Palo Alto, Atherton, and portions of the counties of San Mateo and Santa Clara, for the purpose of obtaining cable television service for the residents, businesses, and institutions within these jurisdictions. The JPA gives the City of Palo Alto sole authority to grant and administer the cable television franchise on behalf of all the JPA member communities, thus making it the local franchising authority. The JPA member communities share the costs of administering the franchise, proportional to the percentage of overall subscribers. As of December 31, 1999, the City of Palo Alto had 53 percent of the subscribers, Menlo Park 25 percent, East Palo Alto 10 percent, Atherton seven percent, San Mateo County three percent, and Santa Clara County (Stanford) two percent. In 1986, a cable television franchise agreement was executed with Cable Co-op, and was amended in 1991. This agreement will expire on March 24, 2001. During the period that begins thirty-six months prior to the expiration of the franchise agreement, Cable Co-op may request the City of Palo Alto (City) to commence proceedings to determine whether or not to renew the franchise. In July 1998, Cable Co-op made this request and in September 1998 the Palo Alto Council adopted a resolution agreeing to begin renewal proceedings. CMR:177:00 Page 1 of 7 After conducting a competitive proposal process, the City retained the services of a cable communications consultant, The Buske Group, to assist City staff with the franchise renewal proceedings. The City has also contracted with a law firm that specializes in cable communications law. In addition, a working group comprised of staff from the City Clerk’s Office, the City Attorney’s Office, and the City Manager’s Office, including the Director of Administrative Services and the Director of Utilities, has been established to oversee the cable franchise renewal efforts. In April 1999, Cable Co-op announced that its Board of Directors had approved a letter of intent to sell the cable system to AT&T Broadband and Internet Services (AT&T), formerly TCI. The Board approved the sale in September 1999, and the subscribers of Cable Co-op approved the sale in late 1999. On February 14, 2000, the City received the request to transfer the franchise from Cable Co-op to AT&T (CMR:155:00). Although the franchise renewal and the franchise transfer are separate processes, with different timelines and procedures, they are occurring concurrently. Staff has prepared several staff reports related to both processes. They include a report that accompanied a July 1999 Palo Alto City Council Study Session (CMR:314:99), as well as a staff report following up on the Study Session (CMR:356:99); and a staff report updating the Council on the status of the franchise renewal process in November 1999 (CMR:423:99). Earlier staff reports and other information regarding the cable franchise and the transfer and renewal processes can be found at the City of Palo Alto cable television web site, http://www.city.palo-alto.ca.us/cable/. DISCUSSION Both the JPA and federal law and regulations establish the roles and responsibilities of the City of Palo Alto as the local franchising authority. These are discussed below, followed by more detailed discussions of the transfer and renewal processes. Joint Exercise of Powers Agreement The JPA agreement authorizes Palo Alto to award, modify and administer a franchise agreement on behalf of the JPA members. It gives the Palo Alto City Manager the authority to create a JPA Working Group with one person from each JPA jurisdiction. The JPA Working Group is in place and has been meeting monthly in order to obtain input from the member communities as the transfer and renewal processes progress. The Working Group also provides a forum for the member communities to discuss cable- related issues. Palo Alto staff have made every effort to keep all of the JPA member communities knowledgeable about both the transfer and renewal processes, through the monthly JPA Working Group meetings, written correspondence, and by providing them copies of all staff reports sent to the Palo Alto City Council. The JPA also provides for the establishment of a seven-member Cable Franchise Review Board to review and resolve any issues formally raised by a majority of the governing CMR:177:00 Page 2 of 7 body of any JPA member concerning the administration of the franchise. To date, such a review board has not been put in place. At its November 1999 meeting, the JPA Working Group decided not to establish a Franchise Review Board at that time. ~ Powers of the City of Palo Alto as the Local Franchise Authority Federal law detines the powers or the City oI t’alo Alto as the local franchising authority. Current federal law limits Palo Alto from regulating items that many cable customers are most concerned with: rates (except for the lowest cost tier of service); channel selection; and channel placement (except for public, educational, or government channels). Palo Alto is also limited in requiring specific transmission technologies (i.e., mandating that services must be transmitted over fiber optics), in establishing a franchise fee that is greater than five percent of gross revenues, or in granting an exclusive franchise agreement. In addition, California State law precludes Palo Alto from regulating voice (telephone) services, even if offered over cable lines. There are a number of things that Palo Alto can negotiate for in franchise agreements. Palo Alto can require support of public, educational, and government (PEG) access through facilities, equipment, and channels; it can establish customer service standards, including those related to answering telephone calls, response to complaints, and imposition of late fees, and the establishment of a local customer service office; it can regulate the video portion of services offered; it can generally regulate data services, including Internet services; and it can require construction of an Institutional Network linking schools, libraries, and public buildings. Transfer Process Federal and state law, as well as the existing franchise agreement, govern the process of transferring ownership of the cable system. A formal transfer of ownership request must be submitted to the City of Palo Alto (on Federal Communications Commission Form 394), along with supporting documentation. The documentation must include sufficient detail to enable the City to review and evaluate the transfer and to exercise its reasonable judgement with respect tO the transfer. The transfer from Cable Co-op to AT&T can only be denied under certain circumstances. Applicable law provides a basis for denial of transfer requests. Palo Alto may deny a franchise transfer request based upon the buyer’s unique financial, legal, technical, and character qualifications, and its ability to provide the required cable service. Palo Alto may also deny a transfer request if the proposed transfer would eliminate or reduce competition in the delivery of cable service, if the buyer refuses to accept the terms of the existing franchise agreement, and/or if the buyer refuses to cure any past contract non- compliance issues of the seller. Under the franchise agreement with Cable Co-op, the timeframe for consideration of a transfer of ownership request is shorter than the timeframe granted by federal law (a total ’CMR:177:00 Page 3 oi7 of 90 days versus 120 days). Federal law and the franchise agreement allow both parties to agree to an extension. In order to provide sufficient time to evaluate the transfer application, once the City determines it to be complete, the City Manager may request that Cable Co-op waive the time requirements set forth in the franchise agreement and follow the guidelines established by federal law. Under Federal Communication Commission rules, the City has 30 days to notify Cable Co-op concerning any questions related to the transfer application and supporting documentation, including questions regarding the accuracy and completeness of the information provided. Under federal law, if no action has been taken, and no extension has been granted, the transfer request is deemed approved 120 days after receipt. As indicated above, the City of Palo Alto received a formal transfer request from Cable Co-op and AT&T on February 14, 2000. Staff has reviewed the request and determined that it is incomplete. Staff has requested additional information in order to complete its review of the transfer application. Once the additional information is received, the City will review the request and the City Manager will bring forward a recommendation to the Council regarding the transfer. A public hearing will be_ held in order to give the community and the other JPA agencies an opportunity to provide feedback to the Council regarding the transfer of the cable system to AT&T. Even though the transfer process is subject to a short timeframe, every effort is being made to ensure as much input as possible from all of the JPA member communities. Staff will continue to use the monthly JPA Working Group meetings to update everyone on progress regarding the transfer, and staff will notice any public hearings or meetings on the transfer process in all of the JPA communities. It is important to note that the franchise agreement grants the City of Palo Alto the right of first refusal, provided the City exercises this option within 90 days of receipt of the formal notice with detailed terms and conditions of the sale. This allows the City to acquire the franchise under the same terms and conditions agreed to. by Cable Co-op and AT&T. In exercising its right of first refusal, the City would be assuming the financial and operational risks inherent in providing cable services and managing the cable system. It would be doing so on its own behalf, and not on behalf of the JPA. Each JPA member would then have 90 days to decide whether or not to terminate its participation in the Joint Exercise of Powers Agreement. Renewal Process Federal law and the existing franchise agreement govern the cable franchise renewal process. The cable franchise renewal process involves an examination of the past performance of Cable Co-op, including an analysis of how well it has complied with the existing franchise agreement; an exploration of future community communication needs and interests; and actual negotiations for a new franchise. Most franchise agreements are reached or renewed without the issuance of a formal request for proposals and take CMR:177:00 Page 4 of 7 approximately 18 to 24 months to complete. If it becomes necessary to issue a formal request for proposals, the process can take an additional nine months to a year. The City may deny Cable Co-op’s request for renewal only if one or more of the following applies: ¯There is substantial noncompliance with terms of the existing franchise agreement e Service quality has not been reasonable in light of community needs .The provider lacks the financial, legal, or technical ability to provide the services, facilities, and equipment needed . The proposal from the provider does not meet cable-related community needs and interests, taking into account the cost of meeting such needs As indicated above, the franchise agreement between Palo Alto and Cable Co-op expires in March 2001 and the City has begun the franchise renewal proceedings. The franchise renewal process consists of three phases. The objective of Phase One is to develop a renewal plan and timeline, and educate City staff, elected officials, and key members of the community regarding the process, applicable laws, and regulations. This phase has been completed. The objective of Phase Two is to establish the basis for negotiating a new franchise agreement or renewal. The first part of this phase includes an overall review of Cable Co-op’s past performance, including a technical audit of the cable system; an evaluation of compliance with the existing franchise and franchise fee provisions; a review of customer service standards and consumer complaints; a review of current PEG access resources and services; and a public hearing on past performance. The second part of this phase is forward-looking. It uses surveys, focus group workshops, and public hearings to identify future community cable-related needs and interests. The City is currently in Phase Two. Phase Three builds upon the information gathered in Phase Two, and includes the establishment of desired outcomes for the renewal process and actual negotiation of a new franchise agreement or a renewed franchise agreement. Typically, the desired outcomes fall within the following areas: cable system upgrades/rebuilds; contributions of television channels, facilities and equipment for PEG access; and an Institutional Network to link schools, libraries, and government buildings. In addition to the efforts described in these phases, staff is planning to bring to the City Council an Enabling Ordinance and a Customer Service Standards Resolution. Such laws would establish the "rules of the road" for any person or business wishing to provide cable television services in Palo Alto. Much of the information in the Enabling Ordinance and Customer Service Standards Resolution is contained in the current franchise agreement. However, it is preferable to include information such as definitions, franchise CMR:177:00 Page 5 oi7 fee payments, minimum PEG requirements, and customer service standards in separate laws, which can be updated more frequently than franchise agreements. This better reflects the rapidly changing nature of technology. As mentioned above, the City is currently in Phase Two. The evaluation of past performance is nearing completion and staff plans to have a public hearing on this item in April. A report covering the evaluation of compliance with franchise fee provisions has been completed and was sent to the Council previously. The needs assessment portion of this phase is also well underway. A telephone survey has been conducted. A Needs Assessment Task Force, composed of representatives from all of the JPA communities, has been assembled. (The list of members can be found on Attachment A). This group has worked with City staff and the consultant to help plan and publicize a series of workshops to be held throughout the franchise area in April. (The schedule is included as Attachment B.) Staff believes that the needs assessment process is especially critical. Due to the evolving nature of the cable industry, the franchise renewal process involves more than an examination of video programming services. Because cable now includes the ability to deliver voice and data, a~s well as video communications, the franchise renewal process provides an opportunity to examine community-wide communications needs. These needs are identified through the needs assessment process. In turn, the identified needs are used to develop desired outcomes, which will guide City negotiations. The outreach process is designed to encourage the broadest and most representative participation possible, to ensure that as many needs as possible are collected and catalogued. TIMELINE Generally, response to the transfer request would be completed within a fairly short time frame, before a new or renewed franchise agreement is negotiated. This is the timeline under which staff had been working. However, according to representatives of AT&T and Cable Co-op, their current transfer of assets agreement requires that a new or renewed franchise agreement be in place before the deal will be completed. In addition, Cable Co-op has $34 million in debt coming due on July 31 (in the asset purchase agreement, Cable Co-op retains the debt; it is not assumed by AT&T). As a result, there is a desire on the part of AT&T and Cable Co-op to have a new or renewed franchise agreement in place in July so that the transaction can be finalized before the debt comes due. Due to the schedule for the needs assessment process, as well as the Council calendar, staff believes it would be extremely difficult to meet the July deadline. However, in an attempt to expedite the process, staff has agreed to meet with Cable Co-op and AT&T to begin discussions regarding a new or renewed franchise agreement, focusing on those areas that do not require information from the needs assessment process. The transfer agreement between Cable Co-op and AT&T lays out sbme of the critical elements of the CMR:177:00 Page 6 oi7 new or renewed franchise agreement (e.g,, the system upgrade and timeline) which will facilitate negotiations. If negotiations go smoothly, staff would hope to return to the City Council next fall for approval of a new or renewed franchise agreement. This would be well in advance of the original schedule, in which staff hoped to return to the Council just prior to the expiration of the franchise in March 2001. ATTACHMENTS Attachment A: Membership of Needs Assessment Task Force Attachment B: Schedule of Focus Group Workshops PREPARED BY:Melissa Cavallo, Assistant Director Shannon Gaffney, Senior Financial Analyst REVIEWED BY: Grant Kolling, Senior Assistant City Attorney DEPARTMENT HEAD: CITY MANAGER APPROVAL: Mr.Russell Averhart, Director of Administrative Services, City of East Palo Alto Mr.Waker Callahan, Deputy Director, Public Works, San Mateo County Ms.Uma Chokkalingam, Finance Director, City of Menlo Park Ms.Jan Dolan, City Manager, City of Menlo Park Mr.Ralph Freedman, Interim City Manager, Town of Atherton Ms.Monica Hudson, City Manager, City of East Palo Alto Mr.John Maltbie, County Executive, County of San Mateo Ms.Jan Thomson, Stanford University Ms.Salani Wendt, City Clerk, City of East Palo Alto Mr.David Wheaton, Asst. City Manager, City of Menlo Park Mr.Richard Wittenberg, County Executive, County of Santa Clara Mr.Ron Kirkeeng, CEO & General Manager, Cable Co-op Ms.Nicolasa A. Bloom, Director of Government Affairs, AT&T Broadband & Internet Services Ms. Susan Ritchie, AT&T Broadband & Internet Services CMR:177:00 Page 7 of 7 ¯ ATTACHMENT A Name Isabela Huin Sally Kiester Andrew B. Mellows Bill Copeland Elliot Margolies Robert Golton Jay Thorwaldson Alison Lee Liza Loop Bruce Davis William Van Orsdol Marianne Lettieri Henry Organ David D. Elliott Richard D. Givens Jan Thomson Charles Riley Gary Lauder Russ Averhart Needs Assessment Task Force Members Affiliation MPAC Board Member; Teacher; represents Palo Alto MPAC Board Member; Ph.D. in education; represents Palo Alto MPAC Board Member; represents Palo Alto Keep Community Cable; represents Palo Alto MPAC Executive Director; represents Palo Alto PAUSD; represents Palo Alto PAMF; represents Palo Alto Founding member Cable Co-op; represents Palo Alto LO*OP Center; represents Palo Alto Executive Director, Arts Council: Silicon Valley; represents Palo Alto MPAC volunteer; represents Palo Alto Menlo Atherton High School; represents Menlo Park Stanford Retired Foundation Relations; represents Menlo Park Represents Menlo Park Attorney; represents Menlo Park Represents Stanford Represents San Mateo County Venture Capitalist; represents Atherton Represents East Palo Alto Consultant Sue Buske, President, The Buske Group Staff Supporting Process Carl Yeats, Director, Administrative Services Department, City of Palo Alto Melissa Cavallo, Assistant Director, Administrative Services Department, City of Pal0 Alto Shannon Gaffney, Sr. Financial Analyst, Administrative Services Department, City of Palo Alto Donna Rogers, City Clerk, City of Palo Alto Grant Kolling, Senior Assistant City Attorney, City of Palo Alto Leon Kaplan, Director, Arts and Culture, Community Services Department, City of Palo Alto Susan Arpan, Manager, Economic Resources, City Manager’s Office, City of Palo Alto David Wheaton, Assistant City Manager, City of Menlo Park Uma Chokkalingam, Finance Director, City of Menlo Park Walt Callahan, Deputy Director, Department of Public Works, San Mateo County Joe D’Angelo, Department of Public Works, San Mateo County ATTACHMENT B PALO ALTO JPA FOCUS GROUP WORKSHOP SCHEDULE April 17 - 26, 2000 Churches and Faith Based Organizations Monday, April 17, 2000, 7:00 - 9:00 p.m. Turing Auditorium (attached to Polya Hall), Stanford University Behind Redwood Hall, 275 Panama Street, Stanford Local Government Departments and Agencies Tuesday, April 18, 2000, 10:00 a.m. - Noon Council Chambers, East Palo Alto City Hall 2415 University Avenue, East Palo Alto Education & Libraries Tuesday, April 18, 2000, 4:00 - 6:00 p.m. Menlo-Atherton High School 555 Middiefield Road, Atherton Businesses and Business Organizations Wednesday, April 19, 2000, 2:00 -4:00 p.m. Hewlett Packard, Building 20, Auditorium 3000 Hanover Street, Palo Alto Arts Organizations (including Artists), Cultural & Heritage Organizations Wednesday, April t9, 7:00 - 9:00 p.m. Main Hall, Bellhaven Senior Center 100 Terminal Avenue, Menlo Park Youthand Youth Organizations Monday, April 24, 2000, 5:00 - 7:00 p.m. Palo Alto Teen Center 245 Bryant Street, Palo Alto Community Residents & Neighborhoods Tuesday April 25, 2000, 7:00 - 9:00 p.m. Meeting Room, Terman Community Center 661 Arastradero Road, Palo Alto Non-Profit, Human Service, Community Services Organizations and Agencies Wednesday, April 26, 2000, 2:00 - 4:00 p.m. Main Hall, Bellhaven Senior Center 100 Terminal Avenue, Menlo Park Non-Profit, Human Service, Community Services Organizations and Agencies Wednesday, April 26, 2000, 7:00 - 9:00 p.m. Council Chambers, East Palo Alto City Hall 2415 University Avenue, East Palo Alto ~