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Cable Franchise - HTML version of PowerPoint presentation

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Background for Buncombe County Cable TV Franchise Renewal

Index:
1.  Letter to Buncombe County Manager
         General Observations
         Economic Development
         Community Development

2.  "State of the Art" definition from the City of Asheville 1998 Cable Contract

3.  Chart of recent cable franchise renewals from The Buske Group archives.

4.  Summary of Key Franchise Issues
         Length of Contract
         State of the Art
         Performance Penalties
         "Refund" or "Tax"




20 July 2000

Ms. Wanda Green
County Manager
One Oak Plaza - Suite 105
Asheville, NC 28801

Dear Wanda:

Thanks for the opportunity to share some thoughts with you about negotiating a strong cable TV franchise renewal. We learned a lot in the City of Asheville and Black Mountain franchise renewals. We are also members of the Alliance for Community Media, a national organization of local governments and PEG access centers based in Washington, D.C.

As Alliance members, we have access to some of the leading cable-franchise renewal experts, such as Joe Van Eaton and Susan Buske. I've also enclosed a recent copy of the ACM magazine, "Community Media Review."

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I have divided my concerns and recommendations into three parts:  1. General Observations, 2. Economic Development, and 3. Community Development.

1. General Observations: As you know, cable companies are very adept negotiators, and they can be quite clever in taking advantage of municipalities which, for obvious reasons, cannot afford a resident expert on telecommunications law. As a result, I have too often witnessed local government officials relying on the technical expertise of the cable company staff, as if they were neutral, disinterested parties. Obviously, this gives the cable company a huge negotiating advantage over local governments.

This negotiating tactic is often observed when a cable official uses technical jargon to obfuscate or deflect a question. In the Asheville negotiations, for example, the cable manager often described the wonders of "fiber optics." Everything he said about the potential speed and capacity of fiber was true. What he didn't say, however, is that fiber's performance is based on the quality and capacity of the hardware hooked up to the fiber lines.

Cable companies typically deploy "state of the art" hardware in the flagship (big city) franchises, where they can get the highest return on investment. Meanwhile, they deploy older, lower-capacity hardware in their smaller franchises.

This is why, in the Asheville renewal, Intermedia limited the "state of the art" clause to "similar" Intermedia franchises, while specifically excluding their franchises in Gainesville, Ga. and Nashville, Tenn. (page 15, City Ordinance No. 2500).

The reason? The Nashville and Gainesville systems were re-built to a higher-standard "state of the art" speed and capacity, and Intermedia would not commit to making a similar investment in its Asheville system. Unfortunately, the City of Asheville did not contest this limited definition of "state of the art." This has serious economic development implications for our community (especially the business community), which I will discuss later.

Another general observation has to do with the length of the contract. As you may know, Intermedia originally proposed a 17-year contract with the city of Asheville. After we called attention to problems with the contract, including the contract length, the city re-opened negotiations and the company eventually offered a 12-year contract term.

Our consultants, Joe Van Eaton and Susan Buske, believe that any contract of more than 10 years is too long, given the rapid pace of change in the telecommunications industry. They currently are negotiating contracts in the 5-7 year range.

Another area in which the city caved into the cable company is in the Performance Penalty. Many local governments today are requiring a $1,000-a-day penalty if the operator is not complying with the contract. The city's penalty is only $150-a-day. This sum is simply inadequate given the deep pockets of most cable companies.

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2. Economic Development: The cable business is no longer simply delivering TV channels into the home. Cable companies are gearing up to provide digital broadband services, thereby giving local phone monopolies some badly needed competition. As a result, forward-thinking communities are using their cable franchise renewals to ensure that cable companies do indeed compete with the local phone company.

However, cable companies are picking and choosing where to deploy their most advanced infrastructure. Obviously, most of their infrastructure investment will go to densely populated, urban communities, where cable companies can get the highest return on investment. Smaller and mid-size communities are at-risk for prolonged delays in the deployment of broadband infrastructure, unless pressure is applied in the renewal process to ensure that the company intends to serve the local business community.

In a May 1 op-ed in the Philaldephia Inquirer, public-interest telecom advocate Jeff Chester notes that Montgomery County, MD. and Portland, Oregon recently "negotiated franchise agreements with broadband network providers that contain important public-interest concessions. These include setting aside portions of the bandwidth for noncommercial use, securing support for community applications, and installing high-speed connections for civic organizations." (I've enclosed a copy of the op-ed.)

Indeed, we may want to use the Portland contract as a template for negotiations here in Buncombe County. That contract can be found online at <http://www.mhcrc.org/tcifran.htm>.

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3. Community Development: Community education and community development are greatly enhanced with public access TV. Our community is home to several hundred non-profit organizations and agencies with important stories to tell.

Public access TV is a powerful resource for the local non-profit community. Public access allows local agencies and organizations to "tell their story," thereby raising public awareness and boosting fundraising and volunteer recruitment, especially among the region's increasingly youthful and active retired citizens.

Most of all, public access allows local non-profits to extend the reach of their community education efforts -- and, most importantly, to communicate with hard-to-reach citizens most in need of public health and social-service information.

Research shows that cable TV, despite its cost, is an "essential" service in many lower-income homes. Public access cable TV, therefore, is a powerful medium for reaching low-income citizens most in need of social services and public health information.

Without public access, local non-profit agencies and organizations would remain largely unknown and invisible to many citizens, especially those who do not read the local newspaper. It's important to remember that the Education Access and Government Access channels are not available to the non-profit community. Only local schools and colleges can use the E-channel, and only government agencies can use the G-channel.

It's true that, on occasion, programming which some viewers may consider controversial could appear on public access. Yet there are three basic mechanisms for protecting local governments and elected officials from complaints about such programming.

First, by granting oversight to a local non-profit agency, local governments can distance themselves from programming decisions.

Second, all producers of programming must sign a contract taking full responsibility and liability for content that may violate local, state or federal laws. (In almost 20 years of operation, public access TV in Austin, Texas had only one instance of a program that resulted in a possible violation. The producer -- not the public-access organization or the local government-- took full responsibility.)

Third, any programming that some viewers might find objectionable can always be scheduled in the middle of the night when most viewers are not watching.

Public access TV can also complement existing efforts to attract and create jobs related to the budding film and video industry in western North Carolina.

First, public access creates superb internship possibilities for film and video students in local schools and colleges. (Public access can also attract experienced volunteers, especially retired video professionals, to support video production programs in local schools.)

Second, public access creates work for local film and video-makers, as some larger non-profit organizations -- such as United Way agencies -- will hire professional videographers to produce their access programming.

Buncombe County has all the ingredients for a first-class public access operation, thereby providing a venue for the wealth of local talent and information resources that reside in our rich and diverse non-profit community. We envision a wide range of programming. Here are just a few of the likely sources:

  1. Local history programs from the Thomas Wolfe Memorial, Smith-McDowell House, and the Old Buncombe Genealogical Society.
  2. Gardening programs from the Cooperative Extension Service, the local garden clubs, and the N.C. Arboretum.
  3. Community involvement programs from Big Brothers/Big Sisters, Quality Forward and the WNC Nature Center.
  4. Public health programming from the Health Adventure, the Graham Children's Health Center, and the American Cancer Society.
  5. Arts programming from the Arts Alliance, the Folk Art Center, and the Asheville Art Museum.
  6. Youth programming from the YMCA/YWCA, Project STEAM, and the many youth sports associations throughout Buncombe County.

Obviously, the list of likely contributors to public access programming in Buncombe County is too long to enumerate here. But you get the picture.

Schools, churches, parents, teachers and concerned citizens have long been concerned about the negative influence of violent and sensational TV piped into our homes from Hollywood and Madison Avenue. With public access TV, local citizens and non-profit groups can show our children that another world exists. It's the world of homegrown heroes and high-achievers, right in our own backyard!

In short, Buncombe County is well positioned to finish the job of creating public access TV, which the city began two years ago. If the county can negotiate annual operating funds for public access -- to supplement the $340,000 in equipment money secured by the city in 1998 -- the stage would be set for a countywide, public-access consortium.

Of course, the cable company will vigorously and cleverly resist any attempt to force them to give back money to the local community. Their primary tactic for avoiding these refunds is to create the illusion that any money for public access will be "passed through" in the form of a "tax" on cable TV subscribers.

Years ago, when cable rates were regulated, there was a grain of truth in this argument. But today, cable rates are completely unregulated -- and cable TV is a virtual monopoly. Therefore, cable companies are free to charge whatever the market will bear.

For example, if Buncombe County were to forego its franchise fee payments from the cable company (5 percent of gross revenue), would subscribers see a 5 percent reduction in their bills? Not likely.

Cable companies would simply pocket the additional 5 percent and continue to charge whatever they can get away with. [Note: Cable companies have sophisticated financial models showing how much they can charge before substantial numbers of subscribers start switching to satellite-dish options.]

Franchise fees, therefore, are simply the "cost of doing business." So too are funds negotiated for public access. Indeed, with local governments prohibited by federal law from collecting franchise fees in excess of 5 percent of gross revenues, the only other means of local compensation is funding for public access.

Local governments who do not negotiate substantial contributions to public access are, in effect, giving the cable monopoly a free ride. [see chart of recent franchise renewals.]

SUMMARY: We learned a lot from the City of Asheville's cable renewal negotiations with Intermedia two years ago, and from Black Mountain's franchise transfer last year. Please know that our community has a small but knowledgeable group of concerned citizens willing to help in the county's negotiations with Charter. We look forward to working with you.

Sincerely,
Wally Bowen
Executive Director
cc: Buncombe County Commissioners

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From City of Asheville Ordinance #2500, July 1998 defining "State of the Art."

 

E. Internet Services. In the event that Franchisee elects to provide high speed Internet access services by cable modems in the City, then at such time that Franchisee begins to provide such Internet services to its subscribers on a commercial basis, Franchisee shall provide free Internet access service and a free cable modem to each school and public library located within the Franchise Area and which are passed by the activated feeder cable for as long as Franchisee decides, in its sole discretion, to continue to provide such Internet services to its Subscribers in the Franchise Area. Such Internet access service and modem shall be provided when Internet services to Franchisee's Subscribers become available in the Cable System node in which the school or public library is located and within thirty (30) days of a written request from the school or public library for such Internet access service and modem.

13. STATE OF THE ART.

A. Requirements. The Franchisee shall offer Subscribers within the Franchise Area the same broad categories of video programming and similar capacity (including, but not limited to, facilities and equipment) for Cable Services, which are made available to either of the following:

1 . an average of at least three (3) other communities in North Carolina which have a Cable System franchise with the same or a comparable term (within three years, more or less), up to 5,000 Subscribers more or less than the existing number in Asheville, a similar number of cable plant miles, and similar or less stringent local laws, rules and regulations concerning the operation of a Cable System-, or

2. any other communities in North Carolina, South Carolina, Georgia and/or Tennessee which are served by a Cable System owned and operated by the Franchisee with the same or a comparable term (within three years, more or less), up to 5,000 Subscribers more or less than the existing number in Asheville, a similar number of cable plant miles, and similar or less stringent local laws, rules and regulations concerning the operation of a Cable System; provided, however, the City acknowledges that the Nashville, Tennessee Area, and Gainesville, Georgia, are served by Cable Systems owned and operated by Franchisee and each has a 750 MHz Cable System as of the effective date of this Franchise and that Franchisee shall not be obligated to rebuild the 550 MHz Cable System as described in Section 10 of the Franchise to a 750 MHz Cable System if those are the only communities which meet the criteria set forth herein above and have a 750 MHz Cable System during the term of this Franchise.

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Outcomes of Recent Cable Franchise Renewals

City/State

Cable Company

No. of Subscribers

Year

Renewed

Rebuild
Highlights

Institutional Network

PEG Access Channels

Cable Company Funding for PEG Access Equipment and Facilities

Support for PEG Access Services

Source

Amount

Gilroy/Hollister/
San Juan Bautista, CA

Charter

15,000 subscribers

2000

Within 24 months:

750 MHz fiber/coax

rebuild.

Interconnection with adjacent systems.

Yes

Initial: 1

After rebuild: minimum of 4

Thereafter, up to

7 analog

Initial: $700,000

Ongoing: $209,782 or 3% of gross revenues per year, whichever is less.

 

 

 

Cable Company

 

 

 

-----------------

 

City

Included in funding for PEG Access equipment/facilities.

Free program listings in print and electronic program guides;
free annual billstuffer.

----------------------------

Percentage of franchise fees to be determined.

Ventura, CA

Adelphia, Avenue

27,000 subscribers

1999

750 MHz fiber/coax

rebuild.

By Jan. 1, 2002:

Internet service available.

Interconnection with adjacent systems within the City.

Yes

Initial: 1

After 2 Years:
3 analog

Thereafter:
up to 10
(analog or digital)

Channel locations may not be changed without City consent, unless required by federal law.

Initial: $500,000

Year 2: $400,000

Year 3: $140,000

Ongoing:

Adelphia: $1.04 per sub per mo.

Avenue: $1.20 per sub per mo.

 

 

Cable

Company

 

 

-----------------

 

City

 

 

Included in funding for PEG Access equipment/facilities.

 

----------------------------

 

Minimum of 20% of franchise fees.

 Monterey, CA

AT&T

11,500 subscribers

1998

Initial: digital upgrade (to add 36 video and 10 audio channels).

Within 2 Years:

(a) fiber/coax rebuild,

(b) Internet service

available.

Interconnection with adjacent systems.

Yes

Initial: 1

After 1 Year: 2

After 2 Years: 4

Thereafter, up to:

(a) 6 analog, or
(b) 24 digital plus
12 MHz, or

(c) 6 HDTV.

Initial: $800,000

Ongoing: 35˘ per sub per month.

 

 

 

 

Cable Company

 

 

 

-----------------

City

70˘ per sub per month (City may increase this amount.).

30 free promotional spot insertions per month; free video and print program listings;
free annual billstuffer.

$2,000/access channel if re-located.

----------------------------

32% of

franchise fees.

Mountain View, CA

AT&T

16,000 subscribers

1996

750 MHz fiber/coax

rebuild.

Yes

4-6 analog

Up to 12 analog and digital.

$2.6 million over 10 years

(includes funds for I-Net equip-ment and PEG Access services).

Cable

Company

-----------------

City

Included in funding for PEG Access equipment/facilities.

----------------------------

70% of franchise fees.

Santa Rosa, CA

Cable One

43,000 subscribers

1996

550 MHz fiber/coax rebuild.

Within 30 months:

Internet service available.

Interconnection with adjacent systems.

Yes

Initial: 2

After 2 Years: 4

Thereafter:

up to 7.

Initial: $1,200,000

Replacement:

$1,300,000

Cable Company

-----------------

City

$150,000/year

----------------------------

$350,000/year

(37% of franchise fees).

Tucson, AZ

Cox

81,000 subscribers

1997

550 MHz fiber/coax rebuild.

Internet capability.

Yes

Initial: 7 (until upgrade is completed).

Thereafter: up to
9 analog or
20 digital, plus data capacity.

40˘ per sub per month.

Cable Company

2% of gross revenues for support of PEG Access and I-Net.

75 free promotional spot insertions per month; free video and print program listings.

Up to $5,000/access channel if re-located.

Montgomery Co., MD

Prime Cable

200,000 subscribers

1998

750 MHz fiber/coax rebuild.

Yes

13 analog

Up to 10% of digital spectrum.

Year 1: $2,000,000

Year 2: $1,200,000

Thereafter: $200,000 per year, adjusted
for CPI.

Cable Company

$1,500,000 per year, adjusted for CPI.

Iowa City, IA

AT&T

21,000 subscribers

1995

550 MHz fiber/coax

rebuild.

No

Initial: 6

Additional 2

channels available, based on activation formula.

50˘ per sub per month.

 

Cable Company

 

-----------------

City

$149,554/year, plus annual inflation adjustment

(for Public Access).

----------------------------

Annual allocation for Government Access from City budget.

Atlanta, GA

AT&T

80,000 subscribers

1994

750 MHz fiber/coax rebuild.

Yes

11 channels

Additional channels when system capacity exceeds 78 channels.

Initial:

$1.9 Million

Year 4:

$1.4 Million

Cable Company

-----------------

City

 

$500,000/year

(for Public Access).

----------------------------

Annual allocation for Government Access made during City budget process.

Cincinnati, OH

Time-Warner

60,000 subscribers

1996

750 MHz fiber/coax rebuild.

Yes

9 channels

(Included in support for Public Access services.)

Cable Company

-----------------

City

 

 

96˘ per sub per month
(for Public Access).

----------------------------

Annual allocation for Government Access made during City budget process.

Cupertino, CA

AT&T

13,000 subscribers

1995

750 MHz fiber/coax rebuild.

No

4 channels

Additional 2 channels available, based upon activation formula.

$1.623 Million over life of franchise (includes funding for PEG Access Services).

Cable Company

-----------------

 

City

Included in funding for PEG Access equipment/facilities.

----------------------------

City matches
Cable Company’s $1.623 Million over life of franchise.

Petaluma, CA

AT&T

18,500 subscribers

1995

750 MHz fiber/coax rebuild.

Yes

3 channels initially.

Additional channels also available (up to 7% of total system capacity).

Initial: $500,000

Year 3: $290,000

Cable Company

60˘ per sub per month (City may increase this amount at any time).

Portland, OR (East)

AT&T

92,000 subscribers

1996

750 MHz fiber/coax rebuild.

Yes

8 analog channels.

After digital transition, up to 10% (36 channels) of downstream capacity is reserved for
PEG Access.

3% of Gross revenues annually (1% for Public Access, 1% for I-Net, 1% for PEG Access Grant).

City

1997 - 1998:

$624,000 est.

1998 - 1999:

$703,000 est.

1999 - 2000:

$756,000 est.

2000 - 2001:

$1 million est.

Salina, KS

Cox

17,000 subscribers

1992

550 MHz fiber/coax rebuild.

Yes

3 channels

$625,000

(plus re-openers in Years 5 & 10.)

Additional funding at City discretion.

 

Cable Company

 

----------------

City

Initially 60˘ per sub per month, with escalator clause tied to increase in basic rates (in 2000: 85˘ per sub per month).

----------------------------

$130,000/year

(40% of fran. fees).

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Key Franchise Issues

 

1. Length of Contract:

  • Given the fast-changing telecom industry, the county should negotiate the shortest possible contract. Many communities insist on contracts no longer than 5 years.
  • As a negotiating strategy, the county could offer a very short-term contract (2-3 years), then increase the contract-term if the cable company makes concessions on other critical issues.

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2. State of the Art:

  • Our business community needs the cable company to compete with BellSouth in the broadband market. However, cable companies are very selective about which systems they upgrade for broadband services.
  • Unfortunately, the City of Asheville accepted a lower "state of the art" standard, which places the Asheville system in a "tier" below Gainesville, GA, and Nashville, TN (see attached).
  • In a limited-capacity system, cable companies will sacrifice broadband deployment in order to concentrate on high-definition, digital TV. If this happens in Buncombe County, BellSouth will continue its monopoly position, local businesses will pay higher rates for fewer services, and the local economy will continue to be at a competitive disadvantage.
  • Therefore, Buncombe County must forcefully negotiate an ironclad guarantee that Charter Communications will build a true "state of the art" system with a date-certain deployment of broadband services.

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3. Performance Penalties:

  • Contracts with cable companies are worthless if they can't be enforced. Given their deep pockets, big cable companies often ignore $100-a-day fines. Contracts with real teeth (e.g., Dade County, FL) include a $1,000-a-day performance penalty.

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4. "Refund" or "Tax":

  • Cable companies play a semantic "con" game by labeling PEG access funds as a "tax" that is "passed-through" to subscribers. However, given their monopoly status plus the absence of rate regulation, cable companies are free to charge whatever the market will bear.
  • The City of Asheville currently receives $0.35 per subscriber per month for PEG access equipment ($340,000 over four years). Had the city not negotiated this refund, would cable bills drop 35 cents a month? Not likely.
  • By contrast, communities smaller than Asheville have negotiated much larger PEG access refunds:

-- Iowa City, Iowa (21,000 subs) receives $1.5 million over 10 years.

-- Mountain View, CA (16,000 subs) receives $2.6 million over 10 years.

(Source: The Buske Group)

  • Buncombe County cannot let the cable company "define" this issue. Substantial PEG access refunds ($10 per sub per year) are quite realistic. With franchise fees capped by federal law at 5 percent of gross revenue, PEG access refunds are the only way local governments can get a fair return for granting such a lucrative monopoly franchise.

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