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Home My WebLink About17 - Transfer of Adelphia FranchiseCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 17 October 25, 2005 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: City Manager's Office Dave Kiff, Assistant City Manager 949/644 -3002 or dkiff @city.newport- beach.ca.us SUBJECT: Repeal of Resolution 2005 -48 authorizing the City Manager to Reject Documents relating to the Transfer of Adelphia's Franchise to either Time Warner or Comcast ISSUE: Should the City Council reconsider its September 13, 2005 decision to adopt a resolution (Resolution 2005 -48) authorizing the City Manager, or his designee to reject documents relating to the proposed transfer of Adelphia's cable television franchise to Time Warner or Comcast? RECOMMENDATION: Repeal Resolution 2005 -48. DISCUSSION: Background: Adelphia Communications has held a franchise to operate a cable system in about 60% of the community for the past several years. Previous to Adelphia's arrival, Comcast held the franchise over the same territory. The City's franchises are non - exclusive, meaning that any cable company can request a franchise agreement, enter the Newport Beach market, build a cable system, and solicit customers. This kind of direct competition between cable companies for the same customers is rare, because of the large initial investment required to lay a cable system alongside an existing system. Remember that the "plant" in the ground is the property of each cable system - it's not city nor public property. Resolution Relating to Adelphia -Time Warner Transfer October 25, 2005 Page 2 Cox communications holds a franchise for the roughly 40% of the city not served by Adelphia. Here is our most recent data on how many subscribers each company has in Newport Beach: In April of 2005, Time Warner Inc. and Comcast Corp. agreed to acquire Adelphia Communications Corp. for $17.6 billion through a deal with Adelphia's creditors. Adelphia, based in Colorado, was one of the largest U.S. cable operators, with more than 5.3 million customers in 31 states. In 2002, the company filed for bankruptcy. In 2004, Adelphia founder and CEO John Rigas and son (and CFO) Timothy Rigas were convicted of fraud and other charges. Adelphia is now run by a management team led by Chairman and CEO William Schleyer, a longtime cable executive. In June 2005, the Federal Communications Commission (www.fcc.gov) received a submittal by Time Warner and Comcast to jointly acquire (and transfer associated licenses and documents from) Adelphia. Part of the FCC process involves the companies' (in our case, Time Warner, because TW will take over Adelphia's west coast systems and Comcast will take its east coast systems) asking our consent (via what's called a Form 394) to approve the Adelphia to Time Warner switch and to allow Time Warner to step into the current franchise agreement that Adelphia holds. For your information, the current franchise agreements with both Adelphia and Cox have expired, and the agreements are on "holdover" status. Our special cable counsel (Bill Marticorena of Rutan and Tucker) has advised the City to seek renewal under the City's terms when the ultimate buyer of Adelphia has taken title to Adelphia's assets. Months ago, the Telecommunications Committee and the City Council prepared and approved a document that serves as the City's negotiating platform, provided that there is an entity with which to negotiate franchise renewals. Newport Beach Cable Fact Sheet SUbscriber Information Adelphia Total # of cable drops in Franchise Area 31,123 13,900 45,023 # of cable N subscribers 16,978 10,100 27,078 % of cable drops who take cable 55% 73% 60% Franchise Fee Revenue to City Adelphia — 1999 (Calendar Year) $ 656,558 $ 266,671 $ 923,229 - -2000 $ 722,714 $ 280,602 $ 1,003,316 - -2001 $ 705,709 $ 395,824 $ 1,101,533 - -2002 $ 714,762 $ 394,732 $ 1,109,494 - -2003 $ 640,330 $ 470,404 $ 1,110,734 -- 2004 $ 766,343 $ 494,411 $ 1,260,753 -- 2005 (to date, includes 41h Q'04) $ 411,480 $ 402,014 $ 813,494 In April of 2005, Time Warner Inc. and Comcast Corp. agreed to acquire Adelphia Communications Corp. for $17.6 billion through a deal with Adelphia's creditors. Adelphia, based in Colorado, was one of the largest U.S. cable operators, with more than 5.3 million customers in 31 states. In 2002, the company filed for bankruptcy. In 2004, Adelphia founder and CEO John Rigas and son (and CFO) Timothy Rigas were convicted of fraud and other charges. Adelphia is now run by a management team led by Chairman and CEO William Schleyer, a longtime cable executive. In June 2005, the Federal Communications Commission (www.fcc.gov) received a submittal by Time Warner and Comcast to jointly acquire (and transfer associated licenses and documents from) Adelphia. Part of the FCC process involves the companies' (in our case, Time Warner, because TW will take over Adelphia's west coast systems and Comcast will take its east coast systems) asking our consent (via what's called a Form 394) to approve the Adelphia to Time Warner switch and to allow Time Warner to step into the current franchise agreement that Adelphia holds. For your information, the current franchise agreements with both Adelphia and Cox have expired, and the agreements are on "holdover" status. Our special cable counsel (Bill Marticorena of Rutan and Tucker) has advised the City to seek renewal under the City's terms when the ultimate buyer of Adelphia has taken title to Adelphia's assets. Months ago, the Telecommunications Committee and the City Council prepared and approved a document that serves as the City's negotiating platform, provided that there is an entity with which to negotiate franchise renewals. Resolution Relating to Adelphia -Time Warner Transfer October 25, 2005 Page 3 Mr. Marticorena has also advised us to adopt the attached resolution. The resolution allows the City Manager or his staff designee to respond directly to the issues presented in the Form 394 and to reject all or certain aspects of the Time Warner to Adelphia transfer if the City Manager, upon obtaining input from the Telecommunication Committee, believes that documents, actions, or facts associated with the. proposed transfer raise concerns. Council Member Daigle has asked that the 2005 adoption of this resolution. Ms. Daigle to city staff that the council should retain. Committee Action: None. City Council reconsider the September 13, believes that the resolution grants a power Environmental Review: The City Council's approval of this Agenda Item does not require environmental review. Public Notice: This agenda item may be noticed according to the Ralph M. Brown Act (72 hours in advance of the public meeting at which the City Council considers the item). Submitted by: �l. Dave <i Assistant City Manager Attachment: Resolution 2005 -48 RESOLUTION NO. 2005- 48 A RESOLUTION OF THE CITY COUNCIL OF THE CITY NEWPORT BEACH, CALIFORNIA DELEGATING AUTHORITY TO THE CITY MANAGER TO REJECT ONE OR MORE FCC FORMS 394 RELATING TO THE TRANSFER OF THE CABLE TELEVISION FRANCHISE, AND /OR CONTROL THEREOF, TO AN ENTITY CONTROLLED BY TIME WARNER CABLE OR COMCAST CORPORATION WHEREAS, the City of Newport Beach (the "City ") has received one or more FCC Forms 394 (collectively, the "Application ") requesting consent of the City Council to the assignment of the Cable Television Franchise granted to Adelphia Communications (the "Franchisee "), or control thereof, to an entity ultimately controlled by Time Warner Cable or Comcast Corporation; WHEREAS, the City Council of the City has determined that the public interest is served by delegating to the City Manager, or a City staff member individual designated by the City Manager in writing and with the consultation of the Telecommunications Committee, the authority to deny and reject some or all of the Application without prejudice for certain reasons and upon certain grounds. NOW, THEREFORE, the City Council of the City of Newport Beach, California, does hereby resolve as follows: Section 1: The City Manager, or a City staff member so designated by the City Manager, is hereby delegated the authority to reject the Application, or any portion thereof, without prejudice for one or more of the following reasons: Failure to timely provide information required by the terms of the Franchise Agreement or applicable state or local law; 2. Failure to timely provide any other requested additional information necessary to analyze the proposed transfer for compliance with or the transferee's ability to comply with the City's Franchise Agreement and Cable Ordinance; Failure on the part of the Applicant to timely cooperate with Staff, its attorneys and consultants, in performing due diligence relating to the Application, the legal, technical, and financial qualifications of the proposed Transferee and /or the impact of the transaction upon cable television rates and /or services; 4. Failure to timely cure any outstanding breach of franchise prior to or as an express condition of approval of the transaction in a manner acceptable to the City Manager; 5. Failure to timely execute and deliver a Transfer Agreement acceptable as to form and substance by the City Attorney; 6. Failure to demonstrate the legal, technical and financial qualifications of the Transferee; Failure to provide a written financial guarantee, acceptable as to form and substance by the City Manager, of the legal entity(s) for which financial disclosure was provided in the ADDlication of and /or additional filings: and Filing FCC Forms 394 providing for potentially different Transferees. If the City Manager, or his or her staff designee, determines that a rejection of all or parts of the Application is in the best interest of the city's subscribers, the City Manager shall present findings to the Telecommunications Committee and seek the Committee's advice in this regard. Section 2. The decision of the City Manager, pursuant to the authority delegated and provided by this Resolution, shall be made in writing and shall be deemed, without further action of the City Council, to constitute an act of the Franchising Authority within the meaning of 47 C.F.R. § 76.502 and a "final decision" of the City Council within the meaning of §§ 617(e) of the Cable Television Consumer Protection and Competition Act of 1992, Pub. L.No. 103 -385, 106 Stat. 1477 (1992). Section 3. Any denial, disapproval, or rejection issued pursuant to the authority of this Resolution shall be deemed "without prejudice" to the ability of the Applicant to file another FCC Form 394 relating to the same or a different transaction. However, nothing herein shall limit the authority of the City Council, the City Manager, or the City staff member so designated by the City Manager, to reject any subsequent FCC Form 394 based upon the same grounds set forth in the written notice of denial or such other grounds as might exist in relation to said future FCC Form 394. PASSED and ADOPTED by the City Council of the City of Newport Beach at a regular meeting held on the 13th day of September, 2005. ATTEST: l- � . City Clerk Q r Ma o