HomeMy WebLinkAboutResolution 2002-150 N.C.S. 09/09/2002Resolution No. 2002-150N.C.S.
of the City of Petaluma, California
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PETALUMA
DENYING THE PROPOSED CHANGE OF
CONTROL OF AT&T BROADBAND FROM AT&T TO AT&T COMCAST,
THEREBY TRANSFERING ULTIMATE RESPONSIBILITY FOR
FULFILLMENT OF THE OBLIGATIONS OF THE CABLE FRANCHISE
RF.(`TTAT.C
WHEREAS, in 1995, the City of Petaluma ("City") adopted Ordinance 1981 N.C.S.,
which issued a cable communication system franchise ("Franchise") to Tele-Vue Systems, Inc., a
subsidiary of TCI Cablevision of California, Inc. ("TCI"); and
WHEREAS, in 1999, the City approved an application to change control of Tele-Vue
and TCI to AT&T Broadband ("Grantee"), which now holds the Franchise; and
WHEREAS, Grantee is a subsidiary of AT&T Corp. ("AT&T"); and
WHEREAS, pursuant to an Agreement and Plan of Merger dated December 19, 2001 by
and among AT&T, AT&T Broadband Corp., Comcast Acquisition Corp. and AT&T Comcast
Corporation and a Separation and Distribution Agreement dated December 19, 2001 by and
between AT&T and AT&T Broadband Corp. (collectively, the "Merger Agreement") AT&T and
Comcast intend to create a new company to be known as AT&T Comcast Corporation ("AT&T
Comcast"); and
WHEREAS, as a result of the Merger Agreement, Grantee and AT&T Comcast have
requested consent by City to change of control of Grantee; and
WHEREAS, under the Franchise and applicable law, the proposed change of control
requires consent from the City; and
WHEREAS, the City has reviewed the proposed change of control and the legal,
technical, and financial qualifications of AT&T Comcast to be the new parent company of
Grantee following the proposed change of control; and
WHEREAS, the City has reviewed Grantee's compliance with applicable law and the
provisions of the Franchise and has hand-delivered to Grantee a letter dated August 16, 2002,
attached hereto as Attachment A and incorporated by reference herein, outlining the areas of
noncompliance identified by the City in its review; and
Resolution No. 2002-150 N.C.S.
WI~EREAS, as of the date of this Resolution, Grantee has not provided. any response
whatsoever to this letter.
NOW, T>FIEREFORE, the City of Petaluma, California hereby resolves as follows:
1. The City hereby denies the request for the proposed change of control of Grantee as
contemplated under the Merger Agreement as well as the LLC Conversion.
2. The City bases this denial on the uncured noncompliance issues described in the letter
attached hereto as Attachment A.
3. This Resolution revokes and supersedes Resolution No. 2002-092 N.C.S. and
Resolution No. 2002-130 N.C.S. to the extent that those two Resolutions granted
conditional approval of the change of control.. This Resolution shall take effect and
continue and remain in effect from and after the date of its passage, approval and
adoption.
Under the power and authority conferred upon this Council by the Charter of said City.
REFERENCE: I hereby certify the foregoing Resolution was introduced and adopted by the Approved as to
Council of the City of Petaluma at a (Regular) (Adjourned) (Special meeting ~~m~~
on the ........9th .... day of .......September •....., 20 ~~., by the
........ ............................
following vote: •••••••••••••• ••••••~•••••••••••••
City Attorney
AYES: Cader-Thompson, Maguire, O'Brien, Mayor Thompson, Torliatt
NOES: Moynihan
ABSENT: Vice Mayor Healy
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................................................... .............................................................................................
ATTEST: ..........:.............!.v~ :.,~i+!
City Clerk Mayor
Council File ...................................
Res. Nu.......2002-150 N.GS.
ATTAC'HIVIENT A
LETTER TO AT&T 19ATED.A~UGUST 16, 2002
,POST OFFICE BOX 6I
PET;4LlJM'A, CA 94953-0061
E.CIarkThompson ~ ~'-"•~^~~~~'±~
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Mayor ~
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3anice Cadet-Thompson
Michael Healy
August 16, 2002 giAND DELIVERED ~ ~~; ~ ~ ~~ .?~~i
Matt Maguire
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Bryant Moynihan
Mike O'Brien
Pamela Torliatt ~ , ,. ~.=, n~ t j4~~T. ~'i~~ IVI:~i ~F~~~~~
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Councilmembers ,
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Mr.
ent
eacoc
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Vice President, Franchising and '~'
Government Affairs, Bay Area ~-~'f
AT&T Broadband ~f;
P.O. Box 5147
San Ramon, CA 94583-7104
City of Petaluma, Californ (the "City"); Notice of
• ~ Franchise Material. Breaches, Potential Breaches, and
Other Issues of Franchise Compliance
Dear Ivlr. Leacock:
Ori June 17, 2002 the City Council adopted.a resolution (Res. No. 2002-092)
granting conditional approval of the merger of AT&T and Comcast and
authorizing a change of control of the cable television franchise. Pursuant to the
resolution, the City provided for a si~ay-day period following the effective .date of
the resolution, to conduct the necessary review to determine if the grantees in
compliance. This letter serves.to provide notice of our findings and formal notice
to cure the respective issues ofnon-compliance.
Addfionally, on August 5, 2002, the City Council adopted a resolution (Res No.
2Q02-130) extending the period of the City's conditional approval to September
10, 2.002 to enable the City and AT&T an opporturiityto resolve these matters and
reach agreemerit,for corrective actions by side letter. V1e would like to convene a
meeting with you to discuss'these issues ofnon-compliance and to reach an
City A4anager'S office accord regarding the City's approval of the AT&T Comcast change of control.
1 /English Street
Petaluma, CA 94952
PJzone (707) 778-4345
Fax (707) 778-4419 '
E-Mai!
citymgr cGJci.petatuma.ca:us
Letter'to Kent ~eacock Reso. 2002-150 N.C.S./Attachment.A
City of Petaluma Page l
Therefore; based. on, necessary due diligence of AT&T's-performance under the Franchise
Agreement, the City makes the following findings regarding maferial breaches or potential
material breaches of Ordinance No. ;1981 NCS -adopted June 15, 1995 (Franchise Agreement)
and' Chapter 14.40 of the City's.Ivlunicpal Code (Ordinance 1.595 NCS -Community Antenna.
Television Systems).. This .letter constitutes a formal written demand to correct the defaults
alleged therein pursuant to Section 20..1-3 of the Franchise Agreement.
ITEM 1: Pursuant to Section 8 SYSTEM FACILITIES, EOUIl'MENT AND DESIGN
(8.1)(C)(2) Institutional Network Design:
Under Phase II, which shall be implemented between, the third (3rd) and .fifth (5th) years
after the effective date of the Franchise; Cxrantee shall `install and activate the software
and equipment required to integrate telephony/data transmission and interactive
capability into its system so that the subscriber network may accommodate future PEG
and Institutional Networl~ uses .in the City of Petaluma through dynamic spectrum
management technologies or its equivalent. The technological capability described above
shall be provided to all-public .schools and City occupied locations that. are passed by the
:cable communication. system. Tf such dynamic spectrum management technologies are
not commercially available and are not financially feasible, Grantee may petition the City
of Petaluma for: (a) relief from implementing such technologies, or (b) a deferral of the
implementation of such technologies. If such relief from implementation or deferral
occurs, the Grantee shall be obligated to provide the capabilities and Headend equipment
described above in Sections 8.1.C. and 8.1.C.1 to .all public school and City occupied
locations within the Franchise area.
.Finding: Potential li~I~terial' Breach:
Gene Beatty and Dave Deorsey indicated that the City elected to pursue other
telecommunications options .rather than contract with AT&T for deployment and
rriaintenance of a fiber network.. According to AT&T technical staff and confirmed by
City staff, active AT&T .fibers ,connect Lucchesi. Community Center, City Hall, the
Access Center, and the School District, office. The City Hall fiber run includes 24 fibers,
but only two -are presently lf.. _An additional City building, Water and Power, was
installed with two fibers, but these were never lit. Four -fibers feed the Access Center..
The' School District hired AT&T to .install two fibers; to the District's main .adrnni°straton
.building and four additional school .sites. In 2002, AT&T activated .fiber connectivity
between,the Petaluma campus of Santa Rosa Junior College and the.main campus of the
JC. However; AT&T has provided no record ofthe- installation of software in the manner
described "to integrate telephony/data transmission and interactive capability into .its
system so that the subscriber network may accommodate future PEG and Institutional
Network uses in the City of Petaluma through dynamic spectrum management
technologies or its equivalent." Rather than make a determination of material breach,
The City proposes to meet with AT&T and the :Access Corporation within the next thirty
days to 'explore the merits of this -application and agree by side letter to a timetable of
implementation.
Letter to Kent L,eacock Reso, 2002-150 N.C.S./Attachment A
Re: City of Petaluma Page 2
ITEM 2: Pursuant. to Section 8, SYSTEM FACILITIES, EQUIPMENT AND DESIGN
subsection 8.10 System Extension. Part A:
The Grantee shall build its Cable System so that it is able to provide service to all areas
located within the City limits, as they existed on the effective date of this Franchise. The
Grantee must build the Cable System so that it can extend service to residents, including
residents located in -areas which maybe annexed in the future in accordance with Section
8.10.8.2.B: Line Extension Requirements.
)Finding: Potentia:l,Tvlaterial.Breach:
During an audit of the system in calendar year 2000; two issues regarding extension of
service developed; Central .Downtown, the City Airport, and Corporate Yard at Hopper
Street: Rather than make a determination of material b"reach, the City instead proposes
that AT&T survey these downtown areas to determine how and when AT&T will. extend
service. pursuant to section 8.10 System Extension.
ITEM 3: Pursuant to Section 8, SYSTEM FACILITIES. EQUIPMENT AND. DESIGN
subsection 8.14 Ascertainment of Programming part A:
At minimum during years four. (4), eight (8), :and twelve (12) 'of the Franchise, the
Grantee' shall coriduct a systematic customer survey of the needs,, interests, and
preferences of the subscribers within its Franchise Area. The Grantee shall report to the
City the results of the Grantee's survey and any actions taken, or to be taken, by the
Grantee pursuant`thereto.
Findn'g: Potential 1VLaterial Breach: "~
The City's consultant confirmed that a survey was performed. The survey summary
report. was requested. AT&T has not. provided this document to validate the survey's
results, however. The City requests a copy of the results of the survey and survey
summary .performed by AT&T in satisfaction of this requirement and in Iieu of a
determination of breach.
ITEM 4':. Pursuant to Section 24 BOOKS AND RECORDS -- ..REPORTS AND RESPONSES
TO QUESTIONS subsections: 24.1, (B); 24.1C; 24.2 (A):
Within ninety .days after the close of the Grantee's fiscal year, the Grantee shall submit a
written, annual report, including, but not limited to; the following information:
(1) 24.1(B). a financial statement of the Petaluma system, including a statement of
income, balance sheet, and a statement .of sources and applications of funds
which the chief financial officer of the Grantee states is true and accurate; and
(2) ~24.1(C). the annual report, if any, of the Grantee, or each Affiliate, which
controls, owns, or manages t1~.e Grantee and issues an annual report.
Letter to Kent Leacock Reso. 2002-150 N.C.S./Attachment A
Res City of Petaluma PaQe.3
(3) ?4.2(A), a' summary of the previous year's activities in the development of its
cable system in the City, including, but .not limited to, additions, deletions; or
improvements begun ors discontinued' during the reporting year, services initiated
'or discontinued, number of Subscribers (including gains and losses), homes
passed, and miles of cable- distribution plant in service (the sunimdry shall also
include- a comparison of any construction, including cable system upgrades,
during the year with any projections previously provided to the City, as well as
rate -and charge increases and/or decreases for the previous fcscal year);
J~'inding; :Non-Compliance and Ndaterial Breach:
The City's consultant in calendar year 2000 requested. a sample showing of these reports,
but none were provided.
ITEM 5: Pursuant to Section 27 Performance Monitoring subsection 27.2 Grantee
Cooperation:
The Grantee shall cooperate in the fourth, eighth, and twelfth year reviews, including by
submitting reports on the state.of cable technology.
Finding:. Non-Compliance and Material Breach:
The .City's consultant in calendar year 2002 made repeated requests for this information
but it has not been. provided (letters to David Kerr and David Dyke can be provided to
you upon request). While it is understandable that .personnel changes at AT&T, e. g.
D"avid Kerr's departure, would have some impact. on AT&T's ability to provide the
requested documentation, the lack of response by AT&T constitutes a material breach of~
the Franchise.
ITEM 6: Pursuant to Exhibit A Customer Service, of the .Franchise Agreement: Section 2,
subsection 2.2.3 and 2.2'.4 Telephone Service:
Under normal operating conditions, ninety-seven percent (97%) of calls to the Grantee, as
measured. on an annual basis, will not encounter a busy signal or delay in reaching, a
customer service representative_.or any automated answering equipment and that a
nininium of ninety percent (90%) of all callers for service will not be required to wait
more than 30 seconds .when companytelephone response time records .are measured
quarterly. The term "normal operating conditions" means those service conditions that
are. within the .control. of the Grantee. Those conditions that. are not within the control of
the Grantee include; 'but are not 'limited to, natural disasters, civil disturbances, power
outages,. felephorie network outages, and severe or unusual weather conditions. Those
conditions; which are. ordinarily within the control of the Grantee, include, but are not
limited'. to, special promotions, pay-per-view events rate increases, regular peak or
seasonal demand periods,. and maintenance or upgrade of the cable system.
Finding: Potential Material Breach:
The City on previous occasions has requested telephone system statistics to support
AT&T's actual. compliance to these telephone standards, but these were not provided.
Telephone response time records of AT&T' call. center reviewed by our consultant
Reso. 2002-150 N.C.S./Attachment ~A
Letter to Kent Leacock
provided by AT&T for the fourth quarter 20.01, and first quarter 2002 .indicate that AT&T
"' failed to reach the desired response times. Further; when tested by.the City's consultant
in 2QQ0, this line has proven intermittently 'busy when a tone phone was .not used,
indicating that peop°le with rotary phones might not be able to get through.
ITEM 7: Pursuant.. to. FCC Customer Service- Rules Title 47 SUBPART H -GENERAL
OPERATING .REQUIREMENTS .SECTION 76.:309 Customer service obligations.
(C)(2) Consumer Service Standards Installations, outages and' service calls:
Under normal operating conditions; .each of the following. four standards will be met no
less than ninety five .(95) pez~cent of the time measured on a quarterly basis:
(1) Standard installations will be pe~fo~°ined within seven (7) business clays after an
order has been placed. "Standard" installations are those that aj•e located up to
125 feet from the existing distribution system.
(2) Excluding conditions beyond the controls of the 'operator, the' cable operator will
beb in working on "service interruptions" promptly and in ~zo event later than 24
hours .after. he interruption becomes known:.. The cable operator must begin
actions to correct other service. problems the next business day aftef• notification
of the service problem.
(3) .The "appointment window" alternatives for installations, se~•vice calls, and otheT-
installation activities will be either a specific time or, at maximum,.. afour-houf-
tinie block during normal business hours. (The operator may schedule ,service
calls. and other installation activities outside of normal business hours for the
express convenience of the customer:)
- (4) An operator ,may not cancel an appointment with a'customer after the close of
business on the business day prior to the scheduled appointment.
Finding: Non-Compla~zce and 1VFaterial B~°each:
The Cty.';s consultant in calendar .year 20;00 requested certain records from ATRT iri ,a
meeting with"David Kerr .on June 19, 2000, in a letter to Susan Ritchie, dated July T`2,
2000 and. in a letter to Sue Levitin, dated August 22, 2000 (letters can be provided upon
request). As of this date, the City has received no response and no trouble report or
service call statistics. Failure to provide these records is a material breach of the
'franchise.
ITEM 8: Franchise Fee Payments
Pursuant to Section 11.1 of the Franchise Agreement (Ordinance 1981),
the Grantee shall:
" pay to the City an amount equal to five (S) percent of the Gross Revenues
derived from the operation of its Cable System in the City. "
Letter. to Kent Leacock_ . Reso. 2002-150 N.C.S./Attachment A
Re: City of,Petaluma Page S
Finding: Non-Compliance and: Material Breach:
In 2000,- the City performed a detailed audit of franchise -fee payments. Billing system
reports for several test months were examined for accuracy concerning.revenues .from
Basic, Expanded Basic, Pay _TV, PPV, Equipment. Rental, Installation, Guide and Late
Charges. Additionally,. on a testbasis, the City compared known addresses in Petaluma
with billing system reports to ensure proper reporting of revenues. A report was rendered
and AT&T agreed 'to remedy certain matters. However, the following two issues were
not remedied:
1) a total of 13 addresses were incorrectly accounted to Agent 20 (the County) rather than
Agent 10 (City of Petaluma), resulting in potentially ;$3,..120 in .fees owed the City. The
e~ act amount of franchise fee liability related to these addresses is not known. Logically,
franchise fee liability is based on the number of months each resident has subscribed to
cable dating back to the date the area was annexed by the. City. Assuming for the purpose
of discussion that each resident' subscribed 'for the duration of the period in question and
assuming that the last annexation by the City was ten years ago, then franchise fees in. he
arnounf of $3,120.00 -were paid by AT&T to the County rather than. the City (based. on the
formula 13 subscribers x X40 per month x 12:montlis x 10 years x 5%),. Ln this case,. the
County would owe Petaluma the amount due .plus interest. The .City would expect
AT&T, .the City and County to agree to a. reasonable amount, then AT&T would correct
the: amounts agreed owed when. making the next quarterly payments to the County and
the •City. The City desires this amount to be remitted to the City in the next frazzchise fee
payment.
2) During 1`998 and 1999; the aforementioned audit found that. AT&T deducted Agency
commissions and National Rep Firm fees from the Gross- Revenues. of AT~T Media
Services. _ .Agency. corninissions are found under general ledger • Account 3511 and
National Rep Firm Fees are found under account 3513. Consequently, AT&T based
franchise fees paid to the City of Petaluma on net numbers and not gross revenues.
The City's audit concluded that "netting" of agency commissions and Rep Firm. fees
contradicted the definition of Gross Revenues defined in the Franchise Agreerrient. Tle
.City audit estimated that AT&T underreported '$283';142.90' of advertising revenue due
to deductions for agency commissions and National Rep. fees resulting in a $14,157.15
franchise. fee Liability. Given that this matter. may also carry forward in 2000, 2001 and
20.02, the City reserves its rights to further audit AT&T records for these periods and
proposes' by side-letter to agree with AT&T on an amount compliant with the Franchise
Agreement"s definition of gross revenues.
ITEM 9: @Home and Internet Services Revenue
Beb nning in December 1997, AT&T (then TCI) began offering high speed internet
access services via. cable modems under the product;name @Home. During this period,
1 This figure is based on actual figures for commissions and rep. fees as provided by Kristine
Krone, AT&T Media Services, Denver, CO.
Letter to Kent Leacock Reso. 2002-150 N.C'.S./Attachment A
R'e' C',ity nfPetialuma Pave Fi
the City of.Portland filed a federal district suit requiring. AT&T to force AT&T
Broadband- o carry competing Internet-service providers. In June 2000, the Ninth Circuit
Court ofAppeals held that cable-modem service was not a cable service, but instead
partly a telecommunications service and an information service. On this basis, the Court
denied Portland's open-access ease. Shortly, thereafter; in December 2000, AT&T began
advising franchise authorities that it would no longer pay franchise fees on cable modem
. services in cities located within the Ninth Circuit (due to the outcome of the Court's
finding in.Portland vs: ATTI. Whether AT&T withheld franchise fee payments on
internetxevenues at this time is not clear. Further affecting this matter, on March 15,
2002,'the FCC agreed that cable-modem service was not a cable service. 'But the agency
declined to agree that it is a telecommunications service. Instead, the commission said,
cable-modem service was purely an information service.
Finding: Potential Ii~I'aterial Breach:
AT&T sent letters to franchise authorities in March29, 2002. stating that AT&T
Broadband ("AT&T") will no longer bill customers for franchise fees on cable modem
service after March 29, 2002. Further, ATBiT stated that it will issue credits to customers
for franchise fees paid on cable modem service for the period=March 15, 2002 to March
29, 2002. AT&T further asserted that this action is being taken by AT&T ill. compliance
with the FCC's Declaratory Ruling and Notice of Proposed Rulemaking (GN Docket No.
00-0185., CS Docket No, 02-52, FCC 02-77).
The City needs to determine the exact date that AT&T stopped paying franchise fees on
Internet service. If ATRT stopped paying franchise .fees as early as first quarter 2001 or
as recent as April, 2002, significant losses in franchise fee;revenues are occurring for
Petaluma. The City disagrees with the-assertion that. the FCC's Declaratory Ruling
requires cable operators to .stop collecting franchise fees on cable modem services.. The
Declaratory Ruling concludes that cable modem service is an interstate information
service rather than a cable service as defined by Section 602 of the Communications Act
of 1934 (the "Act"). This is all the DeclaratoryRuling deterrriines. The regulatory
implications.of this determination is addressedby the FCC's Notice of Proposed
Rulemaking. In this notice, the,RCC states on page, 57 that "we tentatively conclude. that
Title VI does riot°provide a basis for a loca'1 franchising authority to impose an additional
franchise on a cable operator that provides cable modem service. (emphasis added)" This
statement is only.atentatve conclusion as the FCC specificallyhas asked as part of its
rul.emaheng°process for.additonal comments by interested parties on the: franchise fee
issue. Thus,. to date, the FCC has not issued any rules regarding the power of to cal
franchising authorities to impose a franchise fee on cabfie modem services. 'It is clear that
the Declaratory Ruling does not compel AT&T to stop collecting such fees.
Even if any lawful rules .finally issued by the FCC preclude the imposition of a franchise
fee. on cable modem services under Article VI of the Act,_such ruling would not prohibit
local agencies. from :imposing a franchise fee pursuanf to their independent power to
manage the public rights-of--way. This power is exempted from federal pre-eniption by
the safe harborprovisions of Section 2~3(c) ofthe Telecommunications. Act of 1996.
Letter to'hent Leacock Reso._2002-150 N:C:S./Attachment A
T?:a• 7-':+:, .,FU<+~i,,,,,~ Pane 7
Litigation already has been commenced challenging the Declaratory Ruling. On May 13,
2002, the National League of Cities, National Association of ,Telecommunications
Officers- and Advisors, U:S. Conference of Mayors, National Association of Counties and
Texas Coalition for Utility Issues filed a petition'for review in the United States Court of
Appeals for the District of Columbia Circuit challenging "the FCC's Declaratory Ruling
that cable modem service is riot a cable service. T-he question of whether cable modem
services. may be regulated by local franchisors will not be resolved for some time.
Our position remains unchanged that cable modem service provided over a cable system
is a cable service subject to the 5% franchise fee. Even if a final binding ruling by the
FCC or a court finds that cable modem service is not a cable service, such service
nonetheless maybe subj ect to a franchise fee under the City's authority and the authority
of each of:its member agencies to manage the public rights-of--way.
This letter places AT&T on notice that if a final binding determination by the FCC or a
court provides that the City may`impose a franchise fee on cable modem services,. we will
seek payment,of the franchise fees due from the datethatAT&T stopped paying
franchise fees on interriet service. In order to ensure that AT&T or any successor
_ franchisee is able to make such a future payment to the City, we request that it set aside a
sufficient suni of money in escrow.
ITEM 10: Pursuant to Section 10.6 of the Franchise Agreement Support for Access and' Proper
Accounting For, Petaluma Access Funds
The City and AT&T have maintained along-standing dispute regarding AT&T's faithful
performance under Section 10:E. This section states:
A. The City r•ecogriizes that provision of support. for PEG Access is a valid
expense associated with the provision of Basic Seivice under this Franchise, and
that the Grantee is entitled to be compensated through its rates for reasonable
costs .associated with the provision of support for PEG Access. '
B..'The Grantee. agrees, if requested by the City' by ordinance or resolution, to
collect from subscribers a commu~aity access fee. Such fee will be paid .quarterly
to the .City or its desigfzee identified in-the. ordinance or resolution. In the event a
subscriber refuses to participate in the. coinmisiaity access fee payment, the
Grantee will not be required to discontinue se/tiice or make the payment on.
behalf of the customer.. Any payment made by a customer will first be,applied to
the customer's ,,balance;: any remaining amount will then be allocated to the
conirrcunity access fee. Tlie Grantee shall .have the right to idezztify each
subscriber's community access fee. payment as a line item on the billing statement.
Any amount collected by Grantee under this section alaall not be deemed Gross
Revenues for purposes of.calculating the Franchise Fee owed to the City, shall
not be ,deemed part of the Franchise Fee, and falls within one or more of the
exceptio~zs to 47 U.S.C. X42.
Letter to Kent Leacock Reso. 2002-150 N.C.S;/Attachment A
Re: City of Petaluma ~ Pale 8
C. The City shall identify in the initial ordinance or resolution, an amount to be
collected fi~om .the subscribers. That amount may be decreased or increased by
resolution or ordinance of the City Council.
Finding: Potential Mater=ial Breach:
This 'dispute focuses on whether the amounts itemized have been properly collected and
paid to the Community Access Corporation and whether AT&T's practice of itemizing
the access fee on suhscrber's bills have not lead to a diminishing number of funds:
An cursory review ofATRrT' billing system found that AT&T tracks both the number of
subscribers and the amount collected .from subscribers related to the $2.00 per month
access fee .contribution. It was determined during. the audit that AT&T provides an
option each month for a subscriber to cheek whether or not they would like to be charged
the access fee. Once a subscriber selects the option not to be charged, the subscriber is
:entitled to deduct $2.00 from the- amount he or :'she owes ,for that month. Going forward,
-according to AT&T'~ local customer service staff, AT&T automatically deducts the
amount from. future billings. If a subscriber fails to make a choice, the subscriber is
charged the fee by default.
As of Tune 16, 2000, according to records provided by AT&T, 6,768 subscribers opted
not. to pay the access fee. We are not clear what. number of Petaluma subscribers
currently opt not to pay the access fee. Further, we are: i7ot clear as the .amount AT&T
actually collects and. remits to Petaluma Community Access.. As it currently stands, a
subscriber can request "no" once and never be charged.:again, unless he/she affirmatively
selects the yes box in subsequent months. This is also true for those who check yes. The
City desires an accurate accounting of the access fee collections and an accurate
,accounting of subscribers who have checked `ho": The City seeks AT&T's support to
participate in a three year audit of access contribution payments.
Further, we request a resolution to our dispute regarding the amount of the fee itself and .
'the manner in which the fees are to be used. Our interpretation of the germane provisions
ofthe franchise in regard to PEG use are as follows:
Section'8.11(d.) required $790k in capital costs for PEG purposes, whereby SOOk was
paid up front; and 290k after 3 years. thus, capital costs for PEG purposes are not a
franchise fee. [section 6.22(g)(2)(c)]. Further, Subsection 8.11(e) of the franchise states
as follows:
nothing in this section requires or shall be deemed to require the grantee to .make
any payment .which constitutes a franchise fee under 47 U.S.C. §542.
In addition,: 8.11(f) of the franchise states:
the parties agree that any cost to the grantee associated with providing access
services, facilities, and equipment under this franchise, including without
limitation the amounts set forth in 8.I1d.1-2, and payments made outside this
Letter#o &ent Leacock Reso. 2002-150 N.C.S./AttachmentA
Re: City of Petaluma ~ - Page 9
franchise, if any, are not part of the franchise fee; and fall .within one or more of
the, exceptions to 47 U.S.C.. §542.
Thus, subsections "e" & "f ' of the franchise appear to provide the City with additional
immunity to any allegation that the peg grant or any portion thereof constitutes a
franchise fee.
Additionally, federal law provides that term "franchise fee" does not include (in the case of any
franchise granted after such date of enactment), capital costs which are required by the franchise
to be incurred by the cable. operator for public, educational, or governmental access facilities.
[Section 6.22(g)(2)'(C}]..
The City desires AT&T to agree to a methodology going forward. which enables a reduction in
the amount of the access fee line itemization in exchange for an agreement that the access fee
does not cause anoff--set to franchise fees payable to the City and'which further allows the City
and.PCA reasonable discretion in its use of these funds.
Pursuant to Section ~20 of the Franchise Agreement, please be advised that the City
hereby.offers to convene immediate discussions, establish a timetable for necessary corrections,
and -reach !agreement by side-letter for remedies as a condition of our approval of the AT&T
Comcast change of control. Additionally, the City :desires AT&T's agreement to participate in
the :audits mentioned herein. .Finally, the City desires AT&T to reimburse the City for its
reasonable costs in reviewing AT&T's Form 394 in an amount to be mutually agreed. Given the
seriousness of these violations, the City respectfully requests that such ameeting-occur within
the next seven (7) days. Failure to ~ correct the material breaches outlined herein within the
appropriate cure period may result in, among otlier things, imposition of liquidated damages or
other contractual remedies available and/or revocation or forfeiture of the Franchise pursuant to
Sections 18 and 19, of the Franchise Agreement.
Please .contact me as soon as possible within the next five days at (707) 77 8-4345 to
discuss 'this matter in greater detail. I look forward .to AT&T's expeditious response to this
notice.
Sincerely,
CIT OF PETALUMA
,~-----~
A ~,~ '~~-
GeneBeatty ~~
Acting City Manager
GB:jr
cc: Honorable Mayor and'Members of the City Council
Richard Rudnansky, City Attorney
Michael Hurst, Esq., AT&T Broadband
Lefterto Kent Leacoek Reso. 2002-150 N.C.S./Attachment A
Rey ~itv nfPetaluma: PARP. 1 n