Study Session - Cable TV Franchise Renewal Status Reportp~
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STUDY SESSION
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COUNCIL STUDY SESSION REPORT
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DATE: JANUARY 29, 2004
TO: MAYOR AND TOWN COUNCIL
FROM: DEBRA J. FIGONE, TOWN MANAGE
SUBJECT: CABLE TELEVISION FRANCHISE RENEWAL STATUS REPORT
RECOMMENDATION:
1. Accept a status report of cable television franchise renewal activities as it relates to the
negotiation process.
2. Provide staff direction to work with KCAT and the consultant to address legal issues related
to the existing KCAT board structure.
3. Provide direction to develop a cable television franchise renewal Council ad hoc
subcommittee to provide policy guidance and address policy-related issues that may arise
during the negotiation process.
PURPOSE:
The purpose of this report is to provide a status of recent cable television franchise renewal activities,
including an overview of the assessment of current and future cable-related needs and interests and
recommended next steps associated with the renewal negotiation process. This report will also
provide examples of cable franchise renewal outcomes negotiated by other communities.
PROCESS:
The study session is designed to inform and educate the Council about the cable television renewal
negotiation process, including how the community assessment results help establish the renewal
goals to be presented during negotiations. Although staff and the consultant, with policy guidance
from a proposed cable television franchise renewal Council ad hoc subcommittee (later discussed
in this report) will develop and negotiate provisions of the cable television franchise agreement.
Council will make the final decision regarding the contents of the agreement at a future Council
meeting.
PREPARED BY: TJE Y H UYAMA, MINISTIaTIVE ANALYST
N:\MGR\JHaru ama\StaffRepo rts\renewal u date.w d
Reviewed by: Assistant Town Manager own Attorney Clerk _Finance
Community Development Revised: 1/29/04 1:24 pm
Reformatted: 5/30/02
4P PAGE 2
MAYOR AND TOWN COUNCIL
SUBJECT: STATUS OF CABLE TELEVISION FRANCHISE RENEWAL ACTIVITIES
January 29, 2004
BACKGROUND:
In February 2002, the Council authorized the Town Manager to enter into an agreement with Miller
and Van Eaton, a telecommunications consulting/law firm, to assist with the cable television
franchise renewal process as described in the attached staff report (Attachment No. 1). Since that
time, the Town has been involved in several significant cable-related activities. In Spring 2003, the
Council authorized a one-year extension of the franchise agreement, extending the agreement from
March 31, 2003 to March 31, 2004 to prepare for negotiations with Comcast.
DISCUSSION
As a matter of federal law, a community's cable-related needs and interests are protected in part
through the cable television franchising process. During cable renewal proceedings, a community
is permitted to establish basic requirements for cable system capacity, functionality, and customer
service, and require operators to provide facilities and equipment and channels for Public,
Educational, and Government (PEG) access. A franchise authority, however, is restricted from
establishing certain provisions. Some examples include provisions related to television
programming, rates, internet service, and the type of technology used for upgrades and other
infrastructure improvements. In addition, the cable television franchise fee collected by the Town
is limited to a maximum of 5 percent according to federal law. The Town currently collects
percent of the cable operator's gross revenues.
The Town, as the franchising authority is responsible for protecting the interests of cable subscribers
and the general public through the cable renewal process by identifying cable-related needs and
interests, and translating those interests into franchise requirements. These needs and interests can
be determined through a cable television community needs assessment process and used as a tool
to develop negotiation strategies and renewal goals when negotiating a new franchise agreement with
a cable operator.
The following sections will discuss the results of the community cable needs assessment process,
recommended next steps associated with the renewal negotiation process, and possible cable
franchise renewal outcomes.
Community Cable Needs Assessment Findings
The Town has completed its initial phase of the assessment process to identify the community's
cable needs and interest. This process was done through various research methods, including a
statistically valid telephone survey and focus group workshops and questionnaires. Existing PEG
access resources and strategic plans and other materials submitted by the Town and other local
government representatives were also analyzed. Below is a summary of the needs assessment
findings to date. .
PAGE 3
MAYOR AND TOWN COUNCIL
SUBJECT: STATUS OF CABLE TELEVISION FRANCHISE RENEWAL ACTIVITIES
January 29, 2004
Summary of Findings
Statistically Valid Telephone Survey
Approximately 409 interviews were conducted by telephone survey with a margin of error of 4.9%
at a 95% level of confidence. Interviews were administered to a sample of Los Gatos cable
subscribers drawn at random from active residential telephone listings. In addition to basic
subscriber and demographic information, the telephone survey included questions about cable
television reception quality, customer service issues, viewer ship patterns, the importance of local
programming, and future services. The following section outlines some of these findings:
• 80% or more of the respondents gave "Good" or "Very Good" ratings to Comcast for
providing bills that are accurate and easy to understand, providing cable service with few or
no interruptions and the quality of the picture and sound. Much lower percentages gave these
ratings to the overall value of the cable service and providing courteous staff who are readily
available when you need assistance.
• Of those respondents who had telephoned the cable company during the year prior.=to the
survey and were put on hold, only 7.6% said they were put on hold for less than 30 seconds.
Since such a high percentage of affected respondents said they were kept on hold for-longer
than 30 seconds (thereby exceeding the FCC's standards), further investigation of this=matter
is warranted.
• Almost half (49.2%) of the respondents who requested a service call were offered an
appointment in 24 hours and about two-thirds (65.9%) were offered a choice of morning,
afternoon or evening appointments. Under one-fifth (18.2%) said that they were offered a
Saturday appointment.
• About half (49.8%) of all respondents said that they had watched KCAT, cable channel 15.
Just over one-fifth (21.4%) said they had watched West Valley College cable channel 25.
• Almost three-fourths (72.6%) of the respondents said it is either "important" or "very
important" to have local cable TV channels that feature programs about Los Gatos residents,
organizations, events, schools and government.
• Just over one-third (34.8%) of the respondents think that more channels should be offered
than are currently available, while over half (53%) disagreed.
• Over four-fifths (81.1 of all respondents said that they had a computer in their home that
is used to access the Internet. Of those who access the Internet, about two-thirds (62.3%) do
so for 15 hours or less per week. Nearly half (44.2%) of those who use their home computer
for Internet access said that they subscribe to the cable company's high speed Internet
service.
'0/
PAGE 4
MAYOR AND TOWN COUNCIL
SUBJECT: STATUS OF CABLE TELEVISION FRANCHISE RENEWAL ACTIVITIES
January 29, 2004
When asked how important it was to receive a variety of different government and community
services and information through the cable system, respondents gave the highest number of
"important" or "very important" ratings to access to public safety information (72.9%); ability
to vote, renew your driver's license or obtain government permits from home (59%); electronic
access from home to library resources (56.2%0); and electronic access from home to government
information (56.2%).
When asked about the importance of receiving several different commercial services from
the cable company in the future, about one-third (33.1%) rated movies on demand as
"important" or "very important," followed by telephone service (27.9%) and video
teleconferencing (19.9%). More than one-third (37.5%) of those respondents who believe
these services to be important or very important said they were willing to pay extra to receive
them.
Community Cable Focus Group Workshops
Seven focus group workshops in Los Gatos were held to provide an overview of the cable franchise
renewal process; an explanation of how the current cable system works; and an exploration of how
individuals, community groups, government agencies, businesses, and schools can benefit from or
use the cable communications system. Approximately 62 people attended the workshops. The
workshop constituencies included: .
• Local government agencies
• Community and civic organizations
• Schools and educational institutions
• Human service organizations
• Arts, culture, and heritage organizations
• Businesses and business organizations
• Members of the general public
Special emphasis was placed on providing an opportunity for discussion and brainstorming by the
attendees. A packet of informative materials, including a questionnaire was distributed to the focus
group participants. Below is a summary of the brainstorming discussion and questionnaire results:
Community Focus Group Workshop Session
A significant area of discussion during the brainstorming session involved the use of PEG Access.
When participants were asked how they could use PEG Access or the cable system to communicate,
dozens of program topics and types were specified. Included among them were business e-
commerce, children's programming, distance learning, emergency information, environmental
programs, event coverage, fund-raising for nonprofit organizations and community projects, health
information, high school plays and events, little league, videoconferencing, and local performing
arts. When asked what would make it easier to use PEG Access or the cable system to communicate,
three primary categories of need were identified:
PAGE 5
MAYOR AND TOWN COUNCIL
SUBJECT: STATUS OF CABLE TELEVISION FRANCHISE RENEWAL ACTIVITIES
January 29, 2004
PEG Access Equipment, Facilities and Channels (e.g., ability to go live from locations in Los
Gatos; user-friendly, state-of-the-art equipment; new facilities that are accessible all day,
evenings, and vacation times)
2. PEG Access Management Structure, Policies and Procedures and Funding (e.g., adequate
funding for PEG; full-time staff, grant fund for nonprofits; restructure the nonprofit
organization/KCAT bylaws for an independent board)
3. Bandwidth/Infrastructure/System Design (e.g., affordable access to Internet service; capacity
for video conferencing; emergency override; I-Net connectivity for fire and police;
interactive connectivity to contiguous communities)
Community Focus Group Workshop Questionnaire Responses
The following summarizes the result of the community focus group workshop questionnaire
responses:
• Of the high percentages of focus group questionnaire respondents who expressed an interest
in receiving certain special services via cable (e.g., two-way video teleconferencing, telephone
service), 52% said they would and 37% said they might be willing to pay extra for., these
services.
When provided a list of services which could be received through their TV or home computer, the
following percentages of focus group survey respondents indicated that obtaining these services was
"Important" or "Very Important" to them:
* 99% - Access to Library resources (card catalog, magazine articles, etc.)
* 98% - Ability to vote, renew drivers' license, obtain govt. permits from home
* 93% - Access to government information (meeting agendas, reports, etc.)
* 91%- Access to public safety information (e.g., police/fire departments)
• Nearly all of the focus group cable subscribers answered either "Yes" (71 or "Maybe"
(23%) when asked if they had seen or would be interested in seeing local cable TV
programs about Los Gatos citizens, organizations, community events, schools, or local
government.
• Nearly all (91 of the focus group subscriber-respondents said they were aware of the
access programming on channel 15 (KCAT) or channel 25 (West Valley College). Of
this group, 90% said they had watched a program (or programs) on one of these
channels, and almost all (94%) of those who had ever watched them said they had tuned
in between one and five times during the previous month.
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PAGE 6
MAYOR AND TOWN COUNCIL
SUBJECT: STATUS OF CABLE TELEVISION FRANCHISE RENEWAL ACTIVITIES
January29, 2004
Local programming topics that focus group subscriber-respondents most often selected
as ones they were "Very Interested" or "Interested" in seeing included:
* Information regarding public emergencies (100%)
* Local public safety information (95%)
* Local health and wellness programs (95%)
* Events' and activities sponsored by the Town (90%)
* Programs about issues facing Town government (86%)
* Programs about Los Gatos arts, history and culture (86%®
* Local business news and information (86%)
* Town government meetings (86%)
* Programs about Town government services (86%)
When asked how important it was to have cable TV channels that feature programs about
Los Gatos residents, organizations, events, schools, and government, 98% of the focus
group survey respondents felt it was "Very Important" (52%) or "Important" (46% o).
Three-fourths (75%) of the focus group participants indicated an interest in learning how
to make a program to show on a local cable TV channel, using equipment provided free
of charge.
Analysis of Existing PEG Access Resources
An analysis of existing PEG Access resources was conducted through on-site visits to the
KCAT public access facility and interviews with KCAT staff. Issued identified included the
following:
• The present KCAT facility location is considered not conducive to community
participation. It is located on the Los Gatos High School campus, in an isolated, unmarked
location. Community use of the facility is also limited to weekday evenings and
weekends.
• Many of the existing equipment items appear to be more than 15 years old, well past their
useful life.
• KCAT's annual operating budget is estimated to be $50,000, nearly all of which is
provided by the Town through a yearly grant and contractual agreement for video
production services. Currently, KCAT receives no funding from the cable company to
purchase equipment or support operational activities.
• Given its low annual operating budget, restricted hours of operation, and small staff, the
amount of community involvement with and local programming produced through the
KCAT facility is considered to be low for the size of communities similar to Los Gatos.
4
PAGE 7
MAYOR AND TOWN COUNCIL
SUBJECT: STATUS OF CABLE TELEVISION FRANCHISE RENEWAL ACTIVITIES
January 29, 2004
Other Findings
The consultant also identified several concerns regarding KCAT's existing Board of Directors'
structure. Currently, the day to day management of KCAT is directly overseen by the Town
as the majority of the KCAT Board members are appointed by the Town Council. According
to the consultant, such a Board structure is fraught with legal exposure for the Town due to
First Amendment claims with respect to Board decisions relative to program content. The
consultant strongly recommends that the Town take necessary steps that would lead to the
reestablishment of KCAT as an independent nonprofit PEG Access management entity. Upon
Council direction, staff will work with KCAT and the consultant to address this issue
concurrent to the renewal process.
Recommended Next Steps
In preparation of the negotiation process, staff will be pursing the following next steps:
Identification of Renewal Goals and Negotiation Strategy
Based on the information and data collected during the cable television community needs
assessment process to date, the consultant will assist staff in the identification of renewal goals
to be pursued through negotiations, including the development of a negotiation strategy. The
consultant and the Town Attorney will also review and update the Town's cable television
ordinance to comply with required state and local laws.
Council Ad Hoc Subcommittee
To provide policy guidance or address unforseen issues that require a public policy perspective
during the negotiation process, staffrecommends that Council create an ad hoc cable television
franchise renewal subcommittee. Staff, with the assistance of the consultant, would lead the
negotiations using policy-related parameters established by the subcommittee. Staff would
work with the subcommittee to develop these parameters for negotiations. Upon the
completion of negotiations, the ad hoc subcommittee would recommend a draft cable
television franchise agreement and ordinance for Council's consideration at a scheduled public
hearing.
Extension of Existing Cable Television Franchise Agreement.
The Town's existing cable television franchise agreement expires on March 31, 2004. Staff
recommends extending the franchise agreement to allow adequate time to continue the renewal
negotiation process. The time period required for the franchise renewal process averages
about 18 months, if informal negotiations are successful. A proposed extension of the cable
television franchise agreement would be brought forward to Council for its consideration in
early March.
PAGE 8
MAYOR AND TOWN COUNCIL
SUBJECT: STATUS OF CABLE TELEVISION FRANCHISE RENEWAL ACTIVITIES
January 29, 2004
Outcomes of the Cable Television Franchise Renewal Process
A successful cable television franchise renewal can generate several opportunities for a
community to enhance its public communications infrastructure. Examples potential renewal
outcomes could include:
• Substantial cable system upgrades
• Significant improvements in the quality of cable service
• Contributions of television channels and facilities and equipment and operating
support for PEG access
e Advanced provider networks capable of supporting-high speed internet access
• Video, data, and voice facilities that link schools, libraries, and government buildings
to allow institutions to communication more efficiently internally and with the public
Many of these renewal benefits have been obtained in communities without significantly
increasing rates to consumers as only a part of the total renewal franchise requirements are
eligible for rate pass-through under Federal Communications Commission (FCC) rules.
However, it is important to note that as the negotiation process moves forward, staff and the
consultant will continue to evaluate any potential impact on subscriber rates as a result of
negotiated franchise provisions and/or benefits. Additional examples of recent cable franchise
renewal outcomes are attached (Attachment No. 2).
FISCAL IMPACT:
The FY 2003/04 budget allocation is $80,000 for the franchise agreement renewal project.
However, given the technical and lengthy nature of the renewal process and potential for
protracted negotiations, additional funding maybe required. As the renewal project progresses,
staff will evaluate the need for supplemental funding and address it during the FY 2004-2005
budget process, if necessary.
The Town will continue to collect cable television franchise fees from Comcast, which is
limited to a maximum of 5 percent by federal law. During FY 2003/04, the Town collected
an estimated $270,000 in franchise fees from the cable operator. The Town collected the
maximum amount allowed by federal law.
CONCLUSION:
The Town has completed the initial identification of community cable-related needs and
interests in preparation for renewal negotiations with Comcast. Preparation for negotiations
will require the development of renewal goals based on the cable assessment results and a
negotiation strategy. It is recommended that Council create a cable television franchise
ai
PAGE 9
MAYOR AND TOWN COUNCIL
SUBJECT: STATUS OF CABLE TELEVISION FRANCHISE RENEWAL ACTIVITIES
January 29, 2004
renewal ad hoc subcommittee to provide staff and the consultant policy guidance or address
unforseen issues that require a public policy perspective during the negotiation process. Staff
would lead the negotiations using parameters established by the ad-hoc subcommittee. Upon
the completion of negotiations, the ad hoc subcommittee would recommend a draft cable
television franchise agreement and/or ordinance for Council's consideration at a scheduled
public hearing.
Attachments:
Attachment No. 1: February 19, 2002 Staff Report on Cable Television Franchise Renewal
Negotiation Process
Attachment No. 2: Outcomes of Recent Cable Franchise Renewals
Distribution:
George Sampson, KCAT, 20 High School Court, Los Gatos, CA 95030
Dr. Cindy Ranii, Los Gatos-Saratoga Joint Union High School District, 17421 Farley Road
West, Los Gatos, CA 95030
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COUNCIL AGENDA REPORT
tps GAZ~g
DATE: February 19, 2002
MEETING DATE: 2/19/02
ITEM NO. I Q
TO: MAYOR AND TOWN COUNCIL
FROM: DEBRA FIGONE, TOWN MANAGER
SUBJECT: CABLE TELEVISION FRANCHISE RENEWAL NEGOTIATION PROCESS
A. CONSIDER REPORT ON CABLE TELEVISION FRANCHISE
RENEWAL NEGOTIATION PROCESS
B. CONSIDER ADOPTING A RESOLUTION AUTHORIZING THE
TOWN MANAGER TO ENTER INTO AND EXECUTE A CONTRACT
FOR CABLE TELEVISION FRANCHISE RENEWAL CONSULTING
SERVICES WITH MILLER AND VAN EATON.
RECOMMENDATION:
1. Consider report on cable television franchise renewal negotiation process.
2. Consider adopting a resolution authorizing Town Manager to enter into and execute a
contract for cable television franchise renewal consulting services with Miller and Van
i
Eaton.
BACKGROUND:
The Los Gatos cable system was originally constructed in 1969, and was comprised of three (3)
separate franchises granted by the Town of Los Gatos, the City of Monte Sereno, and the County of
Santa Clara. The operator of the Los Gatos cable system was Westinghouse Broadcasting and Cable,
Inc. (Group W), a subsidiary of Westinghouse Electric Corporation. In 1983, Group W sold its
system to Hearst Cablevision (Hearst). On March 31, 1983, the Town approved the transfer of the
franchise from Group W to Hearst, and simultaneously granted an extension of the franchise for ten
(10) years from the effective date of the transfer, thereby extending the franchise to March 31,1993.
In January 1990, Brenmor Cable Partners, L.P. (Brenmor) purchased Hearst. The Town approved
the transfer of the franchise from Hearst to Brenmor, and simultaneously granted another ten (10)
year extension of the franchise, through March 31, 2003. Brenmor subsequently transferred the
system to Tele-Communications Incorporation (TCI), and in 1999, TCI transferred the franchise to
PREPARED BY: JENNY HARUYAMA, ADMINISTRATIVE ANALY
.pd
Reviewed by: _ "ttorney Finance Revised: 2/14/02 2:18 pm
Reformatted: 7/14/99
ATTACHMENT 1
PAGE 2
MAYOR AND TOWN COUNCIL
SUBJECT: AUTHORIZE TOWN MANAGER TO ENTER INTO AND EXECUTE
CONTRACT FOR CABLE TELEVISION FRANCHISE RENEWAL CONSULTING
SERVICES
February 19, 2002
AT&T Broadband (AT&T). Because no further extensions ,were granted by way of these
transactions, the Town's cable television franchise agreement with AT&T will expire on March 31,
2003. As a result of the. various transfers and extensions, the Town has never conducted cable
franchise renewal proceedings. The Town's 2003 cable television renewal process will be the
Town's first official cable renewal.
DISCUSSION:
The cable television franchise renewal process presents local government with an opportunity to
enhance its public communications infrastructure and to advance the quality of life for its
community. The outcome of the renewal process not only helps to identify and meet a community's
unique cable-related needs, but can potentially influence and improve its future communication
abilities via voice, video and data. The following is a brief summary of the required cable television
renewal processes.
Cable Television Franchise Renewal Proceedings
Cable television renewal proceedings can be conducted one of two ways: formally or informally.
The formal renewal process is initiated either by the cable operator who submits a written notice to
the franchising authority requesting the commencement of a formal renewal proceeding, or by the
franchise authority who initiates the proceedings on its own. The first stage of the formal renewal
process involves the identification of cable-related needs. This process is designed to allow the
public and franchising authority an opportunity to identify future cable-related community needs and
interests and review the past performance of the cable operator. The ascertainment of these needs
can be accomplished through a variety of tools, such as public hearings, surveys, focus groups or
interviews.
The second stage of the renewal process involves the submission of a renewal proposal upon the
request of the franchise authority or upon the initiative of the cable operator. The franchise authority
cannot require the submission of a formal proposal prior to the completion of the ascertainment
proceedings. Once the proposal is received by the franchise authority, it must decide to renew or
preliminarily deny the proposal within four (4) months.
If the renewal proposal is denied, the cable operator can request administrative proceedings, or the
proceedings can begin upon the franchise authority's own initiative. If a franchise authority decides
to deny the renewal, it must be based on one (1) of four (4) factors:
If the cable operator has not complied with the material terms of the franchise and
applicable law.
If the quality of the cable operator's service has not been reasonable in light of the
community's needs.
PAGE 3
MAYOR AND TOWN COUNCIL
SUBJECT: AUTHORIZE TOWN MANAGER TO ENTER INTO AND EXECUTE
CONTRACT FOR CABLE TELEVISION FRANCHISE RENEWAL CONSULTING
SERVICES
February 19, 2002
If the cable operator does not have the financial, legal and technical ability to provide the
services, facilities and equipment as set forth in the cable operator's proposal.
If the cable operator's proposal is not reasonable in meeting the future cable-related
community needs and interests.
If the franchise authority denies the renewal, the cable operator must file an appeal in federal or state
court within one hundred twenty (120) days of the notice of the decision.
The informal process, which is how most franchises are renewed, can be conducted at any time.
Under this process, the franchising authority does not lose its ability to deny the proposed renewal.
Once a successful franchise renewal has been negotiated, the franchising authority must notify the
public and provide an opportunity to comment on the renewal before it is finally granted.
The informal and formal processes can and should work in tandem. Under the informal process, a
franchise authority can choose to incorporate all, some or none of the requirements under the formal
process. After consulting with a reputable cable television legal firm, staff recommends that the
Town proceed with the informal renewal process, which is how most franchises are renewed. This
process should include an assessment of the community's needs and an examination of the cable
operator's past performance. By taking these steps, the Town will be able to obtain the information
it needs to be successful at the negotiating table, and will be in a position to comply with' formal
proceedings if bargaining fails.
Duration of Cable Television Franchise Renewal Negotiations
Cable television franchise rene,.val negotiations are highly technical, labor intensive, and require
special expertise due to the complex laws that govern the process and the many opportunities to
enhance services to the community. Understanding this, the Town provided funding in the FY 2001-
2002 Operating Budget to support the upcoming negotiations.
As the Council is aware, during the months of August 2001-November 2001, Town staff explored
an opportunity to extend its cable television franchise agreement with AT&T in exchange for a video
production system. Unfortunately, after four months of discussion, the Town and AT&T were
unable to come to an agreement regarding the terms of the proposed extension. As a result, the
Town is now prepared to enter into official cable television franchise renewal negotiations with
AT&T.
The cable television franchise renewal process can take between twelve (12) months to three (3)
years to complete. However, the average cable television franchise renewal process is eighteen (18)
months. Given the Town's time frame to conduct and complete its cable television franchise
renewal process, staff, with the assistance of a cable television legal firm, has developed an
ambitious time line (Attachment 1) to complete the renewal process within twelve (12) months.
i
PAGE 4
MAYOR AND TOWN COUNCIL
SUBJECT: AUTHORIZE TOWN MANAGER TO ENTER INTO AND EXECUTE
CONTRACT FOR CABLE TELEVISION FRANCHISE RENEWAL CONSULTING
SERVICES
February 19, 2002
However, it is important to note that due to the lengthy, and sometimes unpredictable nature of the
renewal process, it may be necessary to extend the cable television franchise agreement if an
agreement has not been reached by the March 31, 2003 expiration date. This is not an uncommon
occurrence, and if an extension is warranted, staff will advise Town Council accordingly.
It is important to note that in December 2001, AT&T announced its plan to merge with Comcast
Corporation (Comcast). The merger would result in a new company, AT&T Comcast, making it one
of the nation's largest broadband services network. AT&T Comcast would serve more than 22
million subscribers. The merger,is subject to federal regulatory review by the Securities Exchange
Commission (SEC) and the FCC, approval by both companies' shareholders, and other legal
conditions. If the merger meets federal regulatory criteria and is approved by AT&T and Comcast
shareholders, the merger will require the Town Council's consent as required by the Los Gatos Cable
Television Franchise Ordinance. The merger is expected to be complete by the end of 2002, and
should not adversely impact the Town's cable television franchise renewal process, although it may
be a factor that leads to an extension beyond the'March 31, 2003 expiration date.
Town costs associated with the transfer of the franchise will be recouped through the Town's non-
refundable $25,000 transfer application fee required by the Los. Gatos Cable Television Franchise
Ordinance.
Cable Television Franchise Renewal Opportunities and Limitations
Cable Television Franchise Renewal Opportunities
The cable television franchise renewal process presents a number of opportunities for local
government to enhance its existing public infrastructure and plan for future communication needs.
Adequate planning and preparation is important for the renewal process as many cable television
franchise terms range between ten (10) and fifteen (15) years, although some have been as short as
five (5) years.
The renewal process helps municipalities ensure that the existing cable system is upgraded
appropriately; require channels to be set aside for public, educational and government access;
request support for those channels (studios and equipment); and require that the cable operator
provide an institutional network (I-Net), which can serve as a modern
telecommunications/communications link for schools, libraries and government. Although the Town
currently has an I-Net that connects all of its facilities together, the Town would still explore the
opportunity to expand its existing I-Net to schools or other appropriate government institutions.
The cable television franchise renewal process can also help a municipality ensure that all parts of
the community have access to cable service, and that any future upgrades are done within a
reasonable period of time. Los Gatos is one of few communities served by AT&T that has an
PAGE 5
MAYOR AND TOWN COUNCIL
SUBJECT: AUTHORIZE TOWN MANAGER TO ENTER INTO AND EXECUTE
CONTRACT FOR CABLE TELEVISION FRANCHISE RENEWAL CONSULTING
SERVICES
February 19, 2002
upgraded system which provides cable modem internet service. During the renewal process, staff
will endeavor to work with AT&T to ensure future upgrades of Los Gatos system, keeping it
technologically viable. In addition, franchise duration terms, customer service standards, channel
capacity requirements, franchise fee requirements, and procedures for reviewing cable operator
performance can be established during the renewal process.
It is important to underscore that the cable operator cannot "pass through" all of the additional and/or
enhanced service requests as a result of the renewal process. Cable operators are only entitled to
pass through the increase in its external costs to subscribers, and although some franchise
requirements, such as PEG (Public, Educational and Government) access and I-Nets are considered
external costs, not all are. All renewal franchise requirements do not necessarily result in rate
increases, depending in part on what was required under the prior franchise. In several recent
renewals with other cities, for example, operators have agreed that only a small part of the total
renewal franchise requirements are eligible for rate pass-through under Federal Communications
Commission (FCC) rules.
Cable Television Franchise Renewal Limitations
However, there are some things that a municipality cannot require through the cable television
franchise renewal process. Examples of these restrictions include the requirement of specific
television programs or type of transmission technologies used by the cable operator. Additionally,
franchise authorities cannot mandate service rates or franchise fee percentage requirements, other
than what is required by the federal government. The franchise fee is currently 5%. It is anticipated
that the Town will receive approximately $245,000 annually in franchise fee revenue for FY 2002-
2003.
Cable Television Franchise Renewal Legal and Consulting Services
Cable Television Franchise Renewal Legal and Consulting Contract
To negotiate and bring forward a comprehensive and effective cable television franchise agreement
for Council consideration, the Town will need to retain a law firm that specializes in cable
television/telecommunication issues. The Town Manager's Office has identified Miller and Van
Eaton as a candidate to handle the Town's cable-related legal and consulting services as described
above. Miller and Van Eaton has a depth of expertise representing municipalities on
telecommunications issues, including cable television franchise renewals and ordinances, public
right-of-way (POW) leases, cellular towers, I-Nets and enforcement matters. Present and past clients
of Miller and Van Eaton include the cities of Santa Clara, Mountain View, Campbell, Los Altos,
Oakland, Union City, Palo Alto, Alameda and San Jose.
PAGE 6
MAYOR AND TOWN COUNCIL
SUBJECT: AUTHORIZE TOWN MANAGER TO ENTER INTO AND EXECUTE
CONTRACT FOR CABLE TELEVISION FRANCHISE RENEWAL CONSULTING
SERVICES
February 19, 2002
Cable Television Franchise Renewal Contract Services
The types of services required for the cable television franchise renewal process will include a
number of tasks such as an assessment of cable-related community needs; a past performance review
of the cable operator; a technical review of the cable operator; legal assistance regarding cable
television franchise issues; development of a new cable television franchise agreement; I-Net
planning if applicable; development of a negotiation strategy and assistance with negotiations; and
assistance in preparing an updated cable television ordinance.
One of the most important services required for the cable television franchise renewal process is the
assessment of cable-related community needs. The needs assessment lays the foundation for the
Town's negotiating strategy, and helps to ensure that the community's needs are addressed by the
cable operator. Should the Town find that the cable operator's proposal is not reasonable in meeting
the future cable-related community needs and interests, it has legal grounds to deny the cable
renewal.
As noted in the attached contract, Miller and Van Eaton will be using the services of The Buske
Group to perform a cable-related needs assessment. The Buske Group, with oversight and
coordination by Town staff, will identify key organizations and individuals outside of the local
government who may be affected by the future design and services of the cable system. Such needs
and interests may include potential special uses of the cable system as needed by stakeholders such
as businesses, schools, non-profit organizations, and other similar institutions. Telephone surveys,
focus groups, and questionnaires will be used to identify the proposed uses of the cable system and
cable-related needs of the community. It is important to note that if the stakeholders have limited
availability, or are unable to efficiently articulate their needs, the renewal time line may be impacted.
However, Miller and Van Eaton, The Buske Group, and staff will make every effort to work with
the stakeholders' schedule to help identify their cable-related concerns and needs.
Cable Television Franchise Renewal Contract Cost
Approximately $100,000 was included the FY 2001-2002 Operating Budget for cable television
franchise renewal legal and consultant services. The project cost estimate for the renewal process
as outlined in the attached proposal (Attachment 2) is between $87,000 - $125,000, and is anticipated
not to exceed $100,000. Additional expenses, including travel, photocopies, telephone calls, and
computerized legal research expenses are estimated to be no more than $5,000. Should unforseen
issues or protracted negotiations increase the cost of the contract, additional funding is available in
the Town Manager's Contingency Fund.
PAGE 7
MAYOR AND TOWN COUNCIL
SUBJECT: AUTHORIZE TOWN MANAGER TO ENTER INTO AND EXECUTE
CONTRACT FOR CABLE TELEVISION FRANCHISE RENEWAL CONSULTING
SERVICES
February 19, 2002
FISCAL IMPACT:
Funding in the amount of $100,000 has been included in the FY 2001-2002 Operating Budget for
the cable television franchise renewal process. Funding for additional expenses (travel, telephone,
and/or additional legal research) is available through the Town Manager's Contingency Fund, and
are estimated not to exceed $5,000.
If unforseen issues or protracted negotiations increase the cost of the contract, additional funding is
also available through the Town Manager's Contingency Fund.
Attachments
Attachment 1: Proposed Cable Television Franchise Renewal Time Line and Process
Attachment 2: Proposal for Cable Television Franchise Legal and Consulting Services (Miller and
Van Eaton)
Attachment 3: Resolution Authorizing the Town Manager to Enter into and Execute a Contract for
Cable Television Franchise Renewal Consulting Services with Miller and Van Eaton.
Distribution List
Town Department Heads
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