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Home My WebLink About03 - Adelphia Franchise Transfer RejectionCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 3 August 23, 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: Resolution 2005 - Authorizing the City Manager to Reject Documents relating to the Transfer of Adelphia's Franchise to either Time Warner or Comcast ISSUE: How should the City best protect the community's interest as the pending transfer of cable assets from Adelphia to Time Warner (or Comcast) unfolds? RECOMMENDATION: Adopt Resolution 2005- authorizing the City Manager (or his designee) to reject one or more Federal Communications Commission (FCC) forms relating to the transfer of one of the City's cable franchises. 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 August 23, 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. N Newport Beach C. • le Fact Sheet August r Subscriber Inrormation Adelphia Cox 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 Pee Revenue to City • 1phia Cox Total --1999( lendar 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 4th Q'o4) $ 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. N Resolution Relating to Adelphia -Time Warner Transfer August 23, 2005 Page 3 Mr. Marticorena has also advised us to adopt the attached resolution. The resolution allows the City Manager or Mr. Marticorena 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 Marticorena believes that documents, actions, or facts associated with the proposed transfer raise concerns. Committee Action: None. 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: DaveVf Assistant City Manager Attachments: Resolution 2005 - Document from the FCC Website regarding transfers 3 Resolution Relating to Adelphia -Time Warner Transfer August 23, 2005 Page 4 RESOLUTION 2005- 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 said individual designated by the City Manager in writing, the authority to deny and reject 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 his /her written designee, is hereby delegated the authority to reject the Application, or any portion thereof, without prejudice for one or more of the following reasons: 1. Failure to timely provide any "additional 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; 3. 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 Manager; y Resolution Relating to A delphia- Time Warner Transfer August 23, 2005 Page 5 6. Failure to demonstrate the legal, technical and financial qualifications of the Transferee; 7. 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 Application of and /or additional filings; and Filing FCC Forms 394 providing for potentially different Transferees. 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 his /her written designee, 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 23`d day of August, 2005. Signed: JOHN HEFFERNAN Mayor of Newport Beach ATTEST: LaVonne Harkless City Clerk of the City of Newport Beach PUBLIC NOTICE Federal Communications Commission News Media Information 2021418-0500 445 12th St., S.W. Internet: http:ilwww.fcc.gov Washington, D.C. 20554 TTY: 1 -888- 535.5322 DA 05 -1591 Released: June 2, 2005 MEDIA BUREAU ACTION ADELPHIA COMMUNICATIONS CORPORATION, DEBTOR -IN- POSSESSION, TIME WARNER INC. AND COMCAST CORPORATION SEEK APPROVAL TO TRANSFER CONTROL AND /OR ASSIGN FCC AUTHORIZATIONS AND LICENSES RIB Docket No. 05 -192 PLEADING CYCLE ESTABLISHED Comments /Petitions Due: July 5, 2005 Responses /Oppositions to Petitions Due: July 20, 2005 On May 18, 2005, Adelphia Communications Corporation ( "Adelphia "), Time Warner Inc. ( "Time Warner') and Conmcast Corporation ( "Conmcasl ") (collectively, "Applicants ") submitted joint applications to the Commission seeking consent to transfer control of and /or assign various Commission licenses and authorizations pursuant to Section 214 and 3W(d) of the Communications Act of 1934.' The proposed license transfers and assignments are associated with a series of transactions ( "Transactions ") that when completed will effectuate the sale of certain cable systems and assets of Adelphia and its affiliates and related entities to subsidiaries or affiliates of Time Warner; the sale of certain cable systems and assets of Adelphia to subsidiaries or affiliates of Comcasl; the exchange of certain cable systems and assets between affiliates or subsidiaries of Time Warner and Comcasl: and the redemption of Comcasl's See 47 U.S.0 214, 310(d); Applications for Consent to the Assignment and /or Transfer of Control of Licenses, Adelphia Communications Corporation, Assignors, to Time Warner Cable Inc., Assignees; Adelphia Communications Corporation, Assignors and Transferors, to Conicasl Corporation, Assignees and Transferees; Comcasl Corporation, Transferor, to Time Warner Inc., Transferee; Time Warner Inc., Transferor, to Comcasl Corporation, Transferee, Applications and Public Interest Statement ( "Application "), MB Docket No. 05 -192 (filed May 18, 2005). J interest in Time Warner Cable Inc. ( "Time Warner Cable ") and Time Warner Entertainment Company, L.P. ( "TWE „) z The proposed Transactions involve a series of agreements whereby Time Warner Cable and Comcast separately will acquire various cable systems that, in the aggregate, comprise substantially all of the domestic cable systems owned or managed by Adelphia for a total of $12.7 billion in cash. Adelphia provides cable service to approximately five million subscribers, making it the fifth largest cable television company and the seventh largest multichannel video programming distributor ( "MVPD ") in the United Stales.` Comcast is the nation's largest MVPD and will remain so upon completion of the Transactions. Today, Comcast stales that it serves approximately 26.1 million subscribers in 35 states and the District of Columbia, or 28.2% of MVPD subscribers nationwide.' Time Warner Cable states that it owns or manages cable systems serving 13.1 million cable subscribers in 27 slates, making it the nation's second largest cable operator and third largest MVPD.' As part of the initial phase of the overall transaction, in accordance with separate purchase agreements, Time Warier NY Cable (TWNY), a wholly -owned subsidiary of Time Warner Cable, and Comcast will each acquire a portion of substantially all of the cable systems owned or operated by Adelphia (the "Adelphia transactions "). Time Warner Cable will pay $9.2 billion in cash and issue common shares totaling 16% of Time Warner Cable's outstanding common equity to Adelphia stakeholders. Comcast will pay $3.5 billion in cash. Each of the Adelphia transactions is conditioned upon contemporaneous consummation of the other. The Adelphia transactions are not dependent on the occurrence of the additional system swaps and redemption transactions between Time Warner Cable and Comcast. Upon consummation of the Adelphia transactions, Time Warner Cable and Comcast will exchange certain cable systems owned by affiliates of Time Warner or Comcast, respectively, logelher with certain cable systems to be acquired in the Adelphia transactions. In the exchange transactions, Time Warner Cable will receive current Comcast systems located in or around Los Angeles, California; Cleveland, Ohio; and Dallas, Texas, and systems currently owned by Century -TCI California Communications, L.P., in the Los Angeles area, and by Parnassos Communications, L.P. and Western Cablevision. L.P., in Ohio and western New York. Comcast will receive Time Warner's current cable systems serving portions of Philadelphia, Pennsylvania and certain systems currently owned by Adelphia located in California, Colorado, Connecticut, Florida, Georgia, Kentucky, Massachusetts, Maryland. '- A complete list ofthe licenses and authorizations held by Adelphia, Time Warner and Comcast and subject to the filed applications is set forth in the Attachment and Appendix. ' Adelphia's subscriber count includes subscribers served by several joint ventures with Comcast: the Century-TCI Joint Venture and the Parnassos Joint Ventures. Adelphia also serves subscribers through join) ventures with Tele- Media Corporation of Delaware. ' Comcast estimates there are 92.6 million MVPD subscribers nationwide (citing Kagan Media Money, April 26, 2005, at 7). Approximately 21.5 million subscribers are served by Comcast's wholly owned systems; approximately 4.6 million are served by systems ownedjoinlly by Comcast and other cable operators. These include systems jointly owned with Time Warner, which serve approximately 1.5 million subscribers. ` This total includes subscribers served by systems ownedjoinlly with other cable operators, including systems co- owned with Comcast that serve 1.5 million subscribers, and systems ownedjoinlly with the Time Warner Enlerlainmenl- AdvanceMewhouse Partnership ( "TWE- A/N "). TWE -AM owns systems serving 5.1 million subscribers, of which systems serving 2.9 million subscribers are managed by Time Warner. The remaining 2.2 million TWE -A /N subscribers are served by systems managed by Bright House Networks, an affiliale of Advance/Newhouse. These systems are attributable to Time Warner Cable. 7 North Carolina. New Hampshire, New York, Pennsylvania, Tennessee, Virginia, Vermont. Washington and West Virginia. Also upon consummation of the Adelphia transactions. Time Warner Cable and Comcasl will execute two Redemption Agreements. First, Time Warner Cable will redeem Comcasl's 17.9% equity interest in Time Warner Cable, currently held in an FCC - mandated trust, in exchange for 100% of the common stock of a Time Warner Cable subsidiary that ultimately will own various cable systems, plus approximately $1.9 billion in cash and 600,000 subscribers. Second, TWE will redeem Comcasl's 4.7% limited partnership interest in TWE in exchange for approximately $133 million in cash, 150.000 subscribers and 100% of the membership interests of a limited liability company that will own various Time Warner Cable systems. Finally. upon consummation of the Adelphia transactions, certain FCC licenses held by Adelphia will be assigned (or control transferred) to Comcasl, its subsidiaries or affiliates. and other Adelphia FCC licenses will be assigned to subsidiaries or affiliates of Time Warner Cable. In addition. upon consummation of the Time Warner /Comcasl exchange agreements, control of certain subsidiaries or affiliates of Time Warner Cable or Comcasl. respectively, holding FCC licenses (including certain FCC licenses acquired fi'om Adelphia), will be transferred from Time Warner to Comcasl or from Comcasl to Time Warner. Upon consummation of the redemption agreements between Comcasl and Time Warner Cable and TWE. certain FCC licenses will be assigned first to a newly formed Time Warner Cable subsidiary on a pro forma basis, and then control of the new entity will be transferred from Time Warner to Corncast. The Applications seek consent for those various assignments and /or transfers of control. Comcasl states that upon completion of the Transactions. it will serve approximately 26.8 million subscribers. or 28.9% of MVPD subscribers .6 Time Warner Cable states that. as a result of the Transactions. will add 3.5 million basic video subscribers. in total serving 16.6 million basic subscribers nationally. or 17.9% of MVPD subscribers. Time Warner Cable expects to emerge as the second largest MVPD in the United States. Also, upon completion of the Transactions. Time Warner Cable will become a publicly traded company. Time Warner will hold 84% of the common stock and 91% of line voting control of Time Warner Cable. Adelphia stakeholders collectively will hold the remaining 16% of common stock of Time Warner Cable. EX PARTS STATUS OF THIS PROCEEDING Because this proceeding involves broad public policy issues, the proceeding will be treated as "permit but disclose" for purposes of the Commission's exparle rules. Seegenerullr47 C.P.R. §§ 1.1200- 1.1216. Should circumstances warrant. this proceeding or any related proceeding may be designated as restricted. As a result of the permit -but- disclose status of this proceeding, er pur7e presentations will be governed by the procedures set forth in Section 1. 1206 of the Commission's rules applicable to non- restricted proceedings! 6 Approximately 23.3 million oflhese subscribers will be served by wholly owned systems, and 3.5 million will be served by systems ownedjoinlly with others. Although Comcast expects to add approximately 1.8 million wholly owned subscribers through the Transactions, its total numberof subscribers served through jointly owned systems will decrease by approximately 1.1 million, for a net increase of 680,000 subscribers, or 0.73% of MVPD subscribers. ' An es pwfe presentation is any communication (spoken or written) directed to the merits or outcome ofa proceeding made to a Commissioner. a Commissioner's assistant. or other decision- nnakiug staff member, that, if written. is not served oil other parties to the proceeding or. if oral, is made without an opportunity for all parties to be present. See 47 C.P.R. § 1.1201. Parties making oral ex parse presentations are directed to the Commission's statement re- emphasizing the public's responsibility in permit -but- disclose proceedings and are reminded that memoranda summarizing the presentation must contain the presentation's substance and not inerely list the subjects discussed a More than a one- or two- sentence description of the views and arguments presented is generally required.° We urge parties to use ECFS to file exparre submissions.10 GENERAL INFORMATION The applications for transfer of control of the licenses and authorizations referenced herein, upon initial review, have been accepted for filing. The Commission reserves the right to return any application if, upon further examination, it is determined to be defective and not in conformance with the Commission's rules, regulations, or policies. Interested parties must file comments or petitions to deny no later than July 5, 2005. Persons and entities that file comments or petitions to deny become parties to the proceeding. They may participate fully in the proceeding, including seeking access to any confidential information that may be filed under a protective order, seeking reconsideration of decisions, and filing appeals of a final decision to the courts. Responses or oppositions to such pleadings must be tiled no later than July 20. 2005. All filings concerning matters referenced in this Public Notice should refer to MB Docket No. 05 -192, as well as the specific file numbers of the individual applications or other matters to which the filings pertain (unless the filings pertain to all applications). Under the Commission's current procedures for the submission of filings and other documents. submissions in this matter may be filed electronically (i.e., through ECFS) or by hand delivery to the Commission's Massachusetts Avenue location. If filed by ECFS, comments shall be seal as an electronic file via the Internet to http:: / /www.fcc.gov /e- file /ecfs.litml. In completing the transmittal screen, connnenters should include their full name, Postal Service mailing address, and the applicable docket number. Parties may also submit an electronic comment by Internet a -mail. To gel filing instructions for e-mail comments. connnenters should send an a -mail to ecfs @ficc.eov, and should include the following words in the body of the message, "get form <your e-mail address >." A sample form and directions will be sent in reply. If filed by paper, the original and four copies of each tiling must be filed by hand or messenger delivery, by commercial overnight courier, or by first -class or overnight U.S. Postal Service mail (although we continue to experience delays in receiving U.S. Postal Service mail). The Commission's contractor, Natek, Inc., will receive hand- delivered or messenger- delivered paper filings for the Commission's Secretary at 236 Massachusetts Avenue. N.G., Suite 110, Washington, D.C. 20002. The filing hours at this location are 8:00 a.m. to 7:00 pan. All hand deliveries must be held together with rubber hands or fasteners. Any envelopes must be disposed of before entering the building. Commercial overnight mail (other than U.S. Postal Service s See Commirsiwr L•mphasices the Publics Responsibilities in Permit- 13ot- DiscI(xTe Proceedings, Public Notice, FCC 00 -358, 15 FCC Red 19945 (2000). S'ce 47 C.P.R. § 1.1206(6)(2), as revised. Other rules pertaining to oral and written presentations are sel forth in Section L I206(b) as well. 10 See "General Inforination° section. .I Express Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol Heights. MD 20743. U.S. Postal Service first -class snail, Express Mail, and Priority Mail should be addressed to 445 12 "i Street, S.W., Washington, D.C. 20554. All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission. In addition, one copy of each pleading must be sent to each of the following: I. The Commission's duplicating contractor, Best Copy and Printing, Inc., Portals 11, 445 12 "i Street, S.W., Room CY -6402, Washington, DC 20554, telephone 1- 800 - 378 -3160, or via e-mail at www.bcoiweb.com; 2. Barbara Esbin, Media Bureau. Room 3 -C458. e-mail. Barbara.Esbin @fcc.gov." 3. Tracy Waldon, Media Bureau. Room 3 -C488; e -mail Tracy. Waldon @fcc.gov. 4. Royce Sherlock. Media Bureau. Room 2 -C360: e-mail Royce. Sherlock@fcc.gov. 5. Marcia Glauberman. Media Bureau. Room 2 -C264; e-mail Marcia.Glauberman @fcc.gov. 6. Julie Salovaara, Media Bureau. Room 2 -C262: e-mail Julie.Salovaara@fcc.gov. 7. Wayne McKee. Media Bureau. Room 4 -C737; e-mail Wayne.McKee @fcc.gov. 8. Jim Bird. Office of General Counsel. Room 8 -C824; e-mail James.6irdnfcc.gov. 9. Jefl7obias. Wireless Telecommunications Bureau. Room 3 -A432; e -mail JcffTobias@l`cc.gov. 10. JoAnn Lucanik. International Bureau. Room 6 -A660: e-mail JoAnn.Lucanik @fcc.gov. H. Kimberly Jackson, Wireline Competition Bureau, Room 5 -C142: a -mail Kimberly.Jackson@fcc.gov. Copies of the applications and any subsequently filed documents in this matter may be obtained from Best Copy and Printing, Inc., Portals 11. 445 12 "i Street, SW, Room CY -6402, Washington, D.C. 20554, telephone 1- 800- 378 -3160, or via -e -mail www.bcuiweb.com. The applications and any associated documents are also available for public inspection and copying during normal reference room hours at the following Commission office: FCC Reference Information Center, 445 12't' Street, S.W.. Room CY -A257. Washington, D.C. 20554. The applications are also available electronically through the Commission's ECFS, which may be accessed on the Commission's Internet websile at hllp:www.fcc.gov. Additional information regarding the transaction will be available on the FCC's Office of General Counsel's websile, hllp:www.fcc.gov /ogc. which will contain a fully indexed. unofficial listing and electronic copies of all materials in this docket. Alternate formats of this public notice (computer diskette. large print, audio recording, and Braille) are available to persons with disabilities by contacting Brian Millin at (202) 418 -7426 (voice). (202) 418 -7365 (TTY), or send an e-mail to access([ lcc.sov. For further information, contact Barbara Esbin. (202) 418 -7200. Royce Sherlock, (202) 418 -2330, or Julie Salovaara, (202) 418 -0783. Press inquiries should be directed to Rebecca Fisher, (202) 418 -2359. of the Media Bureau. TTY: (202) 418 -7172 or (888) 835 -5322. -FCC- " The street address for all Commission staff is 445 12" Street, S.W.. Washington, D.C. 20554. �l