OLA#: 001-02

LEGISLATIVE ANALYST REPORT

To:           Honorable Members of the Board of Supervisors
From:       Gabe Cabrera, Legislative Analyst (OLA)
Date:        May 6, 2002
Subject:   City Cable System (Individual Request from Supervisor McGoldrick)

Summary of Requested Action

Please consider different types of franchise agreements that might be entered into by the City with AT&T Comcast, including particular provisions that would benefit the City beyond those in the current cable franchise agreement with AT&T Broadband. Also consider the feasibility of the City operating its own cable system. Please make reference to the options in other U.S. cities and their experience.

Executive Summary

Section 1 of this report describes the dispute between the City and County of San Francisco and AT&T Comcast over whether the merger of AT&T Broadband and Comcast Corporation, and therefore the transfer of control over the City"s Cable Television Franchise Grantee to AT&T Comcast, requires approval by the Board of Supervisors, pursuant to Section 6 of the current Cable Television Franchise Agreement between AT&T Broadband and the City.

Section 2 compares how San Francisco"s current Cable Franchise Agreement with AT&T Broadband compares with those in other jurisdictions. Attachment 1, provided by the Buske Group, contains a matrix of the outcomes of recent cable franchise renewals in other jurisdictions. Although these are franchise "renewals" as opposed to franchise "transfers," they still manage to provide useful comparative information in terms of infrastructure characteristics, PEG channels and other franchise highlights.

Finally, in Section 3, our office conducted an expedited but thorough survey of U.S. cities operating their own cable systems and discovered fewer than 100 cities nationwide. Attachment 2, provided by the American Public Power Association, contains a list of these cities, the names of their cable television systems and estimates of their general populations. In order to draw a meaningful comparison with San Francisco, we decided to concentrate our analysis on the two cities with the largest general populations: Alameda, California and Tacoma, Washington.

Background

AT&T Broadband is the owner of Television Signal Corporation, which is the Cable Television Franchise Grantee under the Cable Television Franchise Agreement with the City. On December 19, 2001, AT&T Broadband and Comcast Corporation signed a definitive agreement to combine their cable systems to form a new entity, AT&T Comcast. Under this agreement, AT&T Comcast will be the new ultimate parent company of all the cable systems and franchise grantees, including Television Signal Corporation.

AT&T Comcast has asserted that the merger of AT&T Broadband and Comcast Corporation, and therefore the transfer of control over Television Signal Corporation"s ownership to AT&T Comcast, does not require approval by the Board of Supervisors, pursuant to Section 6 of the current Cable Television Franchise Agreement between AT&T Broadband and the City, and have accordingly declined to request approval of the Board of Supervisors for AT&T Comcast assuming control over the Television Signal Corporation, the City"s Cable Television Franchise Grantee. However, it is the City"s Department of Telecommunication and Information Services (DTIS) position that Section 6 of the current Cable Television Franchise Agreement does require that the Television Signal Corporation obtain the approval of the Board of Supervisors prior to completing any transfer. Section 6 states:

"The Grantee shall not have the right to assign or otherwise transfer in any manner whatever this Franchise, or sell, lease, license or permit others to use, transfer in any manner whatever, or convey any interest in, all or any part of its facilities which are installed or operated hereunder, except upon the prior written approval by ordinance of the Board of Supervisors of the City."

DTIS advised AT&T Comcast that it disagrees with AT&T Comcast"s position that the Board of Supervisors approval for the transfer of control of the Television Signal Corporation to AT&T Comcast is not required. The Department advised the Legislative Analyst that it would seek direction from the Board of Supervisors and the City Attorney"s Office regarding how to resolve this dispute.

Form 394

If the current franchise agreement requires consent of the Board of Supervisors for this type of change of control (as is the City"s position), a Federal Communications Commission (FCC) Form 394 seeking consent must be delivered to the City (the local franchise authority). FCC Form 394 would include information regarding AT&T Comcast"s legal, technical and financial qualifications. Moreover, the rules governing a transfer review are found in federal law at 47 U.S.C § 537 and FCC regulations at 47 C.F.R. § 76.502. Under federal law, a local franchise authority has 120 days from the date of the submission of the completed FCC Form 394 to act on the request for approval. If the franchising authority fails to act upon such transfer request within 120 days, such request is deemed granted unless the franchising authority and the requesting party otherwise agree to an extension of time.

Cable Franchise Agreements in Other Jurisdictions

This section compares how San Francisco"s current Cable Franchise Agreement with AT&T compares with those in other jurisdictions. Although these franchise "renewals" as opposed to franchise "transfers", they still provide useful comparative information in terms of infrastructure characteristics, PEG channels and other franchise highlights. Attachment 1, provided by the Buske Group, contains a matrix of more cable franchise renewals in other jurisdictions.

Municipal Cable Television in Other Jurisdictions

Our office conducted an expedited but thorough survey of U.S. cities operating their own cable television systems and discovered fewer than 100 such cities nationwide. Attachment 2, provided by the American Public Power Association, contains a list of these cities, the names of their cable television systems and estimates of their general populations. In order to draw a meaningful comparison with San Francisco, we decided to concentrate our analysis on the two cities with the largest general populations: Alameda, California and Tacoma, Washington.

Alameda Power & Telecom

Alameda Power & Telecom is the City of Alameda"s energy and telecommunications utility. It is a department of the City of Alameda, and therefore, it is citizen-owned. It is overseen by the City"s Public Utilities Board, consisting of four Commissioners appointed by the Mayor, City Council and the City Manager. In November of 1998, Alameda"s electorate approved a measure introduced by the Board allowing Alameda Power & Telecom to offer telecommunication services and products including a cable television system. The following year, Alameda"s City Council awarded a communications services franchise to Alameda Power & Telecom, and in January 2000, it authorized financing of its cable television system.

According to Alameda Power & Telecom, because the City of Alameda did not have any experience in the cable television industry, it decided to hire a private contractor to construct the cable television system. The City considered several contractors and ultimately chose Vectren Communication Services, based in Evansville, Indiana. However, after two years of planning and the launch of the cable television system, Alameda Power & Telecom reassessed the need for contracted services. The Board and City Council authorized the negotiation of a revised agreement with Vectren Communication Services. Under this agreement, Alameda Power & Telecom assumed full oversight for all services required for completion of the infrastructure, which is currently being installed throughout the City. Vectren Communication Services continues to manage the build out of the infrastructure, having already built the system "backbone" and the "headend" from which the cable television service originates. According to Alameda Power & Telecom, approximately 35 percent of Alameda residents now have access to the City"s cable television system.

Currently, Alameda Power & Telecom handles customer service, operations, administration and marketing. The utility also coordinates the installation of the cable television and data services for subscribers, and manages field support contractors. According to Alameda Power & Telecom, there are currently approximately 2,700 subscribers to the City"s cable television system. Notably, Alameda Power & Telecom, through Vectren Communication Services, is in the process of installing a fiber-optic system throughout the City to provide customers with an array of telecommunication services including Internet access, telephone service, high speed data transfer and video-on-demand.

The Click! Network

Tacoma Public Utilities is the City of Tacoma, Washington"s largest department with about 1,234 employees. The Click! Network is a division of Tacoma Public Utilities, which is overseen by the Public Utility Board and the Tacoma City Council. The Click! Network was conceived in 1992, as the U.S. Congress began considering electric deregulation. According to Tacoma Park Utilities, to remain viable in the new environment, the utility realized it would need a state-of-the-art telecommunications system. In 1997, after four years of research and consideration of numerous alternatives, Tacoma Power decided to build its own telecommunications infrastructure.

While the primary goal of the project was to improve electric operations, the utility realized early on that other "non-electric" services, including cable television services, could be offered over the system with little incremental cost. In 1998, the Public Utilities Board and the Tacoma City Council granted a franchise-like agreement to the Click! Network and authorized financing for its own telecommunications infrastructure, including a cable television system. Because the City of Tacoma did not have any experience in the telecommunications industry, it issued Requests for Proposals and awarded contracts to several construction contractors. Tacoma Public Utilities advised our office that after the telecommunications network was completed, the first commercial product offered on the network was cable television. Since the launch of cable television services, approximately 10,000 Tacoma residents have subscribed to the Click! Network, which has full responsibility for operating and maintaining the City"s telecommunications services, including Internet access and broadband services. According to Tacoma Public Utilities, one advantage of a City-owned cable television system is the City of Tacoma sets its rates at levels that are sometimes substantially lower than private cable operators like AT&T.

Conclusion

In closing, the Legislative Analyst recommends that DTIS continue to seek direction from the Board of Supervisors and the City Attorney"s Office regarding how to resolve the above-described dispute between AT&T Broadband and the City. In addition, our office concludes that the City and County of San Francisco may improve upon its existing cable television franchise agreement with AT&T Broadband by negotiating (1) an increase in the number and type of PEG Access channels; (2) an increase in AT&T"s funding of PEG Access equipment, facilities and services; and (3) the inclusion of a provision that allows the City to charge AT&T a fee for relocating PEG Access channels. In addition, DTIS advised the Legislative Analyst that the City may pursue other franchise agreement improvements, including but not limited to, improving customer service, capping cable rates for low-income subscribers, addressing the "digital divide" associated with historically disadvantaged groups, and generally improving the City"s telecommunications services. Moreover, the cities of Alameda, California and Tacoma, Washington are important case models for how San Francisco may operate its own cable television system. Both Alameda and Tacoma hired private consultants to build new cable systems, instead of purchasing existing privately operated infrastructures. Of course, whether or not the City should operate a municipal cable system is a policy matter for the Board of Supervisors.

Attachment 1: Outcomes of Recent Cable Franchise Renewals (pdf)
Attachment 2: Cable Television Systems by City and Population (pdf)