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CITY OF MONTEREY To: City Manager From: Deputy to the City Manager Date: May 14, 1998 Subject: Granting a Cable Communications Franchise to TCI Cablevision RECOMMENDATION It is recommended that the City Council adopt an ordinance granting a cable communications franchise to TCI Cablevision. It is further recommended that the City Council adopt as policy that 32% of future cable franchise fee revenues be earmarked to help support the City’s government access services. POLICY IMPLICATIONS This recommended cable franchise is consistent with the City Council’s adopted policy and negotiating direction. BUDGET IMPLICATIONS Budget implications will be discussed below. DISCUSSION We are pleased to present a new cable communications franchise for City Council review and adoption. The franchise renewal process began in earnest several years ago with the completion of an "ascertainment" process that involved 1) a review of the performance of the current cable operator under existing law and terms of the current franchise agreement, and 2) an assessment of future community needs and interests that may pertain to the cable system. The ascertainment report adopted by the City Council in early 1996 included the following findings:
Finding #1 was addressed by the City Council with the adoption of a "cable enabling ordinance" that now governs the processes relating to the application, renewal, and ongoing management of any cable related franchise, and also requires minimum customer service standards. The franchise fee matter discussed in Finding #4 was settled with a rebate of erroneously collected franchise fees back to cable subscribers. As directed by the City Council, Findings 2 and 3 became the focus of much of the franchise renewal negotiations with the cable operator. While it is not a secret that much of the franchise negotiation process was difficult and contentious, we are pleased with the turn our negotiations have taken in recent months. We are now prepared to recommend to the City Council a cable franchise that both meets the needs and interests of the community, and provides substantial opportunities for TCI in this market. The proposed franchise has the following features:
The franchise term will be for ten years, and includes a reopener that can be triggered by the City in year five. The franchise also includes a performance incentive that can increase the franchise term to fifteen years, if TCI completes a 750 MHz upgrade (this would increase the capacity of the cable system significantly beyond the specifications contained in the proposed franchise) by year seven. Cable System Upgrade At a minimum, TCI will upgrade the cable plant in two phases. The first phase will be completed within nine months of franchise adoption, and will use digital compression technology on the old coaxial cable system to create an additional 36 video channels and 10 audio/music channels. The second phase of the cable upgrade will introduce fiber optic technology to create a "fiber to the node" system enabling two-way services (such as Internet access) and a minimum of 78 video channels. While this will not necessarily create the minimum 550 MHz system specified in the City’s enabling ordinance, staff and the City’s consulting team are confident that the proposed franchise carries adequate safeguards to ensure that the system capacity will not be constrained as it has been in the past. These safeguards include the franchise’s reopener provisions, as well as the specification of a "migration path" to ensure that the system can be further upgraded in the future with minimal wasted investment. The upgraded cable system will include high capacity bi-directional links between the Civic Center, headend, and community media center. These links will be completed within twelve months of franchise adoption, and will enable live broadcast from the Civic Center and community media center. Institutional Network The upgraded cable system will also include an "Institutional Network" (I-Net) connecting City, MPUSD (those facilities within Monterey), and other governmental facilities. This I-Net can be used for high capacity voice, video, and data traffic, and can greatly enhance our telecommunications capabilities at a fraction of what we would pay for similar services from other providers. The incremental cost for the I-Net will be borne by its users in the form of annual lease payments to TCI. The I-Net will also enable live broadcast from schools, the Conference Center, MPC, and other connected facilities. We also expect to use it to connect the City’s traffic signals and loop detectors, park irrigation systems, building mechanical systems, athletic facility and security lighting, and alarm systems. In this way, we will be able to remotely operate these systems, and implement a variety of transportation and energy management solutions that will pay even greater dividends to the City. The proposed franchise makes reference to a side agreement pertaining to the I-Net. This agreement will specify, among other things, the specific capabilities and costs for the I-Net. The side agreement is currently being negotiated, and will be brought to the City Council at a future date for ratification. PEG Access Channels The proposed franchise specifies the creation of four PEG access channels. One channel will be made available to the City upon adoption of the franchise. One additional PEG access channel will be available within twelve months of franchise adoption, and two additional channels will be available within 24 months. If the PEG access channels reach certain saturation levels, we will be able to secure up to two additional channels. Conversely, the franchise obligates the City to establish rules and procedures that allow TCI to use PEG access channel capacity, if this capacity is not being adequately used for PEG access purposes. Resources for PEG Access Facilities and Equipment As a condition of the franchise, TCI will contribute $800,000 for equipment and facilities to help start our PEG access operation. It is recommended that $50,000 of this amount be retained by the City to equip the City Council Chamber for broadcast purposes, and the remainder be used to help establish and equip a home for the PEG access nonprofit, Access Monterey Peninsula (AMP). In addition, TCI will contribute an amount equal to $.35 per subscriber per month for "PEG access capital support." These funds will be used to sustain and build upon the initial capital investment for facilities and equipment. Resources for PEG Access Support The franchise also includes a provision for a "pass through" on cable subscribers’ bills to provide ongoing support for the PEG Access Corporation. City Council adoption of the cable franchise sets the initial amount of this community access fee at $.70 per subscriber per month. The amount of the access fee can be changed in the future by City Council resolution. This funding stream will enable AMP to manage the PEG access channels, and to provide services and assistance to community members, community organizations, MPUSD, and the City. As you recall, provisions in the enabling ordinance changing the base for the calculation of franchise fees from "subscriber revenues" to "gross revenues" will become effective with the adoption of the new cable franchise. As a result, the City’s cable franchise fee revenues are expected to immediately increase approximately $70,000 per year to approximately $220,000 per year. The $70,000 increment represents 32% of the total anticipated cable franchise fees. We have discussed with the City Council in the past the possibility of using these incremental franchise fee revenues to underwrite the City’s government access activities, a new service area. As part of the staff recommendation, it is requested that the City Council now adopt as policy that 32% of future cable franchise fee revenues be earmarked to help support the City’s government access services. Because of a broad array of new service offerings by TCI, we expect cable franchise fees to continue to grow, which will benefit both the City’s general revenues, as well as our government access opportunities. At the City Council meeting of May 19, staff will briefly present the parameters of the proposed franchise. It is then recommended that the City Council open the Public Hearing to receive testimony pertaining to the new franchise, and then pass to print an Ordinance adopting it. In the near future, staff will be returning to the City Council with the side agreement pertaining to the Institutional Network. In addition, we will schedule an opportunity for representatives of Access Monterey Peninsula to make a presentation to the City Council, and bring forward an agreement formally establishing the arrangement between the City and AMP. We are pleased with the proposed franchise, and believe that it will present astonishing opportunities for Monterey's residents and businesses, and for the City organization itself, in the years ahead. If I can answer any questions, please let me know.
Fred E. Cohn c: Ms. Sue Buske,
The Buske Group
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