Cities Freezing Cable Renewals
Cable Franchises: Adelphia’s system cuts a wide swath through L.A.
By DARRELL SATZMAN
Wholesale changes in the cable TV landscape and uncertainty over the implosion of Adelphia Communications Corp. have local municipalities considering temporary extensions of franchise agreements instead of rubber stamp renewals.
The increased scrutiny comes as nearly all of the franchises in the county are set to expire this summer.
The Los Angeles City Council will vote as early as this week on a proposal by the general manager of the city’s Information Technology Agency to extend franchise agreements in some of L.A.’s 14 franchise areas all of which expire by Aug. 7 until August 2004.
Ultimately, the proposed extensions would cover agreements for all the city’s franchise areas and would affect all the city’s major operators: Adelphia, Charter Communications Inc., AT & T; Broadband and Time Warner Cable.
“The first step is gathering information before the situation becomes acute and before the ratepayers are feeling the effects of Adelphia’s financial woes,” said Los Angeles City Councilman Jack Weiss.
A similar vote is likely in the coming weeks in Beverly Hills, where, as in Los Angeles, Adelphia is several weeks late on its first quarter franchise payments.
In West Hollywood, where Adelphia’s 15-year franchise agreement expired in April, the city extended the company’s contract for a year while officials evaluated their options.
“There’s no way we could move forward because of Adelphia’s financial instability,” said Helen Goss, director of public information for the city of West Hollywood.
Adelphia’s performance, she said, has been less than satisfactory since buying out Century Communications Corp.’s franchise in 1999 for $5.2 billion in cash and assumed debt. “There’s been so much community hostility (toward Adelphia) that there was no way I could go to the council and recommend renewing the franchise.”
Officials in Los Angeles and Beverly Hills also said they were reluctant to sign binding deals with Adelphia given its current financial condition.
Santa Monica, on the other hand, signed a new deal with Adelphia, betting that if the company files for bankruptcy or is acquired, a formal agreement would place the city on stronger legal footing.
Santa Monica approved the new five-year franchise deal after the troubled cable operator agreed to pay $3 million to settle past disputes and sign off on a number of other concessions.
“Obviously with the clouds hanging over Adelphia it’s anyone’s guess as to the future the company,” said Joe Lawrence, assistant city attorney for the City of Santa Monica. “It’s a gamble, but we believe it puts the city in the right position if they sell the franchise.”
Adelphia officials did not respond to requests for comment.
The differing approaches that cities are taking to the renewal of their cable franchise agreements underscores the confusion surrounding not just the Adelphia situation but the question of what municipalities have a right to expect and demand from their cable franchisees.
Most of the agreements now coming to term were signed in the 1980s eons ago in the telecommunications industry and most franchises have changed hands, some several times, since those deals were made.
In the past, short of a pattern of major breakdowns, most cable franchises have been renewed with little fanfare, even if they changed hands. The Federal Communications Commission, which sets cable franchise rules, places a high burden on cities that want to change operators to prove that service has been unsatisfactory. Federal law precludes cities from charging cable companies more than 5 percent of the fees they collect from residents.
The timing of Adelphia’s financial problems, coming just as many cities’ long-term cable contracts are set to expire, has only added to the confusion.
Adelphia has seen its stock plummet following the disclosure in March that that the company guaranteed more than $3 billion in off-balance partnerships controlled by the family of founder John Rigas. Rigas has since been forced off the board.
Adelphia, which is in danger of running out of cash as early as this week, also is the subject of numerous shareholder lawsuits and a Securities and Exchange Commission investigation. It has put its Southern California franchises, with 1.2 million subscribers, on the block and halted upgrades in several local franchise areas. As of last week, Charter Communications, controlled by billionaire Paul Allen, was emerging as the most likely bidder.
Santa Monica, one of the few local municipalities that has been without a formal franchise agreement for some time, negotiated with Adelphia for three “tortuous” years before reaching the current deal, according to one city official.
The contract calls for Adelphia to pay Santa Monica $3 million to resolve past disputes, including its inability to meet customer service standards and the company’s failure to obtain the city’s approval before acquiring the franchise.
In addition, Santa Monica was able to negotiate drastically reduced rates for the installation of high-speed modem connections to schools and city buildings and to bump the number of local community stations reserved on the dial from three to six, officials said.
Other cities are eager to win concessions in their negotiations for new contracts, and not just from Adelphia. That’s why Liza Lowery, general manager of L.A.’s Information Technology Agency, wants two years to negotiate new arrangements.
“Given what I’m hearing across the country, the process is becoming more important,” Lowery said, referring to the city’s formal evaluation process. “We need to go out and find out what people want and what they are not getting.”
Among the problems facing cities are the introduction of high-speed connections, which allow customers to get digital cable, digital subscriber lines, video-on-demand and other premium services.
The complaints have come from both ends of the spectrum: Customers in some areas gripe about those services not being available, while others are upset that their cable company switched many premium channels to digital, forcing them to pay more for the same channels.
Although cable companies are not required to introduce premium services, local cities want to incorporate language in their new franchise deals that spells out how and when those services would be offered.
Still, there is only so much cities can negotiate.
“The things that are most important to the customer we can’t impact and that’s very frustrating,” said Goss, referring to fixed rates and the lack of competition.
After trying to set a meeting for weeks, Beverly Hills and Adelphia officials were scheduled to meet last Friday to discuss the company’s finances and determine whether the contract would be extended rather than renewed, said Fred Cunningham, director of public affairs. Beverly Hills initially signed a 10-year agreement with Century that was renewed for five more years before being inherited by Adelphia. The pact expires June 15.
“Everything has changed so rapidly from what we were doing in 1987. There’s a lot to talk about,” Cunningham said.