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Pending Cable Talks Spark Turf Battle

Pending Cable Talks Spark Turf Battle

By PAT MAIO

Staff Reporter

The long-running dance between the city of Los Angeles and its cable television franchisees, operating under terms of expired contracts originally negotiated more than a decade ago, is about to quicken.

The City Council, which agreed two years ago to extend the contracts of Comcast Corp., Cox Communications Inc. and TimeWarner Cable until Aug. 7, has retained Miller & Van Eaton, a Washington, D.C., law firm that specializes in advising municipalities on cable franchise agreements, to become its chief negotiator, according to City Councilman Eric Garcetti.

“Council has exerted control of the process,” Garcetti said. “Cable companies have asked us not to take a litigious approach, but for better or worse, we have retained independent counsel to get more for the public good. We don’t want to use lawyers to threaten, but we want to get the best possible deal.”

Since the underlying contracts expired two years ago, no negotiations on extending the contracts or addressing their terms have taken place. (Adelphia Communications Corp., operating under Chapter 11 Bankruptcy protection, has been on a month-to-month contract extension with the city.)

It’s unclear what impact that lack of action has had on the companies, the city or local subscribers.

A recent report from the city’s Information Technology Agency, which oversees the cable franchises, said the city received $20.9 million in franchise fees in 2003, up from $20 million in 2002. At the same time, the four cable operators saw their subscriber base decline to 611,861 in 2003, from 631,861 the previous year.

The increase in fees paid to the city was attributed, in part, to additional revenues generated by cable providers from services such as digital cable and rate increases.

Part of the issue centers on restrictions to what can be negotiated between the city and its franchisees.

Federal law limits the franchise fees paid by cable companies to 5 percent of the revenues generated in their territory and doesn’t permit municipalities to include charges for broadband services in the calculation.

The slow movement on the negotiating front may play to the city’s advantage, however.

A case that could expand the definition of how to define cable operators’ gross revenue, which may be extended to include those broadband services, has been appealed to the U.S. Supreme Court.

Dean Hansell, vice president of the Information Technology Commission, thinks broadband should be included in “gross revenue.”

“The issue is what do you take 5 percent from,” Hansell said. “The industry takes an inappropriately narrow definition. We think that is inaccurate.”

Exclusive of the litigation surrounding the definition of “gross revenues” for cable operators, there are myriad reasons the council, the ITA and the group representing cable franchisees have not sat down to hammer out new contracts.

Among the sources of the delays have been turnover in the leadership of the Information Technology Agency, changes in committee assignments at the council and the departure of several staff workers familiar with the process.

The result has been a turf battle between the council and the ITA. The latest salvo was the retention of Miller & Van Eaton.

Late last year, a council proposal to allow the ITA 30 days to review each franchise application and report back with a recommendation prompted the resignation of ITA Board Chairman Henry Gradstein, who said it was not enough time. The council approved the measure in May.

At the same time, there has been a vacuum at the top of the ITA, whose general manager, Liza Lowery, has been on leave for medical reasons. She announced her resignation last month.

ITA commissioners said the agency has done the legwork necessary to get the process started. It has completed its assessment of the franchise agreements, and a negotiating team has been proposed since last year. But they said the council has never given it the marching orders to move forward.

“It does seem that the (City Council’s Information Technology and General Services) committee wants to be more involved in cable franchise negotiations,” said Sharon Rubalcava, president of the ITA commission. “I have concerns because this takes a lot of time, and I don’t know if any councilman has the background or time to devote to all of the issues involved in negotiations. I think our commission and staff can do the initial legwork for the franchise agreements.”

Rubalcava disputed the suggestion that the ITA was foot-dragging.

“ITA has asked for guidance on negotiations, and asked for feedback and has received no feedback,” Rubalcava said. “We are ready to go, and have been ready to go for months. You are talking about major contract negotiations with major entities with hundreds of millions of dollars at stake. These aren’t going to be easy negotiations.”

Through it all, the cable operators said they have been ready to sit down.

“The cable operators have stated repeatedly to the council, the (ITA) and city officials, that they are ready, willing and able to negotiate when the city wishes,” said Dean Leavenworth, president of the Los Angeles Cable Operators Association, a regional trade group representing the four large franchisees.

Among the issues the city is likely to pursue in the negotiations are investments in advanced services like video-on-demand, interactive television, Internet television, video conferencing, Internet telephones, and digital video recording that can be tapped by small groups of subscribers.

There is also interest in cutting back on the cost of studios used for public access broadcasts.

“There is a great deal of discussion as to whether having these large studio operations used by a very small segment of the community should be continued,” Parks said.

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