Loading...
HomeMy WebLinkAboutItem 02 Comcast Franchise Renewal AGENDA ITEM SUMMARY Meeting Date: 11/5/2018 Meeting Type: Work Session Staff Contact/Dept.: Neil Obringer (DPW)/ Kristina Kraaz (CAO) Staff Phone No: 541-736-1032 541-744-4062 Estimated Time: 20 Minutes S P R I N G F I E L D C I T Y C O U N C I L Council Goals: Provide Financially Responsible and Innovative Government Services ITEM TITLE: COMCAST FRANCHISE RENEWAL ACTION REQUESTED: Provide staff with guidance on the proposed next steps related to the renewal of the Comcast cable franchise. ISSUE STATEMENT: City staff have been engaged in joint negotiations with Lane County, the City of Eugene and Comcast for renewal of the region’s cable TV franchise, which expires on January 1, 2019. Although progress has been made on the renewal negotiations, two issues have arisen that will make it difficult to resolve the negotiations in time to have a proposed franchise for Council approval by the expiration date. Staff from Springfield, Lane County, and Eugene are jointly recommending an additional extension of the existing franchise through June 30, 2020. ATTACHMENTS: 1. Council Briefing Memo 2. LCOG Summary of Issues DISCUSSION/ FINANCIAL IMPACT: The City of Springfield, Lane County and the City of Eugene, with support from LCOG, have been engaged in joint negotiations with Comcast for renewal of the region’s cable TV franchise which is set to expire on January 1, 2019. In parallel, the same representatives have been negotiating the settlement of a franchise fee review which has been conducted for the current franchise term. Recently, two issues were identified that are not likely to be resolved by the franchise’s expiration date of January 1, 2019. The first issue is regarding “competitive equity” language proposed by Comcast for the new franchise. The second issue is recent rulemaking by the FCC related to cable franchising that may have a substantial financial impact to cable franchise revenues received by the City. Due to these issues staff are recommending that the Council extend the existing franchise for an additional eighteen months, through June 30, 2020, to allow staff and Comcast to work through the “competitive equity” issues and to allow time to respond to potential changes in FCC rules. Staff are recommending that Council proceed with executing a settlement agreement with Comcast for payment of fees due to the City from the current franchise term as well as payment in consideration for removal of language from the new franchise requiring a Springfield customer service center. This action would have a financial impact to the City in that acceptance of the settlement agreement would result in a payment by Comcast to the City of Springfield. M E M O R A N D U M City of Springfield Date: 11/5/2018 To: Gino Grimaldi COUNCIL From: Tom Boyatt, Interim DPW Director Neil Obringer, Senior Management Analyst Kristina Kraaz, Assistant City Attorney BRIEFING Subject: Comcast Franchise Renewal MEMORANDUM ISSUE: City staff have been engaged in joint negotiations with Lane County, the City of Eugene and Comcast for renewal of the region’s cable TV franchise, which expires on January 1, 2019. Although progress has been made on the renewal negotiations, two issues have arisen that will make it difficult to resolve the negotiations in time to have a proposed franchise for Council approval by the expiration date. Staff from Springfield, Lane County, and Eugene are jointly recommending an additional extension of the existing franchise through June 30, 2020. COUNCIL GOALS/ MANDATE: Provide Financially Responsible and Innovative Government Services BACKGROUND: The City of Springfield, Lane County, and the City of Eugene, with support from the Lane Council of Governments (LCOG), have been engaged in joint negotiations with Comcast for renewal of the region’s cable TV franchise, which is set to expire on January 1, 2019. In parallel, the same representatives have been negotiating the settlement of a franchise fee review which has been conducted for the current franchise term. The City Council previously approved an extension in the expiration date from August 1, 2018 to January 1, 2019. Historically, Springfield has elected to negotiate cable TV franchise renewal jointly along with the City of Eugene and Lane County. These joint negotiations result in each jurisdiction adopting a separate but identical franchise. The Metropolitan Policy Commission acting as the Metro Cable Commission is the entity designated by the three jurisdictions to administer the franchise. The MPC has received several updates from LCOG staff during the course of negotiations, the most recent of which was October 4, 2018. Settlement of Fee Review and Springfield Customer Service Center Closure: Under the current cable franchise agreement that Eugene, Springfield, and Lane County have with Comcast, the Metro Cable Commission was permitted to initiate one fee review during the term of the franchise to ensure Comcast has paid all of the required franchise fees. Under the Federal Cable Act, the franchise fee is 5% of Comcast’s gross revenues for cable service. As a result of the recent fee review, Comcast has agreed that it owes Springfield approximately $25,000 in underpaid franchise fees. There were several other categories of underpayment on which Comcast and the jurisdictions disagreed. Comcast has agreed to pay 50% of the additional disputed amount; for Springfield, this totals roughly $22,000. Comcast has also agreed to pay the cost of the fee review (approximately $36,000 for all three jurisdictions) and a portion of LCOG’s staff time ($23,000 total). Springfield has already paid its portion of those costs to LCOG, so the settlement will result in a reimbursement to the City. Following Council guidance at the April 9, 2018 work session on the topic of this franchise renewal, staff has pursued a one-time payment of $75,000 to Springfield as consideration for Attachment 1, Page 1 of 3 MEMORANDUM 10/31/2018 Page 2 removal of language from the next franchise requiring a Springfield customer service center. At this time, Comcast has agreed to make this payment. The agreements related to the current franchise term, including the fee review and the Springfield customer service center will be memorialized in a settlement agreement which is scheduled to be presented to Council on 12/3/18 during regular session for review and approval. Franchise Renewal Negotiations: Staff from each jurisdiction and from Comcast have successfully reached a tentative agreement on a number of franchise terms, including an updated definition of “gross receipts”; Comcast’s contributions related to the region’s public, education and government (PEG) channels; digital converter boxes for government buildings; removal of language requiring a Springfield customer service center; and how fee reviews are conducted and who pays for them. Attachment 1 is the table of negotiation issues that provides a more comprehensive list of items which have been discussed. Recently, two issues were identified that are not likely to be resolved by the franchise’s expiration date of January 1, 2019. LCOG staff highlighted those issues at the October 4 meeting: 1. Comcast has proposed “competitive equity” language that would apply to more providers than cable operators and would require the jurisdictions to either impose certain franchise obligations on those other providers or excuse Comcast from its franchise obligations. Jurisdictional staff have been advised by their legal counsel that the jurisdictions do not have authority under applicable federal, state and local laws to impose such franchise obligations on those other providers. Jurisdictional staff informed Comcast of this and also reviewed, discussed and offered edits that would have resulted in a legally-defensible provision. To date, Comcast has rejected the edits. 2. On September 25, 2018, the FCC approved a Second Further Notice of Proposed Rulemaking regarding cable franchising that would have implications for the new franchise if new FCC rules were adopted as proposed. The notice means that the FCC will continue to revisit a failed industry-initiated attempt to allow cable providers to reduce franchise fees paid to local jurisdictions for providing gratis cable benefits. There is now a formal Comment and Reply period regarding the proposed rule. Examples from our current franchise that may be subject to the fee offset are: (1) the gratis TV programming provided to City buildings that has provided access to 24-hour news, weather, and CSPAN for City departments and (2) the four Community TV channels provided for Public Access (Channel 29), Education (Channel 23), Government use (Channel 21), and the internal Eugene-Springfield Fire Training channel. At this early stage, staff do not know the full extent or financial impact from these potential changes as it is unclear how the services will be defined or valued. The potential adverse financial impact may have material implications for Springfield’s General Fund and a franchise renewal approved before the FCC takes final action will not likely protect the jurisdictions from the impact of the new rules. The jurisdictions believe additional information about the impact of any potential franchise fee reimbursement or offset is critical before agreeing to a new 10-year franchise term. Proposed Next Steps: Given that the proposed FCC rule-making will not be adopted until sometime in 2019, staff from each jurisdiction recommend extending the existing franchise for an addition eighteen months, through June 30, 2020, to allow time to better understand the implications of any new FCC rules Attachment 1, Page 2 of 3 MEMORANDUM 10/31/2018 Page 3 and to negotiate terms which are to most beneficial to the City. This would also allow time to continue conversations with Comcast on how to address their proposed competitive equity provisions. If Council directs staff to pursue extension of the current franchise until June 30, 2020 they will prepare the necessary ordinance for first reading and public hearing at the November 19th council regular session and then final adoption at the December 3rd Council regular session. Because the jurisdictions and Comcast have reached a tentative agreement on the terms of the franchise fee settlement (underpayment associated with the current franchise term) and the removal of language requiring a Springfield customer service center, the jurisdictions have proposed separating these issues from larger franchise negotiations and proceeding with execution of the settlement agreement. Comcast has agreed to this proposal. If Council directs staff to pursue separation of the settlement agreement they will work with Comcast to have the necessary settlement agreement ready for review and acceptance at the December 3rd Council regular session. RECOMMENDED ACTION: Provide staff with guidance on the next steps for renewal of the Comcast cable franchise, including the proposed franchise fee settlement and an 18-month extension of the current franchise through June 30, 2020. Attachment 1, Page 3 of 3 Section Issue Comcast Proposal LFA (Local Franchising Authority) Response Current Status Section 3 Definition of gross revenues MACC (Metro Area Cable Commission) definition, adding language that revenues generated from late fees are to be prorated based on %age of each service provided Stay with MACC definition originally proposed by Comcast Add Comcast language stating late fees are prorated based on aggregate pro rata calculation Section 5.1 Channel capacity Change capacity from 35 to 120 channels OK OK Section 5.3 Service to Institutions Allow Comcast to elect to offset complimentary service against franchise fees No basis upon which to agree Comcast agreed to provide gratis services to all existing locations, plus 3 additional building per jurisdiction; value of the additional buildings could be offset against fees Section 5.5(1) Number of channels in HD Will provide one channel in HD; when one other channel is averaging 25 hours per week of programming, must be provided in HD OK Based on concession of Section 3, above, LFA is requesting 2 other channels be allowed to “prove up” Section 5.5(2) Number of digital converters for public safety channel Drop from 75 to 50 Keep 75; agree to not increase despite anticipated growth in internal viewing locations. 60 Section 7(3) removed Expansion of Service Delete requirement for expansion plan OK, but keep requirement for boundary maps. OK Section 7.4 Extension of System Delete Keep language requiring an estimate where 5 would be subscribers request service. OK Section 9.8(1) Forced relocates Requests for reimbursement of temporary removal of equipment Unnecessary; relocation language already set in law Comcast withdrew proposal; OK Section 10.4 Cap on cost of fee review Where Comcast underpays by 5% or more (threshold trigger), Comcast pay only up to $15,000 of fee review No $ cap, limited to 2 reviews per franchise term No threshold trigger for reviews conducted as part of performance review; Comcast to pay up to $45,000 for one review; results of reviews can be extrapolated forward Summary Table of Issues-September 25, 2018Attachment 2, Page 1 of 3 Section Issue Comcast Proposal LFA Response Current Status Section 10(5) deleted Public, Education, Government (PEG) channel fees Delete; duplicative language OK OK Section 10(5) deleted Comcast to pay LFA’s financial and legal fees Delete OK OK; this break down will be spelled out in other sections Section 10(8) Pass through rates; LFA proposed new language addressing pass through rates Delete Keep calculation, Retain only language that requires Comcast to notify MPC of rate changes; OK Section 12 Customer Service Delete Section 12, replace with Customer Service Addendum, which includes ability to close Eugene office Retain Section 12, adopt revisions of Addendum specifying it is intended to complement but does not pre- empt Section 12. Eugene office to remain open during term of franchise. Remove Addendum; retain Section 12; insert store language keeping Eugene store with opener to discuss store closure; OK Section 13.1(7) Certification of annual report Allow certification to be done by Comcast, not independent CPA No, retain the independent review OK to have Comcast do own in house certification Section 16.2(2) Definition of fee review and audit Comcast disagreed to proposed language stating a fee review is not an audit LFA proposes to provide only for an “audit,” (no distinction between fee review and audit) which will be allowed twice during term, with 3 year look back that will apply for all years preceding audit. No distinction in audit v. fee review; limited to 2 per term; Section 16(2)(c)(iv) removed Summary of FCC regs Remove requirement to summarize new FCC regs in annual report. OK OK Section 16.2(5) Comcast presentation to MPC Allows Comcast to address MPC OK to clarify Comcast’s ability to comment before MPC OK Summary Table of Issues-September 25, 2018Attachment 2, Page 2 of 3 Miscellaneous Comcast Proposal LFA Response Current Status $30,000 for HD upgrades Side Letter which is linked legally to adoption of renewal franchise Ord. OK Will not count toward 5% franchise fees OK $50,000 to Springfield Library for closure of Springfield Customer Service site during the term. Side Letter OK, provided $25,000 of the $50,000 for ARC project Springfield elected discussed this proposal and directed staff to request $75,000 as compensation for removing the Springfield store as a requirement in the franchise; will not count toward 5% franchise fees Comcast agreed to $75,000 requested by Springfield Competitive Equity Addresses equal treatment of service providers Addendum requires equity for services not covered by the Cable Act and not appropriately covered by this franchise agreement LFA does not accept the rationale for any such provision under current law. However, it potentially will accept that sort of addendum as revised in draft revisions by Eugene special Counsel No Agreement at this time Fee Review Comcast pay fee review-- $36,000 LCOG--$23,000 ½ of difference Summary Table of Issues-September 25, 2018Attachment 2, Page 3 of 3