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HomeMy WebLinkAboutRes 01-109 Transfer Cable TV Franchise to Time Warner Cable Resolution No. 01-109 CITY OF PALM DESERT STAFF REPORT REQUEST: 1. Adopt the Resolution Authorizing No. 01-109 Consenting to the Assignment and Transfer of a Cable Television Franchise Held by TWI Summit Cable, Inc. to Time Warner Entertainment-Advance/Newhouse Partnership. 2. Authorize the Mayor to Sign Necessary Documents Related to Assignment and Transfer of Cable Franchise APPLICANT: Robert Kohn, Contracts Administrator DATE : October 11, 2001 CONTENTS: 1. Letter From Richards, Watson &Gershon to the Contracts Administrator Regarding FCC Form 394, and Recommended Action. 2. Request for Information From Special Council William Rudell to Time Warner. 3. Response to Request for Information From Kathi Jacobs, government Affairs Manager for Time Warner. 4. Resolution Authorizing and Consenting to the Assignment and Transfer. 5. Assignment and Assumption Agreement Recommendation: 1. Adopt the Resolution NO. 01 —109 Authorizing and Consenting to the Assignment and Transfer of a Cable Television Franchise Held by TWO Summit Cable, Inc. to Time Warner Entertainment-Advance/Newhouse Partnership. 2. Authorize the mayor to Sign the Resolution and the Assignment and Acceptance Agreement. Executive Summary: Review of the Request for Assignment of the Cable Television Franchise by TWI Summit Cable, Inc. to Time Warner Entertainment-Advance Newhouse Partnership did not disclose any negative information that would preclude the City Council from authorizing the Assignment and Transfer. Backg round: On June 22, 2001 TWI Summit Cable Filed FCC Form 394 with the City of Palm Desert Requesting an assignment and Transfer of the Cable Television Franchise to Time Warner Entertainment-Advance/Newhouse Partnership. The City of Palm Desert has 120 days in which to review, comment and request additional information if necessary. Special Council William Rudell reviewed the request, asked for and received additional information and prepared the enclosed response. The City received the response from Mr. Rudell on September 27, 2001. The Council Meeting of October 11, 2001 is 111 days from receipt of the request. Staff Report Time Warner Entertainmen.. ._iance/Newhouse Partnership October 11, 2001 Page 2of 2 Submitted By: Community Services Department Approval: City Manager CITY COUNCIL ANION: APPROVED '' DENIED RECEIVED OTHER MEET IN DATE f/rs;`� effIM T► N , ;: .: AYES: ` °" AAA NOES: A. Add ABSENT ABSTAIN: VERIFIED BY: with C rk' s Office Original on File G:Wdrpk ob Kohfl Word FNes%Staff RepwRS.dot WILLIAM B. RUDELL RICHARDS, WATSON & GERSHON RICHARD RICHARDS ATTORNEYS AT LAW I.I.,1f rY (1916-1988) WRUDELL@RWGLAW.COM A PROFESSIONAL CORPORATION �` R+ OFFICES IN THIRTY-EIGHTH FL SANGELES 333 SOUTH HOPE STREE O FRANCISCO �� SAP 27 Ail 10 LOS ANGELES,CALIFORNIA 90071-1469 469 g NGE COUNTY (213)626-8484 FACSIMILE(213)626-0074M' Cj LEMI S C FI SE September 25,2001 VIA FEDEX Mr. Robert P. Kohn Contracts Administrator City of Palm Desert 73-510 Fred Waring Drive Palm Desert,California 92260 Re: FCC Form 394—Proposed Assignment of Cable Television Franchise by TWI Summit Cable,Inc. to Time Warner Entertainment-Advance/Newhouse Partnership Dear Robert: our review of the FCC Form 394 referenced above,I previously connection with p y sent to you a copy of my letter dated September 7,2001,to Ms. Kathi Jacobs,the Government Affairs Supervisor for Time Warner Cable—Desert Cities Division. Enclosed is a copy of the response to our letter,which was submitted by legal counsel for Time Warner Cable in Stamford, Connecticut, and dated September 21,2001. We have reviewed the information submitted by Time Warner Cable in connection with the FCC Form 394 that was previously filed with the City. Our review has not disclosed any negative information that would preclude the City Council from making the findings that Time Warner Entertainment—Advance/Newhouse Partnership,as the proposed assignee,has the"financial, technical,and legal qualifications"to ensure the performance of all of the obligations required under the existing cable television franchise agreement. Enclosed for your review and further processing is a form of resolution that authorizes the requested"assignment and transfer." City Council action on this resolution should be scheduled prior to the expiration of 120 days from June 22,2001,the date on which the FCC Form 394 was filed with the City. It is recommended that a copy of the resolution be forwarded to the General Manager of the cable operator,along with a request that the"Acceptance of Resolution by Assignee"be signed and returned to the City prior to the scheduled City Council meeting date. If the transferee(Time Warner Entertainment—Advance/Newhouse Partnership)refuses to accept the conditions that are set forth, including reimbursement of the City's costs and expenses,then we will discuss with you other RICHARDS, WATSON & GERSH Mr. Robert P. Kohn September 25, 2001 Page 2 options that may be considered by the City Council. Please call me if you have any questions or comments concerning the enclosed documents,or if there remain any outstanding issues to be resolved with the current cable operator prior to City Council action on the requested assignment of the cable television franchise. Very truly yours. William B.Rudell Special Counsel Enclosures P6401\1030\669548.1 ,.,..HARDS, WATSON & GERS}_ _ ATTORNEYS AT LAW A PROFESSIONAL CORPORATION WILLIAM B. RUDELL THIRTY-EIGHTH FLOOR OFFICES IN 333 SOUTH HOPE STREET WRUDELL@a RWGLAW.COM LOS ANGELES,CALIFORNIA 9007 1-1 469 LOS ANGELES (213) 626-8484 SAN FRANCISCO FACSIMILE(213)626-0078 ORANGE COUNTY September 7,2001 By Facsimile and U.S. Mail Ms. Kathi Jacobs Government Affairs Supervisor Time Warner Cable—Desert Cities Division 41-725 Cook Street Palm Desert, CA 92211 Re: FCC Form 394—Proposed Assignment of Cable Television Franchises in Palm Desert and Indio by TWI Summit Cable, Inc. to Time Warner Entertainment- . Advance/Newhouse Partnership Dear Ms. Jacobs: As you are aware,this firm acts as special counsel to the Cities of Palm Desert and Indio with regard to matters that involve cable television franchises and telecommunications issues. Both Palm Desert and Indio are currently served by cable television systems that are owned and operated by TWI Summit Cable, Inc., formerly known as Summit Cable Services of Georgia,Inc. We have reviewed the FCC Form 394s, along with the accompanying schedules and exhibits, that were filed with these two local franchising authorities on or about June 22, 2001,by TWI Summit Cable, Inc., as the assignor, and by Time Warner Entertainment-Advance/Newhouse Partnership, a New York general partnership ("TWE-A/N"), as the assignee. Although a full analysis of these documents has not yet been completed by City staff, we are requesting that the additional information specified in this letter be provided as expeditiously as possible to facilitate that analysis. 1. Ownership Information—Request for Clarification Exhibit II to the FCC Form 394, entitled"Ownership Identification", states that the partnership interests in TWE-A/N are owned 66.66%by Time Warner Entertainment Company, L.P., and 33.33%by Advance/Newhouse Partnership, a New York general partnership. The Securities and Exchange Commission Form 10-K for AOL Time Warner Inc. that was submitted with the FCC Form 394 contains an organization chart that shows different ownership interests in TWE-AIN. A copy of that organization chart is attached as Schedule 1 to this letter. Specifically,Time Warner Entertainment Company,L.P. is shown as the owner of 64.8%, Advance/Newhouse is shown as the owner of 33.3%, and TWI Cable is shown as the owner of 1.9%. Please explain these apparent • RICHP.RDS, WATSON & GERSHON Ms. Kathi Jacobs September 7, 2001 Page 2 discrepancies in the documents submitted to Palm Desert and Indio. 2. Authority to Transact Business in California Please provide a copy of the document issued by the California Secretary of State that authorizes TWE—A/N to transact intrastate business in the State of California. 3. New Tradenames Please submit information as to any proposed new tradenames that will be used by TWE—A/N in operating the cable television systems in the service areas of Palm Desert and Indio following the consummation of the cable franchise assignments. 4. Asset Purchase Agreement dated as of June 14, 2001 A. Please provide us with copies of any modifications to the Asset Purchase Agreement("Agreement"), or its related schedules and exhibits,that were made after this document was signed by the parties on June 14, 2001. B. Subsection 5.6 of Article 5 of the Agreement references compliance with the applicable requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). Please provide copies of the "notification and report" required to be filed by TWI Summit Cable, Inc. and by TWE—A/N under the HSR Act. We also request copies of responses to any inquiries received from the Federal Trade Commission and the Antitrust Division of the Department of Justice for additional information or documentation. In addition,please advise us whether the applicable waiting period has now elapsed and, if not, when it will expire. C. Please advise us of any filings that have been made, or that are expected to be made,with the Securities and Exchange Commission in connection with the proposed assignment of the cable television franchises. D. Time Warner Social Contract Please describe the current status of the Time Warner Social Contract, any remaining obligations of the assignor under that contract as they relate to Palm Desert and Indio, and the effect, if any, of the proposed assignments on those remaining obligations. E. Comments of the FCC Please provide copies of any written comments that have been received to date from the FCC in connection with the proposed assignment of the cable television franchises. R4CHARDS, WATSON & GERSHO ' Ms. Kathi Jacobs September 7, 2001 Page 3 5. Assignee's Technical Qualifications Section IV of the FCC Form 394 requests that the applicants set forth in an exhibit a narrative account of the assignee's technical qualifications,including"summary information about appropriate management personnel that will be involved in the system's management and operations." Exhibit No. V, entitled"Technical Qualifications,"refers generally to Time Warner Cable's"highly regarded staff,"to"experienced and qualified personnel at the local level,"and to "the office staff who are now responsible for the management and operations of the franchise." Please identify in more detail the names and qualifications of the management personnel who will have direct responsibility for the two franchises that are proposed to be assigned,the business entity that will employ them,and whether any changes in personnel are anticipated as a consequence of the proposed assignment of the franchise. In addition to this information,please provide us with a copy of any management contract or similar agreement in accordance with which Time Warner Entertainment Company, L.P.,or any other business entity,will assume management and operational responsibilities on behalf of TWE— A/N, the prospective new owner of the cable television systems that are currently franchised by Palm Desert and Indio. We also request a list of the cable systems in California that are now owned and operated by TWE—A/N or, if there are none,the cable systems in states adjacent to California that are currently owned and operated by TWE—A/N. 6. Current Cable System Operations Paragraph(2)of Part II of the FCC Form 394 states as follows: "Indicate on an attached exhibit any plans to change the current terms and conditions of service and operations of the system as a consequence of the transaction for which approval is sought." This was marked"N/A" (Not Applicable)by TWE—A/N. Please confirm the representations made in the transmittal letter dated June 22,2001,that"none of the personnel, operations, channel lineup,or rates charged to subscribers of the System will change in any way as a result of this transaction." 7. Free and Discounted Cable Services It is our understanding that it is the custom and practice in the cable industry for a cable operator to provide free or substantially discounted monthly cable services to its employees, depending upon such factors as the employee's seniority,job title,etc. With regard to those employees who may live outside of their employer's cable system's service area,that free or discounted service is frequently accomplished by the employer's reimbursement to its employees for monthly cable payments that are made to another cable operator. In other instances,the employer may enter into a reciprocal non-billing agreement with one or more cable operators in the area. Under this arrangement, a cable operator may agree to provide free or discounted services to the employees of another cable operator. It is our understanding that these reciprocal non-billing agreements have been entered into by TWI Summit Cable, Inc. ' R.%CHARDS, WATSON & GERSHON Ms. Kathi Jacobs September 7, 2001 Page 4 We are requesting the following information relating to the reciprocal non-billing agreements, or similar arrangements,by which cable services are currently delivered by TWI Summit Cable,Inc.,either free of charge or at discounted rates: A. A description of the numbers and types of accounts within the service areas of Palm Desert and Indio that are currently receiving cable services free of charge or at discounted rates (excluding so-called "bulk" accounts). B. A general statement as to how and by whom the recipients of free services or discounted rates are selected,what verification process is followed, the duration of the free services or discounted rates, and the estimated financial impact on the local franchising authorities that presumably receive either no franchise fees or reduced franchise fees from the cable operator. C. Whether TWE—A/N intends to continue to provide these free services or discounted rates following the consummation of the proposed assignment of the cable television franchises. 8. Anticipated Benefits of the Transaction. In the June 21,2001,transmittal letters to Palm Desert and Indio that accompanied the applicants' undated FCC Form 394, it was stated that the purpose of this proposed business reorganization is"administrative clarity and efficiency." Please describe in greater detail the anticipated benefits of this transaction that will accrue to: (i)AOL Time Warner Inc. and its subsidiaries that are involved in its cable business; and(ii)the current subscribers to the regional cable system that serves the cities of Palm Desert and Indio. 9. Reimbursement of Costs and Expenses. Both of the local franchising authorities referenced above intend to condition their consent to this transaction upon the agreement of the proposed assignee and assignor to reimburse them for the costs and expenses reasonably incurred in processing and evaluating the information relating to the proposed assignment. These costs and expenses will include each local franchising authority's pro rata share of legal fees incurred in connection with the review of the FCC Form 394, this comment letter, the review of supplemental information and documents, the drafting of implementing resolutions, and attendance at any required meetings conducted by the local franchising authorities. If there are any objections to this prospective request for reimbursement,please advise us accordingly. * * * The questions, comments, and requests for additional information and documents contained in 1 • R4CHARDS, WATSON & GERSHOrs Ms. Kathi Jacobs September 7, 2001 Page 5 this letter may be supplemented after we have received additional comments from City staff members who are concurrently reviewing the FCC Form 394s and who are in the process of identifying any instances of noncompliance with the terms of the current cable television franchise agreements. Your prompt response to the matters identified in this letter will facilitate our continuing review of the legal, financial, and technical qualifications of TWE—A/N in connection with its proposed acquisition of the cable television franchises previously granted to TWI Summit Cable, Inc. by the local franchising authorities that are identified above. Thank you for your anticipated cooperation. Very truly yours, W .� g. William B. Rudell P6401\1030\663692.3 cc: Distribution ' RJCHPRDS, WATSON & GERSHON Ms. Kathi Jacobs September 7, 2001 Page 6 Distribution Ms. Sheila L. Gilligan Assistant City Manager City of Palm Desert 73-510 Fred Waring Drive Palm Desert, CA 92260 Mr.Robert P. Kohn Contracts Administrator City of Palm Desert 73-510 Fred Waring Drive Palm Desert, CA 92260 Ms. Donna French Administrative Services Director City of Indio 100 Civic Center Mall Indio, CA 92201 • AOL Time Warner . 101% 100, , i. • America Online, Inc. Time Warner Inc. l 1tN1, 1o0% 1o0, 1 t Time Warner Turner Broadcasting America Online Companies, Inc. System, Inc. i 1 1nn%" cr � n AOL Time Warner 100% ,n 100% 1ta1 General and ell Limited Partners AT&T'• CVLimited Partner C" Filmed C, Publishing Music I Entertainment Networks Cii ltal"^— New Line �, 25.51," 74.49^4." I TWI Cable I Time Warner I Entertainment Company, L.P. 1.9.. Advance/ Newhouse 33.3^.;,• II 61.8 two %' I TWE-A/N Partnership I Networks; Time Warner(conic) HBO Filmed Entertainment Cable Warner Bros. The\WB If Time Warner Companies,Inc.directly or indirectly owns 100%of the capital stock of each of the AOL Time Warner General and Limited Partners. 2l Interest held by AT&T Corp.'s subsidiary,MediaOne TWE Holdings,Inc. 3/ Pro rata priority capital and residual equity interests.In addition,the AOLTime Warner General Partners own 100%of the priority capital interests that are junior to the pro rata priority capital int:re=t; See Note 6 to Time Warner Inc.'s consolidated statements included in AOL Time Warner's Current Report on Form 8-K/A dated January 11,2001(filed February 9,2001). SEP-.21-2001 16:08 TIME WARNER CABLE 2C�S S2ti4ti4e r.ue,r�p • -w%,wo ,, A.m'e Gnry R.Marz • .Srantrurtl. C%(1002 Vc c Presider)!and Tel 203.32S-4S' S Assirrmu Genrnel Crunsrl Fox 203-32J-4S40 E-nwil,gcsr mnr@nrcahle.cum ' TIME WARNER CABLE September 21, 2001 Via Facsimile (213) 626-0078 Regular Mail William B. Rudell Esq. Richards, Watson & Gershon Thirty-Eighth Floor 333 South Hope St. Los Angeles, CA 00071-1469 Re: FCC Form 394 - Proposed Assignment of Cable Television Franchises in Palm Desert and Indio by TWI Summit Cable, Inc. to Time Warner Entertainment- Advance/Newhouse Partnership Dear Mr. Rude11: In response to your request of September 7, 2001 please see the following. 1. Ownership Information - Request for Clarification • The organization chart found as part of the Securities and Exchange Commission Form 10-K is the accurate chart. Please also see footnote number 4, which provides further details of the 1.9% ownership of TWI Cable Inc. and affiliated entities. The important point to note is that the non-Time Warner ownership of Time Warner Entertainment-Advance/Newhouse Partnership ("TWEAN") is 33.33%. 2. Authority to Transact Business in California The State of California does not authorize foreign general partnerships; therefore no authorizing document may be obtained from the State. 3. New Trade Names TWEAN does not propose to use any new trade names in operating the cable television systems in the service areas of Palm Desert and Indio. 4. Asset Purchase Agreement dated as of June 14. 2001 (the "Agreement") a. No modifications have been made to the Agreement. rime lLirrnc, Calor.n dn•r,sinn of Tone Warner Enie)taiamcnr Company,L.P. SEP-21-2001 13:46 2033284840 99% P.02 SEP,21-2001 16:08 TIME WARNER CRBLE ����eatiotir+ • • b. As the Hart-Scott-Rodino filing is not a public document, we are not able to provide a copy. Neither the Federal Trade Commission nor the Antitrust Division of the Department of Justice made any inquiries with respect to this proposed transaction. The applicable waiting period elapsed on July 29, 2001. c, No filings have been made, or are expected to be made, with the Securities and Exchange Commission in connection with the proposed assignment of the cable television franchises. • d. Time Warner Social Contract The pending transaction will have no impact upon the Time Warner Cable Social Contract. e. Comments of the FCC No written comments have been received to date from the FCC in connection with the proposed assignment of the cable television franchises. The FCC has no authority to comment on such assignments. 5. Assignee's Technical Qualifications No changes in personnel are anticipated as a consequence of the proposed assignment of the franchises granted by Palm Desert and Indio. No management contract or other agreement will be entered into with respect to the cable television systems in Palm Desert and Indio; TWEAN (and its management and other personnel) will own, operate and manage those systems. TWEAN provides cable services to the following systems in the State of California: Avenal, Bakersfield, Barstow, Canyon Country, Coronado, Los Angeles County, Orange, San Diego, San Marino, South Pasadena, Taft, Tehachapi and Palm Springs. 6. Current Cable System Operations None of the personnel, operations, channel lineup or rates charged to subscribers of the System will change in any way as a result of this transaction. Paragraph (2) of Part II indicated that attachment of an exhibit is "Not Applicable," as there are no plans to change the current terms and conditions of service and operation of the system as a consequence of the transaction for which approval is sought. 2 SEP-21-2001 13:47 2033284940 99% P.03 • SEP.21-2001 16:09 TIME WARNER CABLE 1!J.5..56d4d4U 7. Free and Discounted Cable Services We are uncertain as to the relevancy of this question regarding Free and Discounted Cable Services. As you know, the appropriate scope of review for the City in determining whether it shall consent to the transfer is the qualifications of the transferee. We believe that the FCC Form 394 previously filed with the City together with the information included in this letter more than amply demonstrates that TWEAN is qualified to become the franchisee. Notwithstanding that general objection to this particular inquiry, I would note that Time Warner Cable does provide free service to City facilities, schools, fire stations and to a very limited number of individuals. Those individuals are employees, in one instance an employee of another cable television operator and in other instances, employees where Time Warner Cable has an existing business relationship either as a service provider or a customer. The number of private customers is de minimis. Lastly, we do offer certain promotional rates where service is discounted. Those promotions are for purposes of attracting and/or maintaining customers which would benefit the City through additional franchise fees. I would note that as a commercial entity we have every incentive to maximize our revenues and free or discounted service is provided only where we believe that doing so will, in the long term, enhance the service we provide. 8. Anticipated Benefits of the Transaction Except for the franchises and assets involved in the proposed transaction, the other franchises and assets in Time Warner Cable's Desert Cities division arc owned and operated by TWEAN. If all of the franchises and assets in that division are owned and operated by TWEAN, TWEAN will be able to operate with greater efficiency in terms of recording-keeping and financials, and there will be more clarity with respect to the relationship of the assets to the entity (TWEAN) that owns and operates them. The current subscribers-.to the systems that serve Palm Desert and Indio should see no change or effect as a result of the proposed transaction. 9. Reimbursement of Costs and Expenses In light of the pro-forma nature of this transaction and the fact that we already pay to the City the maximum franchise fee of 5% permitted under federal law, we question why a reimbursement is being requested. Nevertheless, we will agree to reimburse each community for actual out-of- pocket expenses incurred up to a maximum of $1,000 per community or a total 3 SEP-21-2001 13:47 2033284840 99% P.04 SEP,21-2001 ;.6:09 TIME WARNER CABLE GbJJGC4ty4✓J r.u�'r'-' • of$2,000 for the two communities. We will require documentation for all out- of-pocket expenses and a detailed description of the work performed. I trust that this letter has been responsive to your questions. Should you have further questions, please do not hesitate to contact us. Very truly ours, 'urs, aryF atz cc: Kathi Jacobs Valerie Tyler 4 TOTAL P.05 SEP-21-2001 13:47 2033284840 P.05 • ACCEPTANCE OF RESOLUTION BY ASSIGNEE TIME WARNER ENTERTAINMENT—ADVANCE/NEWHOUSE PARTNERSHIP, a New York general partnership, accepts and agrees to comply with the terms and provisions of this resolution. TIME WARNER ENTERTAINMENT—AD V ANC E/NE WHOUS E PARTNERSHIP, a New York general partnership By: Time Warner Entertainment Company, L.P., Managing General Partner, through its Time g gg Warner Cable Division By: (Authorized Officer) Title: Date: P6401\1030\592919.5 -5- 1