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1995 09 29 CC Minutes Sp Mtg LA QUINTA CITY COUNCIL SPECIAL MEETING OF SEPTEMBER 29, 1995 MINUTES Special meeting of the La Quinta City Council on September 29, 1995 was called to order at the hour of 11:00 a.m. by Mayor Pena, followed by the Pledge of Allegiance. PRESENT: Council Members Bangerter, Cathcart, Perkins, Sniff, Mayor Pena ABSENT: None CONFIRMATION OF AGENDA Confirmed None None PUBLIC COMMENT None BUSINESS SESSION 1. CONSIDERATION OF APPROVAL OF RESOLUTION APPROVING MULTI- CHANNEL SERVICE PROVIDERS AGREEMENT WITH COLONY CABLEVISION. Council recessed to Closed Session. CLOSED SESSION 1. Conference with legal counsel regarding potential litigation pursuant to Government Code Section 54956.9((one case). Council reconvened at 11:55 a.m. with no decision being made which requires reporting pursuant to Section 54957.1 of the Government Code Brown Act). BIB] 12-13-95-U01 08:43:17AM-U01 CCMIN-U02 09-U02 29-U02 95-U02 City Council Minutes 2 September 29.1995 BUSINESS SESSION........................continued CONSIDERATION OF APPROVAL OF RESOLUTION APPROVING MULTI- CHANNEL SERVICE PROVIDERS FRANCHISE AGREEMENT WITH COLONY CABLEVISION.........................continued Mr. Bill Marticorena, 611 Anton Boulevard, Suite 1400, Costa Mesa, attorney with Rutan & Tucker and special counsel to the City, advised that several months ago Colony CableVision asked the City for authorization to transfer their Cable Franchise to Continental CableVision. Prior to that request, ongoing discussions took place regarding a potential franchise renewal with Colony CableVision as well as certain alleged breech of franchises identified by the City which Continental CableVision was asked to cure. He advised that there have been many significant give and takes" as well as proposals that have been offered and rejected, but he felt that an agreement was close to being resolved. He did not support in totality the agreement before the Council. He advised that the Council has been concerned about the age of the cable system, the lack of channel capacity, and an inability to provide a satisfactory quality of service. The proposed agreement requires an upgrade and expansion of the system and a significant improvement in the quantity and quality of service. It calls for the installation of a state of the art" 750 mhz system that will address the concerns regarding rebuilding of the system and customer service improvements. It also includes commitments to public access programming and an array of other components that staff is comfortable with and willing to recommend. He advised that a lack of consensus exists between staff and the cable operators in two areas build-out of the system to the entire community and gross revenue. In regard to build-out of the system, the cable operators feel that some areas aren't dense enough to make cable installation economically feasible. They have suggested a line-extension formula that's basically a density requirement and the City feels that it might exclude some existing and future developments. He understood that a compromise had been reached wherein the cable operators would build out all approved developments within the City with the line-extension formula applied only to future projects. However, the cable operators have excluded some of the approved projects from the agreement because they feel that they won't be cost-effective to serve. He advised that the second issue that has not been resolved is the definition of gross revenue. The City's Multi-Channel Service Provider Ordinance enables the City to capture into its franchise fee base all services provided by any one that uses the City's public rights-of-way for the provision of any type of telecommunication service. That concept is included in the ordinance's definition of gross revenue and the cable operators have requested that that definition be downsized for the purpose of this agreement. They wish to restrict the City from collecting revenue from enhanced service operations such BIB] 12-13-95-U01 08:43:17AM-U01 CCMIN-U02 09-U02 29-U02 95-U02 City Council Minutes 3 September 29;1995 as telephony which they intend to offer in the near future. As technology and the market progresses, other services might be added in the future. The proposed agreement limits the City's ability to collect the franchise fee from this cable operator based upon the City's possible inability to collect the fee from other providers in the future. Currently, State law doesn't allow the City to collect a franchise fee from GTE because they have a statewide franchise, but changes in the Federal law in the future may allow the City to collect a franchise fee from agencies offering services similar to GTE. He advised that the cable operator doesn't feel that the City can collect a telephony franchise fee from them without collecting it from all other agencies and to do otherwise, puts them at a competitive disadvantage in the community. He felt that the totality of circumstances must be considered when looking at competitive positions and that a fee charged to one company and not another doesn't by itself put that company at a disadvantage. He pointed out that cost structures vary from business to business and franchise fees are only one factor to consider when trying to determine if a business is at a disadvantage in comparison to another. He advised that the following two recommendations were submitted to the cable operators for consideration: I) that the definition of gross revenue be a fluid and dynamic definition that states that as the law changes and progresses, the City would adhere to whatever the law allows the City to collect on, and; 2) that a process be established wherein a cable operator could demonstrate to the Council how such a fee would truly put them at a disadvantage and prohibit them from providing their service to La Quinta residents. The Council would then be able to decide if such a fee is appropriate. He advised the Council that these two recommendations were not accepted by the cable operators. Mr. Jeremy Stern, 550 N. Continental Boulevard, El Segundo, Vice President of Corporate and Igal Affairs for Continental CableVision, advised that the merger between Colony CableVision and Continental CableVision is expected to close this weekend. He felt that Mr. Marticorena's summary was very accurate and reviewed some of the issues. Re advised that Colony CableVision was opposed to some of the provisions in the City's Multi-Channel Service Provider Ordinance, not unlike cable operators nationwide that are dealing with similar ordinances, but the City's wish has been to adhere to it. He advised that the City is asking for grant funding to encourage governmental access programming, a quick upgrade of the system to provide programming options, very strong customer service standards. The City also wishes to have the opportunity to review the system and possibly change the franchise after a few years to accommodate change and regulatory and technological development. He felt that the proposed agreement would serve the City's wishes and advised that Colony isn't asking for any amendments to the ordinance. They have agreed to upgrade the system to 750 mhz at a very rapid schedule and will have the Cove area completed within nine months of the agreement. They also have committed to a $1 million security fund to guarantee the timeline on the new construction. The new system will be the most advanced cable system in Coachella Valley and one of the most advanced in the nation. Grant funding in the amount of $175,000 is included in the agreement for Ia Quinta's unrestricted use and a review and update provision in the 10th BIB] 12-13-95-U01 08:43:17AM-U01 CCMIN-U02 09-U02 29-U02 95-U02 C?ty Council Minutes 4 September 29, 995 year of the 15-year agreement is provided to look at regulatory and technological developments. They accept and expect to exceed the customer service standards set forth in the ordinance, pointing out that Continental is known as a very responsive and customer-oriented company. Mr. Steve Merritt, 41-725 Cook Street, Palm Desert, General Manager of Colony CableVision, advised that there was a misunderstanding regarding the line-extension policy that he felt existed because the City and Colony have been looking at two separate project lists. Colony has excluded four projects out of 50 the City's list because some of the rural areas in La Quinta are located more than a mile from existing cable lines. The cost to reach only 55 homes would be $70,000 $1,700 per unit) with no guarantee that the homes will be built. They will also have to compete with other telecommunication companies such as PrimeStar and Direct TV. Ultimately, the capital costs would be placed on existing subscribers and he felt that the formula Colony has suggested is reasonable In response to Council Member Bangerter, Mr. Merritt advised that the 55 homes are only planned lots. Mr. Marticorena advised that the cable operator would only be required to service the area once homes are built. Mr. Merritt advised that a large portion of the cost is getting the cable to the property and it wouldn't be economically feasible for only one home, but under the City's proposal they would be required to do it. In response to Mayor Pena, Mr. Marticorena advised that Colony proposed a density standard of 48 homes per mile of underground before they are required to extend their service to those areas, but staff feels that that number is too high for guaranteed service. He thought that a compromise had been reached wherein a density standard was agreed upon in exchange for the understanding that Colony would service the already approved project areas, but felt that something could be worked out. In response to Council Member Perkins, Mr. Stern advised that the proposed density standard is determined by the number of homes to be served divided by the plant miles. The commonly-accepted standard is 30 homes per mile under aerial construction and 50 homes per mile with underground construction. In the Canyon Lake area they reduced their standard to 36 homes per mile because of joint-trenching capabilities with other utilities. In addressing the gross revenue issue, Mr. Stern advised that the City's definition in the ordinance is the broadest he has ever seen. They have agreed to pay franchise fees on telephony with the necessary caveat, that they will agree to pay if and when their competitors are obligated to pay as well. They are prepared to build a telephone network BIB] 12-13-95-U01 08:43:17AM-U01 CCMIN-U02 09-U02 29-U02 95-U02 City Council Minutes 5 September29, 1995 in La Quinta to provide residents the opportunity for competitive telephony service, but feel that competition will be unfair if they are assessed a fee and their competition is not, pointing Out that those costs are passed on to the subscriber. He advised that they would not be able to compete with competitors such as GTE and others if franchise fees aren't assessed to all competitors. He advised that they would have the same costs as GTE, but without their scale. He referred to competitive service in the east between AT&T and Rochester Telephone and advised that AT&T is having a difficult time because Rochester has a 5%margin over them. In response to Council Member Perkins, Mr. Stern advised that they are willing to pay a franchise fee when their telephony service is installed as long as GTE does also. In response to Council Member Sniff, Mr. Stern advised that under current law, the authority to provide telephone service is granted by the State Utilities Commission and it's not necessary to pay franchise fees to the City. Council Member Cathcart asked what areas of La Quinta would be included in the rebuilding of their system. Mr. Merritt advised that the sections that have been rebuilt to 550 mhz would be upgraded to 750 mhz and the Cove area would be upgraded to 750 mhz within nine months of the Agreement. The remaining areas will be completed within 18 months. Mayor advised that the cable company has requested a 5-year Franchise Agreement in La Quinta to get a return on their investment, but pointed Out that they are installing the same system in Indio with only a five-year agreement. Mr. Merritt advised that they have sufficient comfort in the renewal of the Franchise Agreement in Indio. Mr. Stern advised that the package included in the IS-year Franchise Agreement is a result of negotiations regarding the length of the Agreement. He felt that long-term franchises are beneficial to everyone because they provide stability and certainty which encourages the operator to continue investing in the system. In response to Council Member Perkins, Mr. Stern felt that two differences still exists. I) the City wants the cable company to make a commitment to be at a competitive disadvantage to its larger competitors by imposing a franchise fee on telephony, and 2) the City wants service extended to 55 lots that Continental has excluded from the approved project list. In response to Council Member Cathcart, Mr. Merritt advised that the 55 lots are distributed between four separate developments. BIB] 12-13-95-U01 08:43:17AM-U01 CCMIN-U02 09-U02 29-U02 95-U02 City Council Minutes 6 September 29, 1995 Council Member Cathcart asked Mr. Stern how he felt that telephony would be defined in five years. Mr. Stern advised that telephony is basically dial tone service, including voice and modem service. He advised that the new hybrid-fiber coax network that wil! be installed in La Quinta is better for video drop as opposed to systems used by some telephone companies that attempt to put digitized video over their lines. Mr. Marticorena asked if Continental views the use of common carrier for video as telephony or cable service. Mr. Stern advised that that is considered a video dial tone network which Continental would not be building in La Quinta, but if they did, they would get authority from the FCC just like PacBell and wouldn't be subject to franchise fees. Mr. Marticorena asked if Continental would count video dial tone service as gross revenue if they offered it in the future. Mr. Stern advised that anyone offering video dial tone service would be subject to Federal law and not obligated to pay franchise fees. He advised that they are applying for a cable franchise for which they will pay a franchise fee and not a video dial tone franchise. Council recessed to Closed Session. Council reconvened at 1:07 p.m. with no decision being made which requires reporting pursuant to Section 54957.1 of the Government Code Brown Act). BUSINESS SESSION.....................continued CONSIDERATION OF APPROVAL OF RESOLUTION APPROVING MULTI- CHANNEL SERVICE PROVIDERS AGREEMENT WITH COLONY CABLEVISION......................continued Mr. Marticorena advised that the Council is sensitive to Continental's concern that a framework be created for the maximization of competitive services and encourage it. However, the Council is concerned about the long-term nature of the agreement due to the lack of flexibility to react to changing economic conditions and technology. They are willing to support Continental's introduction of telephony in Coachella Valley and are willing to agree, for up to three years, to their exclusion of franchise fees for telephony service unless their competitors are required to pay as well. However, the presumption would be at the end of the three-year period that the Council could charge a franchise fee BIB] 12-13-95-U01 08:43:17AM-U01 CCMIN-U02 09-U02 29-U02 95-U02 City Council Minutes 7 September 29, 1995 for telephony service regardless of laws hat might exclude their competitors from paying the same fee. A process would also be provided that would allow Continental to demonstrate to the Council how that it's not economically feasible for them to pay a franchise fee given the competitive conditions. The Council could easier consider waiving the franchise fee after some time has elapsed and Continental is given the opportunity to provide the Council with numbers that support their position. The Council would be able to compare the delivered services with the operation costs of competitors, including Federal franchise fees that might be charged to GTE or other competitors, but not to Continental. The Council feels that it's reasonable[ and fair to provide Continental a window to start the process, but a finite end needs to be set so that the economic realities can be looked at. He advised that the Council has agreed to go with Continental's project list in regard to the line-extension policy. The Council is concerned about the definition of telephony and will be looking for a clearer definition that it would exclude any type of video programming service. Mr. Stern advised that it's clear to them what cable service is and they are willing to pay a franchise fee to provide that service to La Quinta. He felt that the Council's concern is a result of staff's view that the City needs to venture into non-video cable services. He's not aware of any corporate plan to get into video dial tone service, but feels that the City is asking them to agree to something that their competitors aren't subject to. He was opposed to the three-year exemption plan because he felt that it would place them back into a position of uncertainty with their building plant that would require a significant investment by Continental under risk conditions. He felt that any significant tax aSSeSSment would ultimately be passed on to their subscribers and make their operation economically unfeasible. He advised that he would contact his boss for a decision on the three-year exemption plan. Council recessed to Closed Session. Council reconvened with no decision being made which requires reporting pursuant to Section 54957.1 of the Government Code Brown Act). BUSINESS SESSION.....................continued CONSIDERATION OF APPROVAL OF RESOLUTION APPROVING MULTI- CHANNEL SERVICE PROVIDERS FRANCHISE AGREEMENT WITH COLONY CABLEVISION.....................continued BIB] 12-13-95-U01 08:43:17AM-U01 CCMIN-U02 09-U02 29-U02 95-U02 City Council Minutes 8 September 29, 1995 Mr. Stern advised that a three-year exemption plan would be impractical for Continental's investment risk and financial planning and the uncertainty would impact the investment in their telephony system, adding a significant cost to the new cable system. He felt that he focus should be on cable service and was willing to include a reservation of rights in he agreement for the City to pursue the collection of telephony service franchise fees should the law permit it in the future. He suggested the use of a broad definition of gross revenue in the agreement which is limited to cable service and used in the agreement with Indian Wells. He felt that franchise fees for telephony service could be addressed through the City's reservation of rights at a later time. Mr. Merritt felt that Mr. Stern's proposal was realistic because it would allow them to move forward and rebuild the cable system. In response to Council Member Cathcart, Mr. Stern advised that most of the cable would be replaced during the rebuild process. Council Member Cathcart asked if they would be rebuilding for telephony at the same time they rebuild the cable system. Mr. Merritt advised that the fiber to the feeder architecture that is used has the intrinsic capability of carrying various signals within it, but what's important is at the two ends of the fiber. The neutral pipe needed for telephony does not exist at the present time and is the only manner in which they would be preparing for telephony. Mayor Pena asked if cable is defined as a wire? or a service. Mr. Marticorena advised that the City's Multi-Channel Service Provider Ordinance defines it as a service. However, a system that offers cable service can offer data service and telephony service as well and the orientation of the City's ordinance is to license the system, not the service. Re believed that a significant difference exists between the proposal Continental was offering La Quinta and the deal they made with Indian Wells, such as a longer Franchise Agreement term. He advised that Continental's proposal is not consistent with the Multi-Channel Service Provider Ordinance because it treats all of the systems the same and a cable-only franchise attempts to draw lines. Mr. Merritt advised that a cable system is radically different from a telephone service system and such a switch would require the installation of a lot of hardware. Mayor Pena asked if Continental would be able to offer telephone service on the cable system or cable service on the telephone system sometime in the future and simply rename the service to which Mr. Merritt responded that he wasn't sure. BIB] 12-13-95-U01 08:43:17AM-U01 CCMIN-U02 09-U02 29-U02 95-U02 City Council Minutes 9 September 29, 1995 Mayor Pena advised that the Council isn't sure either and is concerned that the City's cable service could be switched over to a new system and thereby lose its cable service. Mr. Merritt felt that the City is protected by the definition of cable service. Mayor Pena pointed Out that the definition of cable service as well as telephonic service is uncertain. Mr. Merritt advised that cable service can be defined to the extent that it's definable today. Mayor Pena pointed out that the Council is concerned about future definitions and the possibility that Continental could switch their cable service to a telephony system in a few years and dispute the City's right to collect a franchise fee for telephonic services. He felt that Continental would have no incentive to settle the definition dispute since they would have a 15-year Franchise Agreement. Mr. Stern reiterated that he knew of no company policy, program, or plan to remove Continental from cable service. They wish to retain their right as a First Amendment speaker and would lose that right as a common carrier. Mayor Pena asked if their equipment would allow them to make such a technological change should they decide to do so. Mr. Stern advised that telephone video dial tone networks look just like theirs and require no cable franchise. They are not interested in building a video dial tone network because they want to provide local programming for the community and common carriers have to open their service to third-party programmers. He advised that they would be talking to the FCC and not the City if they were interested in that type of service. Council Member Cathcart asked if Continental would be willing to put in writing their statement that they won't switch La Quinta? cable service over to some type of telephonic service sometime in the future. Mayor Pena believed that under the City's proposal, the City would have a right to collect franchise fees from Continental if they switched to telephonic service, as long as their competitors were being charged. Mr. Stern asked if they would be subject to pay franchise fees only if GTE is required to pay them also. Mr. Marticorena advised that such an agreement would negate the City's existing franchise fee base because the services, although provided through different networks, would essentially be the same services. BIB] 12-13-95-U01 08:43:17AM-U01 CCMIN-U02 09-U02 29-U02 95-U02 City Council Minutes 10 September 29, 1995 Council Member Cathcart asked if cable service operators or common carriers such as GTE pay any Federal franchise fee to which Mr Stern responded no. Council Member Cathcart asked if the fees they pay, including the City's 5% franchise fee, are the same or less than what GTE pays for video dial tone. Mr. Stern advised that video dial tone service companies are not required to pay franchise fees to anyone. Therefore, they pay 5% more than GTE. Council Member Cathcart asked if Continental would be willing to guarantee the City that they won't be going into video dial tone service for any length of time. Mr. Stern advised that that commitment would have to come from their Chairman of the Board. Council Member Sniff suggested continuing this matter to October 17th and directing staff to work with Colony on the issues Mr. Stern felt that it's absurd to think that they are planning to switch to video dial tone service and negate their franchise obligations. He advised that a switch to video dial tone service is not on the drawing board and would be a huge change in the way they do business. He advised that they have never made a run in Congress to attempt a change in their commitment to pay a franchise fee to the cities since the Cable Act was enacted in 1984. They are willing to pay a franchise fee on cable service and are asking to be treated fairly if they go into the telephone service. Mr. Marticorena didn't believe that a 15-year Franchise Agreement would be a consideration without the Multi-Channel Service Provider Ordinance which is viewed by staff as an important quid pro quo." Without that ordinance, a more likely alternative would be a 10-year Agreement like Indian Wells has with a 7-year review window. He advised that the ordinance tries to avoid labels because it's almost impossible to define the differences in the new technologies. The philosophy of the ordinance is to avoid any potential of the avoidance of any obligations based on an arbitrary? classification or name of service. He advised that the gross revenue definition contained in the ordinance is not acceptable to Continental. Staff is trying to implement a policy that the Council established and deals with how they wish to treat various providers in the community. Mr. Stern pointed Out that the City hasn't tried to charge GTE a franchise fee since the ordinance was adopted. He reiterated that they are willing to pay a franchise fee for telephony service if GTE does. He believed that this is a Federal policy debate and should continue to be fought in Congress, not in La Quinta. BIB] 12-13-95-U01 08:43:17AM-U01 CCMIN-U02 09-U02 29-U02 95-U02 City Council Minutes 11 September 29, 1995 MOTION It was moved by Council Members Sniff/Perkins to continue the matter regarding a Franchise Agreement with Colony CableVision to October 17, 1995 and direct staff to continue negotiations. Council Member Perkins felt that the issue was close to being resolved and asked staff if they felt that the issues could be resolved within the next few minutes. Mr. Genovese, City Manager, didn't feel that the cable company's position had changed much. His greatest concern was their statement that the City couldn't charge a franchise fee if a telephone company is not competitive with the cable company. He advised that this is against the intent of the Multi-Channel Service Provider Ordinance and the City could be at risk of $350,000 immediately if a telephone company came in tomorrow and offered video dial tone service. Mr. Stern pointed out that the City would have no authority if Continental wished to start a video dial tone service in La Quinta. He felt that Mr. Marticorena was driving a wedge between a good deal and quality cable service. He advised that they are pledged to comply with Federal law and will pay a franchise fee for cable service. Mayor Pena pointed out that the City is not approving a Cable Franchise Agreement. Mr. Stern understood that the City's Multi-Channel Service Provider Ordinance claims to have broader authority and the City's view is that it's granting more than a cable franchise. However, the cable company would not be able to rely upon the City's ordinance to provide telephony service because they would need a permit from the Public Utilities Commission. Motion carried with Council Member Perkins and Mayor Pena voting NO. MINUTE ORDER NO. 95-177A. 2. CONSIDERATION OF APPROVAL OF RESOLUTION?ON APPROVING THE TRANSFER FROM COLONY CABLEVISION OF CALIFORNIA, A DIVISION OF PROVIDENCE JOURNAL COMPANY, D.B.A. COLONY CABLEVISION OF CALIFORNIA, TO CONTINENTAL CABLEVISION. MOTION It was moved by Council Members Sniff/Cathcart to continue the matter regarding the approval of the transfer from Colony CableVision to Continental CableVision. Motion carried unanimously. MINUTE ORDER NO. 95-17'B. BIB] 12-13-95-U01 08:43:17AM-U01 CCMIN-U02 09-U02 29-U02 95-U02 City Council Minutes 12 September 29,, 1995 MOTION It was moved by Council Members Sniff/Cathcart to adjourn the Council meeting. Motion carried unanimously. Res?e tfully submitted DRAL JUH LA City Clerk City of La Quinta California BIB] 12-13-95-U01 08:43:17AM-U01 CCMIN-U02 09-U02 29-U02 95-U02