HomeMy WebLinkAbout2001-01-23 - AGENDA REPORTS - AT&T FRANCHISE INTERNET SERVIC (2)CITY OF SANTA A CLARITA
AGENDA REPORT
City Manager
Item to be presented
NEW BUSINESS
DATE: January 23, 2001
SUBJECT: AT&T FRANCHISE - INTERNET SERVICES
DEPARTMENT: Administrative Services
RECOMMENDED ACTION
Steve Stark
City Council make no changes to the current franchise agreement, and continue collection
of a 5% franchise fee on cable modem services.
Over the past year, the City's cable providers have been collecting franchise fees on their
cable modem services, in addition to the normal franchise fee on cable television. The fees
for cable modem services were included as part of the franchise transfer resolutions for both
Time Warner Communications (Time Warner/AOL Transfer) and AT&T Broadband
(formally MediaOne). However, due to recent litigation, one of the City's cable companies,
AT&T Broadband, has requested that the City take one of two actions regarding fees on
cable modems:
1) Waive the payment of franchise fees on cable modem service, based on the final and
nonappealable decision in the AT&T vs. City of Portland litigation, as determined in the
U.S. Ninth Circuit Court.
2) Request that franchise fees continue to be assessed on cable modem service (and passed
through to subscribers), then AT&T Broadband will require that the City sign an
agreement acknowledging the potential refund liability and agreeing to offset AT&T
Broadband's future franchise fees by the amount of any refund liability ordered, as well
as AT&T Broadband's cost and reasonable attorneys' fees.
Based on discussions with the City Attorney, staff is recommending that no changes be
made to the current franchise agreement and to continue to collect a 5% franchise fee on
cable modem services. In fact, by AT&T's own admission (see attachment), the issue is still
being worked out on many legal and administrative fronts. Until a final nationwide
standard is determined by the Federal Communications Commission, or other legal body,
a Agenda Item ��
AT&T FRANCHISE — INTERNET SERVICES
January 23, 2001— Page 2
continue collecting the franchise fee on cable modem services without the City having to
sign special agreements. AT&T has requested that the City make a determination
regarding cable modem service franchise fees by February 15, 2001.
ALTERNATIVE ACTIONS
1) Waive the payment of franchise fees on our cable modem service, pending the final and
nonappealable decision in the AT&T vs. City of Portland litigation, as determined in the
U.S. Ninth Circuit Court.
2) Request that franchise fees continue to be assessed on cable modem service (and passed
through to subscribers), then AT&T Broadband will require that the City sign an
agreement acknowledging the potential refund liability and agreeing to offset AT&T
Broadband's future franchise fees by the amount of any refund liability ordered, as well
as AT&T Broadband's cost and reasonable attorneys' fees.
3) Other action as determined by the City Council.
FISCAL IMPACT
The fiscal impact is unknown at this time.
ATTACHMENTS
AT&T Broadband Letter
SS:FO:hds
comndl \AT&TRepmt.doc
AT&T
December 8, 2000 AT&T Broadband
550 N. Continental Boulevard
Suite 250
8 Segundo, CA 90245
George Caravaiho
City Manager
City Santa Clarita
23920 Valencia Blvd., Suite 300
Santa Clarita, CA 91355-5316
RE: Franchise Fees on AT & T Road Runner
Dear Mr. Carevaiho:
I am writing regarding the assessment of franchise fees on revenue derived from the provision of
cable modem service currently AT&T Road Runner. As you know, we have been providing cable
modem service to subscribers as a cable service and paying the City of Santa Clarita a 5%
franchise fee on that revenue (which fee we pass through to subscribers as authorized under
federal law). Under the Ninth Circuit Court of Appeal's recent decision in AT&T v. City of
Portland,' It appears that the Ninth Circuit Court does not consider this to be a'cable service.'
Thus, at least in the Ninth Circuit, there Is a serious question as to whether local franchising
authorities have the right to assess cable service franchise fees on cable modem service
revenue.
Currently, the Federal Communications Commission ("FCC) has a proceeding under way that
may ultimately help resolve this Issue.2 In addition, there is other pending litigation, and courts
outside this Circuit have rendered opinions that might lead to a conclusion different from the
apparent conclusions in the Portland decision. Nonetheless, in light of the Portland decision,
there is some risk that the City of Santa Clarita would be exposed to potential refund liability in
the future, should it continue to assess franchise fees on cable modem service revenue. At least
one local government has determined to eliminate this risk by waiving the franchise fee on cable
modem servke at this time. Other local governments, while continuing to assess the fees, have
decided to deposit them Into an escrow type account so that such fees will be available for refund
at such time as a court of competent Jurisdiction or the FCC determines whether a refund is
necessary.
Given the uncertain nature of the law regarding franchise fees on cable modem service, we
believe that it is in the best Interests of the City of Santa Clarita, as well as AT&T Broadband, to
waive these franchise fees (and suspend the pass-through of such fees to subscribers) until this
Issue see . uspens on of franchise fees on AT&T Road Runner is particularly important in
states within the Ninth Circuit, because of the existence of state consumer protection laws which
often give rise to class action or other litigation. Such lawsuits might seek a refund of any fees not
lawfully collected (which could require the City ofSanta Clarita to refund them to AT&T
Broadband so they could
216 F.3d 871 (9°i Cir. June 22, 2000).
FCC 00-355 (released September 28, 2000).
C
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be returned to consumers.) This means that the City of Santa Clarity assessing the fee could
become a defendant in such litigation.
in light of the above, we believe that the best course of action Is for the City of Santa Clarita to
waive these franchise fees until there Is a determinative decision. Unless we hear from you, that
Is how we will proceed beginning January, 2001. if, Instead, the City of Santa Clarlta requests
that franchise fees continue to be assessed on cable modem service (and passed through to
subscribers), then AT&T Broadband will require that City of Santa Clarity sign an agreement
acknowledging the potential refund liability and agreeing to offset AT&T Broadband's future
franchise fees by the amount of any refund IlON ty ordered, as well as AT&T Broadband's costs
and reasonable attomeys fees.
If you would like to discuss this matter further, or would like further information or copies of the
referenced court decisions, please feel free to contact Stephen D. Sawyerst 310.647.6682. We
would appreciate receiving a response to our request to waive the franchise fees on AT&T Road
Runner by the end of year. Thank you.
Sincerely,
VP coocal Government Affairs
Sou West Division
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