HomeMy WebLinkAboutAgenda - 06-26-1995 - V-D i
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ORANGE COUNTY
BOARD OF COMMISSIONERS
Action Agenda
Item No. V-0
ACTION AGENDA ITEM ABSTRACT
Meeting Date: June 26, 1995
SUBJECT: Resolution - Granting the Cablevision Industries the
Consent to Transfer Cable System To Time Warner, Inc.
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DEPARTMENT: County Manager PUBLIC HEARING YES: NO: X
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ATTACHMENT(S) : INFORMATION CONTACT: Albert Kittrell
Report
Resolution TELEPHONE NUMBER-
Hillsborough -732-8181
Chapel Hill -968-4501
Mebane -227-2031
Durham -688-7331
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PURPOSE: To adopt a resolution approving the CATV Franchise
transfer from Cablevision Industries to Time Warner.
BACKGROUND: Cablevision Industries has requested the transfer of its
CATV franchise and control of its cable system to Time
Warner. Cablevision Industries ' Franchise with the
County requires Board approval before transfer can be
executed. The Board must assure that there will be no
adverse impact upon subscribers as a result of the
transfer.
The Cable TV Citizen Advisory Committee discussed issues
surrounding the transfer with Bob Sepe, Consultant from
Triangle J Council of Governments, on June 7, 1995. The
Committee' s concerns are included under "Recommendation"
in the attached report. Bob Gwyn, Chair, of the Cable
Committee will comment on behalf of the Committee and
Bob Sepe will be present for additional clarification of
issues and concerns.
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RECOMMNDATION(S) : The Manager recommends that the Board adopt the
resolution granting the consent of Orange County
to the transfer of control of Alert Cable TV of
North Carolina, Inc. and its cable television
system from Cablevision Industries Corporation
to Time Warner. Inc.
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Managers Office
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CVI/TWC TRANSFER REVIEW
CVI - ORANGE COUNTY, NC-0256
June 9, 1995
TO: ALBERT B:ITTRELL, ASSISTANT COUNTY MANAGER
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BY: ROBERT F. SEPE; CITY OF RALEIGH, INFORMATION AG ESS
MANAGER
REVIEW OF: Cablevision Industries request to transfer control of Alert Cable of North
Carolina to Time Warner Incorporated [TWI]
FCC CUID: NC-0256.
The consultants have reviewed the Company's filing, supporting documents furnished by the
company, conducted fact finding discussions with company representatives and responded to
inquires from the Federal Trade Commission. The information and the financial information
provided about Time Warner Incorporated in the Transfer of Ownership filing are the
responsibility of the management of company's involved.
We reviewed the records to determine whether the company provided sufficient information,
consistent with that prescribed by the Federal Communications Commission. Discussions
with the Federal Trade Commission and representatives of CVI were conducted by the
consultants and compared against known information about the companies. We believe that
the documents submitted by the company are free of material misstatements and that the
accompanying report provides a reasonable basis for our recommendation.
OFFICES-222 WEST HARGETT STREET-POST OFFICE BOX 590-RALEIGH,NORTH CAROLINA 27602
Recycled Paper
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SUMMARY
County's franchise documents prohibit the transfer of control, in various ways without the
prior approval of the franchise authority. The proposed transaction will not result in the
assignment of the franchise to a new entity, but the ownership [stock] and control
[management] of Alert Cable of North Carolina's to the Time Warner Incorporated shall be
altered. Therefore, it is imperative that the County seek certain assurances from the new
operator that there will be no adverse impact upon current and future subscribers, the cable
distribution system, company business practices, customer service policies and that line
extension concerns are adequately addressed by the new operator.
The franchise and FCC-394 documents direct the Company furnish the franchise authority with
full identifying particulars of the proposed transaction. Also, by supplying copies of all
documents pertaining to the transfer, the Company is compliant with the terms of the
franchise. The material change in the ownership and management structures of Alert Cable
require that the franchise authority approve the new business arrangement; the transfer of
ownership.
To evaluate the proposed sale of CVI and acquisition by TWI, the consultants considered:
1. information gathered during meetings with Cablevision Industries'
representatives;
2. information learned from discussions with attorney's for the Federal Trade
Commission [US Department of Justice] regarding the effect of the transaction
upon local competition;
3. the purchase agreement between the parties;
4. whether Time Warner presented statements affirming that they shall be bound
by the terms and conditions in the present franchise agreement;
5. the completed FCC-394 Application For Franchise Authority Consent To
Assignment or Transfer of Control of Cable Television Franchise; and,
6. outstanding issues the franchise authority seeks to resolve as a consequence of
the ownership transfer.
7. the findings and recommendations of the County's Cable Advisory Committee.
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The Cable Act of 1992, Section 617(e), stipulates that the transfer request must be...
"accompanied by such information as is required in accordance with Commission regulations
and by the franchise authority." It also provides a 120 day review period to allow the
franchise authority to examine the various aspects, such as the financial, legal and management
implications, of the proposed transaction.
The 120 day period commences from the date the cable operator submits the transfer request to
the franchise authority along with the information required by the franchise agreement. The
consultants met with CVI representatives to discuss issues associated with the transfer. Also,
they spoke with attorneys from the Federal Trade Commission who have the responsibility to
assess the impact upon the local competitive environment of the merger. Since the full
identifying particulars of the proposed transaction appear to have been provided, the 120 day
period commenced on April 24, 1995.
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REPORT
CVI/TWC TRANSFER REVIEW
Cablevision Industries, Inc. - Orange County, NC-0256
BACKGROUND:
Commensurate with the Cable Act of 1992, the Federal Communications Commission
promulgated a transfer of ownership procedure to allow franchise authorities to review the
legal, technical and financial qualifications of the new owner/transferee; and determine
whether or not the transferee is qualified to assume the duties and responsibilities of operating
a cable-telecommunication system.
The FCC-394 form is completed by the operator and given to the franchise authority. The
purpose the form is to disclose the business matters associated with the transfer. It requires the
cable operator to: 1) furnish a copy of the document providing for the transfer of control from
Alert Cable TV of North Carolina to Time Warner Incorporated, 2) address whether the
transferee is legally qualified to transact business in North Carolina, 3) address the character
qualifications of the transferee, 4) address the transferee's financial qualifications, and 5)
discuss the transferee's technical qualifications.
METHODOLOGY:
CVI's submission to Orange County was evaluated by the consultants to determine whether
the operator provided information about the transferee consistent with the procedures
prescribed by the Federal Communication Commission. Documents provided by CVI about
Time Warner were read carefully. Information furnished by CVI was evaluated against
similar information known by the consultants: information which had been gathered over time
by the consultants about the transferee's [Time Warner] character, legal, technical, financial -
business practices.
The consultants met with CVI representatives and attorneys with the Federal Trade
Commission [FTC] to discuss issues and concerns related to the merger. Also, they spoke
with attorneys from the Federal Trade Commission who have the responsibility to assess the
impact upon the local competitive environment by the merger. The acquisition of CVI by
TWI must be approved by the FTC. Therefore, any action by the local franchise authority
regarding the proposed transfer may be rendered moot should the FTC not approve the
proposed transaction.
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FINDINGS:
In the recently completed round of FCC-1220 rate making proceedings, CVI used return on
investment which exceeded the 11.25% benchmark rate. The program service rate proposed
by the company incorporated rate of return of 15.0%. Cablevision Industries is organized as
a C-corporation; its federal and state income tax rates are 35% and 7.82% respectively.
Cablevision Industries is organized as a C-corporation; its federal and state income tax rates
are 35% and 7.82% respectively.
When Time Warner filed benchmark rate submissions with the local franchise authority it
chose to limit its rate of return to the maximum allowable under the FCC benchmark rules,
11.25%.
Present and future subscribers to the CVI system in the Town may realize a reduction in
equipment and installation rates as a result of Time Warner's acquisition of the company. Time
Warner's Hourly Service Charges for some services are less than those charged by Cablevision
Industries.
Under present consideration by the Town is CVI's FCC-1205, reflecting equipment and
installation costs realized in fiscal year 1994 (each FCC-1205 filing reflects the previous year's
costs). These rates will remain in effect for a period of 12 months, until August 1996.
At that time, TWI(not CVI)will file an FCC-1205 reflecting costs realized during the 1995 fiscal
year. This filing may reflect the lower Hourly Service Rates TWI has been charging in other
franchises. Also, though Time Warner would not be allowed to exceed the maximum permitted
rates as set out in the FCC-1205 calculations, it could charge less.
The FCC-1205 filing cycle would continue in August 1997, when TWI would file another FCC-
1205, reflecting costs from 1996 when CVI was under full control by TWI. The full benefit of
TWI's lower service charges could be realized by the Town's subscribers by this time. See the
following chart for a comparison of TWC and CVI installation rates.
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Table A
Installation Rate Comparison
........................
..............:..:............:....................................................................................................................................................................... .........................................................................................................................................................:..................>....:.'.....................
......... . . .... ...... ......................................
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. . . . > . <<+
. Ki > .. ;: . ...... .
1. Unwired Home 0.95 1.56
Pre-wired home 0.80 0.93
A/O @ installation 0.67 0.31
A/O with truck roll 0.80 1.00
Outlet relocation 0.67 0.50
Outlet relocation w/truck roll 0.80 0.63
VCR @ installation 0.69 0.63
A/B switch @ installation 0.69 1.00
Aerial to underground 2.00 2.50
The Time Warner Cable television engineering unit is recognized internationally as the premier
technology group. It is this division which pioneered and perfected the hybrid fiber optic-
coaxial cable technology presently being deployed by cable television and telephone companies
alike.
This technology, capable of delivering both cable and telephone services, is being deployed in
Durham and Wake Counties. It is expected that this technology will eventually be deployed
throughout TWC's systems; distributing from 60 to 70 analog television channels, along with
competing telephony services to the marketplace.
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The following is a summary of CVI a/k/a Alert Cable's December 31, 1993 year-end adjusted
account balances for intangible assets.
Table B
Account Balance Summary
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Organizational and Franchise Costs - includes capitalized expenditures $232,000.00
associated with the organization of the business and with the acquisition
of franchise rights.
Subscriber Lists - the capitalized costs associated with the development $41,000.00
of Subscribership records.
Capitalized Start-Up Losses $0.00
Goodwill $0.00
Other Intangibles $128,000.00
Accumulated Amortization - depreciation on all intangible assets. ($120P
After the merger and expiration of current cost-of-service rates, Time Warner will not be
allowed to increase the intangible values much beyond the present levels. There is a two year
limit during which TWI can amortize the value of CVI's customer [subscriber] list.
The two year rate freeze period promulgated under the Cost-of-Service FCC-1220 rate process
ends September 30, 1996. Therefore, basic service rates for cable television cannot increase
above levels provided under the FCC rate adjustment rules.
The availability of public bandwidth for government communication is a concern to the
Town's administration. Therefore, the County should consider the need to procure
bandwidth on existing and new cable-telecommunications systems to transmit public
communications [data and telemetry information] between government facilities within the
community.
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The County's Cable Advisory Committee has determined that cable-telecommunication service
should be made available to residents of Bingham Township. These residents are not now
served by CVI nor Time Warner. Therefore, it is recommended that Orange County provide
for the extension of cable - telecommunication service to Bingham Township residents.
The County's Cable Advisory Committee has determined that cable-telecommunication service
should be made available to business, commercial and industrial areas of Orange County.
Therefore, it is recommended that Orange County provide for the operator to serve business,
commercial and industria areas.
The County's Cable Advisory Committee has determined that cable-telecommunication service
should be made available to areas within the County where the dwelling density is 10 homes
per cable mile or greater. [A cable is to be measured from the terminus of existing feeder
cable.] Therefore, it is recommended that Orange County provide for the operator to extend
service to these areas whenever the minimum density requirement has been satisfied.
RECOMMENDATION
Direct Alert Cable to extend service to business and industrial areas of the County as well as
areas where the dwelling density is 10 homes per cable mile or greater. A cable is to be
measured from the terminus of existing feeder cable.
Direct Alert Cable to extend service to Bingham Township.
Require Time Warner Incorporated to affirm that TWI, as the new management entity, shall be
bound by the terms and conditions in the present franchise agreement and the transfer
resolution.
Require Alert Cable to extend service to business, commercial and industrial areas within its
franchise territory.
Require Time Warner Incorporated and Alert Cable to affirm that the value placed upon the
intangible assets of Alert Cable shall not increase as a result of the transfer.
Require Time Warner Incorporated and Alert Cable to interconnect their systems with one
another.
Require Time Warner Incorporated and Alert Cable to upgrade, where necessary, the cable-
telecommunications distribution facilities so that comparable levels of service [including PEG
& LO channels] are available throughout the franchise territory.
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Subject to availability, request that Alert Cable agree to allow Orange County to lease or
purchase bandwidth at cost. The bandwidth shall be used to facilitate the transaction of public
business via the cable-telecommunications system.
PROCEEDING
The franchise authority should approve a transfer resolution, based upon a finding of fact,
regarding the approval or denial of the cable operator's FCC-394 transfer submittal. The
franchise authority should adopt the consultant's report and the public should be granted an
opportunity to comment; it is suggested that the public comment period coincide with a regular
public meeting.
A transfer resolution, conveying approval is attached. To be valid, the order must be executed
following the conclusion of:
a. a public meeting where the commission/board gives interested parties an
opportunity to comment; and,
b. adoption by the Board/Council/Commission of this report as its own [required
by FCC rules].
It is suggested that the public hearing be conducted as part of a regularly scheduled
Board/Council/Commission meeting. A special session is not required. It is customary to
provide a press release to the print and electronic media to advertise the public comment
period. Of course, the cable operator must be notified and present as well.
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RESOLUTION #
A RESOLUTION GRANTING THE CONSENT OF ORANGE COUNTY TO THE
TRANSFER OF CONTROL OF ALERT CABLE TV OF NORTH CAROLINA, I11C. AND
ITS CABLE TELEVISION SYSTEM FROM CAHLEVISION INDUSTRIES CORPORATION
TO TIME WARNER INC.
WHEREAS, Alert Cable TV of North Carolina, Inc. ("Alert") has
the right to install, construct, own, operate and maintain a cable
television system ("the System") within Orange County ("the
County") pursuant to a cable television franchise issued by the
County (the "Franchise") ; and
WHEREAS, Alert is currently controlled by Cablevision
Industries Corporation ("CIC") and CIC's principal shareholder, Mr.
Alan Gerry, an individual residing in Liberty, New York ("Principal
Shareholder") ; and
WHEREAS, Time Warner Inc. ("TWI") and CIC and the Principal
Shareholder have entered into an Agreement and Plan of Merger in
which a wholly owned subsidiary of TWI will merge with and into CIC
and, upon completion of the transaction, CIC will become a
subsidiary of TWI, and TWI will then control Alert and the System
(the "Transfer") ; all as set forth in the Agreement and the
Supplemental Agreement, each dated February 6, 1995= and
WHEREAS, TWI, CIC and Alert have jointly submitted to the
County an application on Federal Communications Commission Form 394
for consent to the Transfer and have submitted such other
information concerning the Transfer as required by the Franchise
and applicable law and as reasonably requested by the County
(collectively the "Transfer Application"); and
WHEREAS, the County has reviewed the Transfer Application, and
the report from its Cable TV Consultant and has examined the legal,
financial and technical qualifications of TWI and has determined
that it is in the best interest of its residents to approve the
Transfer Application and the Transfer; and
WHEREAS, as further consideration to the County to grant its
approval of the proposed Transfer, TWi and Alerts a) agree to be
bound by the Cable Television Franchise Ordinance and perform all
duties and obligations of the grantee thereunderf b) represent and
warrant that it is able to provide, and shall agree to provide to
the County and its subscribers all services required under said
franchise subject to changes or modifications as permitted under
the franchise and applicable law; c) acknowledge and agree that
they were, and shall be subject to the regulatory authority of the
County as not forth by the Federal Communication Commission= and d)
agree to cooperate fully with the County and to obtain from any
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governmental agency all licenses, permits and other authority
necessary for lawful operation and maintenance of the cable
television system; and
WHEREAS, as further consideration to the County to grant its
approval of the proposed transfer, TWI and Alert: a) agree, to the
extent that it is not already doing so, to provide service to all
schools and other public facilities without charge; and b) agree,
if requested by the County's, to provide interactive public
bandwidth for the County's use; and
WHEREAS, as further consideration to the County to grant its
approval of the proposed transfer, TWI and Alert: a) agree, to the
extent it is not already doing so, to provide service to
commercial, office, and industrial areas of the County in the same
manner and to the same extent that it provides service to
residential areas; and b) agree within 24 months to interconnect
with fiber optic cable the System with systems in adjoining
jurisdictions, as directed by the County, particularly other
systems already controlled by TWI and as soon as reasonably
possible to upgrade its System so that all adjoining systems
already controlled by TWI and the System in this County shall have
substantially the same level of service, including programming and
PEG access services; and
WHEREAS, as further consideration to the County to grant its
approval of the proposed Transfer, TWI and Alert agree that Alert
has recently filed, and the County has approved, a cost of service
rate increase utilizing form FCC 1220. Said filing was based in
part upon certain Intangible Assets, including Organizational and
Franchise Costs, Subscriber Lists, Capitalized Start-Up Losses, and
Other Intangibles. Alert and TWI agree that the value of said
intangible assets will not be increased as a result of this
Transfer and no increase in the value of intangible assets as a
result of this Transfer shall be the basis for a rate increase in
the future.
MEREAS, as further consideration to Orange County to grant
its approval to the proposed Transfer, TWI and Alert agree that
within 24 months TWI will interconnect and merge the system it
already controls in orange County with the System which is the
subject of this transfer and that the new merged system shall serve
all of Orange County including that area of Bingham Township in
Western Orange County along the Alamance County line where it is
currently not providing service and that service shall be provided
to all of Orange County where there is a residential density of ten
homes per mile or greater.
WHEREAS, the Franchise issued by the County to Alert is
currently set to expire on February 24, 1995. In order to
coordinate the Franchise renewal with franchise renewals in
adjoining jurisdictions, Alert and the County agree to extend the
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Franchise term to June 30 1998.
NOW, THEREFORE, BE IT RESOLVED by the Board of Commissioners
that Orange County hereby approves the transfer application and
consents to the transfer to TWI, as described in the transfer
application. Provided, however that the commitments made herein by
TWI and Alert shall only become effective if the transfer is
consummated.
BE IT FURTHER RESOLVED that this resolution shall become
effective and continue and remain in effect immediately upon its
passage, approval and adoption by the Board of Commissioners and
consent by TWI and Alert. In the event TWi and Alert do not
consent to this resolution prior to August 22, 1995, then the
County denies consent to the transfer.
BE IT FURTHER RESOLVED that this action be entered into the
Minutes of the Board of Commissioners and that the County Manager
is hereby authorized to notify TVI, CIC and Alert of this action in
writing by furnishing these companies with an executed copy of this
resolution.
ADOPTED this day of 1995.
ORANGE COUNTY
BY: ATTEST:
Chairman County Clerk
CONSENT%
ATTEST:
TIME WARNER, INC.
President Secretary
ATTEST:
ALERT CABLE TV OF NORTH
CAROLINA, INC.
BY:
President Secretary
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