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HomeMy WebLinkAbout17 AT&T MERGER 12-16-02AGENDA REPORT NO. 17 12-16-02 MEETING DATE: DECEMBER 16, 2002 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: PUBLIC WORKS DEPARTMENT SUBJECT: ADOPTION OF RESOLUTION NO. 02-120 OF THE CITY COUNCIL OF THE CITY OF TUSTIN, CALIFORNIA CONSENTING TO THE MERGER OF AT&T CORPORATION AND COMCAST. CORPORATION TO FORM AT&T COMCAST CORPORATION AS PARENT COMPANY OF THE CITY'S CABLE TELEVISION SYSTEM FRANCHISEE, MEDIAONE OF LOS ANGELES, INC. SUMMARY: On November 18, 2002, AT&T Corporation and Comcast Corporation merged into AT&T Comcast Corporation, which will be known simply as Comcast. AT&T was the parent company of MediaOne of Los Angeles, Inc., which is doing business in the City as AT&T Broadband, and is one of the City's cable television system franchisees. Tustin City Code § 7418(d) requires the prior approval of the City Council expressed by resolution prior to a change in control of the cable television system franchisee such as the one resulting from the AT&T-Comcast merger. However, in this case, neither the parent companies nor the franchisee has sought City Council approval prior to the merger. It is the franchisee's opinion, and the City disagrees, that the City has no authority to consent to this transaction. Staff is recommending that the City Council approve the transfer of the franchise subject to the franchisee's compliance with certain conditions. RECOMMENDATION: Adopt resolution # 02-120 of the City Council of the City of Tustin, California consenting to the AT&T-Comcast merger subject to compliance with the following conditions: The Franchisee shall submit to the City by December 31, 2002, adequate documentation certifying compliance of their physical plant with all applicable California Public Utilities Commission and Electrical Code requirements, · The Franchisee shall pay to the City the minimum sum of five thousand dollars to reimburse the City for physical plant inspection costs by January 6, 2003. The Franchisee shall submit documentation within sixty days demonstrating compliance with FCC Customer Services Standards for the fourth quarter of 2002. S:\City Council Items\02 City Council Items~pproval of Resolution consenting to AT&T-Comcast merger. DOC FISCAL IMPACT: None. BACKGROUND: Tustin City Code § 7418(d) requires that the City Council, by resolution, approve an actual change in control or acquisition of more than 50% of the voting stock of a Cable Television System Franchisee. On March 4, 2002, AT&T Corporation, the parent company of the City's Cable Television System Franchisee, MediaOne of Los Angeles, Inc., doing business as AT&T Broadband, notified the City that it would merge with Comcast Corporation to form a new parent company named AT&T Comcast Corporation. The new corporation may be known simply as "Comcast." AT&T indicated in its notice that, "Our records indicate that our franchise with your community is one where consent is not required for this transaction." On June 4, 2002, the City Manager notified MediaOne representatives that the Tustin City Code required the consent of the City Council prior to the merger, and directed MediaOne to initiate the consent process. MediaOne representatives acknowledged the City Manager's notice by letter dated June 21, 2002 and disagreed with the Code's consent requirement. On July 12, 2002, the City Manager again wrote to MediaOne representatives and notified them that the franchisee will be in violation of the franchise agreement and the Tustin City Code should AT&T Corporation merge with Comcast Corporation without the City's consent, and once again directed the franchisee to initiate the consent process. MediaOne, AT&T, and Comcast failed to seek City Council consent for the merger and announced the completion of the merger on November 18, 2002. Tustin City Code § 7418(d) provides that any acquisition occurring without prior approval of the City Council in violation of that section shall constitute a failure to comply with a provision of Chapter 4, Title 7 of the Tustin City Code. Furthermore, recent data provided by MediaOne indicates that in the third quarter of 2002, it is not meeting FCC customer service standards adopted by the City. A prior audit of MediaOne's physical plant also indicates that MediaOne installations are not in compliance with local and state electrical code standards. In view of the recent system upgrade by MediaOne, such code violations indicated poor workmanship by untrained or unsupervised personnel, and a failure to commit sufficient resources or personnel. Media One has commenced an inspection and correction program without the approval of a correction plan by City staff. Therefore, staff has been delayed in its efforts to inspect the corrections. S:\City Council Items\02 City Council Items~Approval of Resolution consenting to AT&T-Comcast merger. DOC At the December 2, 2002 City Council Meeting, Comcast submitted detailed information regarding the financial, legal and technical qualifications of Comcast to control the franchise. Staff has reviewed the documents and is satisfied with the evidence provided therein. LEGAL: In the last staff report City staff set forth the grounds for the City's legal ability to require consent to the AT&T-Comcast Merger. This is based on Section 7418(d) of the Tustin City Code. AT&T-Comcast's allegation that the City's consent is not required is without merit. AT&T/Comcast Corporation ("AT&T/Comcast") says the Franchise Agreement "trumps" the City's Code. It points to Section 27 of the Franchise Agreement, which provides that the express terms of the franchise shall prevail over the conflictinq or inconsistent provisions of Article 7, Chapter 4 of the TCC. However, the Franchise Agreement is silent as to the consent requirements for "change of control" for parent level mergers. AT&T/Comcast concludes that the absence of the "change of control" language from the Franchise Agreement reflects the intention of the parties that prior consent is not required for parent level mergers. But nowhere in the Franchise Agreement does it state that the parties intended not to require City consent for parent level mergers as provided Section 7418(d) of the City's Code for an actual "change in control" of the franchisee. Significantly, AT&T-Comcast ignores Section 1 of the Franchise Agreement, which provides that the terms of the Franchise Agreement are subject to all of the provisions, terms and conditions of Article 7, Chapter 4 of the Tustin City Code which includes Section 7418(d). California, Civil Code § 1639 provides that when a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible. Although Section 27 of the Franchise Agreement provides that its express terms shall prevail over conflictinq or inconsistent provisions of Article 7, Chapter 4 of the TCC, the absence of "change of control" language does not create a conflicting or inconsistent provision between the Franchise Agreement and Section 7418(d) of the TCC. Therefore, a court would have to read a non-consent provision into the Franchise Agreement to support Comcast's position. On the other hand, the City's Code and Franchise Agreement expressly supports the City's position because Section 1 of the Franchise Agreement incorporates by reference the City's Code provisions regulating cable television. For all the foregoing reasons, it is the City Attorney's opinion that the City's position is legally correct and that the Franchise Agreement does not "trump" the City Code which requires consent to the change of control of Media One. S:\City Council Items\02 City Council Items~pproval of Resolution consenting to AT&T-Comcast merger. DOC CONCLUSION: Despite the aforementioned issues, Staff has grounds to believe, based on information recently submitted by Comcast, that Comcast will be able to comply with City Code and franchise requirements. Therefore, it is recommended that the City Council adoPt the attached resolution consenting to the AT&T-Comcast merger contingent upon the submission of funds for system inspections, the completion of system inspections and corrections and evidence of 2002 fourth quarter compliance with FCC customer service standards. Public Works Director ATTACHMENT: Resolution No. 02-120 Administrative Services Manager Public Works Department S:\City Council Items\02 City Council ItemstApproval of Resolution consenting to AT&T-Comcast merger. DOC 12/13/02 17:01 FAX 912159818408 COMCAST ~002 ( mcaSt Comcast Cable Communlca~n$, inc. 1500 Market S~'eet Philadelphia, PA 19~ D2-2148 215.655.1700 Tel ~. William Huston ~ity Manager 2ity of Tustin 300 Centennial Way 'rusfin, CA 92680 Re: AT&T Broadband Dear Mr. Huston: Thank you for taking the time to speak with me last evening regarding the City of Tustin's relationship with AT&T Broadband, and the issues pending before the City Council. As you know, AT&T Broadband and Comcast Corporation completed their merger in November. The company will now be working in all of the former AT&T Broadband communities to complete rebuilds, improve upon customer service and deploy products and services of value to subscribers. I appreciate your willingness to assist us in moving forward with a more productive and mutually beneficial relationship in Tustin, and wish to express my agreement with the terms expressed in your email of December 12. Specifically, 1. We have arranged for Deborah Piccolo, Comeast's Senior Vice President for Los Angeles region, to attend the December 16 meeting of the City Council. Debbie will be able to address questions from the Council, and will express our intention to complete renewal negotiations in a timely manner. I apologize for not being able to attend as well, however, as the senior executive responsible for that region, Debbie will certainly be able to present on behalf of the companY. 2. We are near completion of our audit of the physical plant, and will be able to provide the demonstration you have requested by December 31, 2002. Please note that there may be a small number of sites to which we could not obtain access during this audit. We intend to verify compliance at those sites as soon as practicable in the new year. 3. We agree to make payment by January 6, 2003 of $5000 to cover the City's costs of inspecting the physical plant over the last several months. 4. We will submit documentation demonstrating compliance with FCC customer service standards in the 4'~ quarter of 2002 by Maxch 1, 2003. DEC-13-2002 14:20 91215981@40B 97X P.02 12/13/02 17:02 FAX 912159818408 COMCAST ~003 I ly lllld©rstandin$ is that you will recommend that the City consent to the merge. As I ou know, the parties differ as to whether the City has ii right t0 consent. Without : ddressing thc mcrits of that debate, let me express our appreciation in advance for your · ~commendation. Most important, I assure you that the language of the ncw franchise ,~ill address the City's concerns in this regard. L'hank you again for your time and consideration. Sincerely, Sheila Willard Senior Vice President of Government Affairs DEC-13-2003 14:29 91215981@408 97~ P.03 RESOLUTION NO. 02-120 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN, CALIFORNIA, CONSENTING TO THE MERGER OF AT&T CORPORATION AND COMCAST CORPORATION TO FORM AT&T COMCAST CORPORATION AS PARENT COMPANY OF THE CITY'S CABLE TELEVISION SYSTEM FRANCHISEE, MEDIAONE OF LOS ANGELES, INC. WHEREAS, Tustin City Code § 7418(d) requires prior approval of the City Council expressed by resolution, where there is an actual change in control or where ownership of more than 50% of the voting stock of a Cable Television System Franchisee is acquired by a person or group of persons acting in concert, none of whom already own 50% or more of the voting stock, singly or collectively; and WHEREAS, AT&T Corporation, the parent company of the City's Cable Television System Franchisee, MediaOne of Los Angeles, Inc., doing business as AT&T Broadband, has announced on November 18, 2002 the completion of a merger with Comcast Corporation and formation of a new parent company named AT&T Comcast Corporation (or "Comcast Corporation"); and WHEREAS, the City Manager has notified the Franchisee that the Tustin City Code requires the consent of the City Council prior to the merger, and directed the Franchisee to initiate the consent process on June 4, 2002; and WHEREAS, the Franchisee acknowledged the City Manager's June 4, 2002 notice and stated its disagreement with the Tustin City Code consent requirement on June 21,2002; and WHEREAS, the City Manager notified the Franchisee on July 12, 2002 that it will be in violation of the franchise agreement and the Tustin City Code should AT&T Corporation merge with Comcast Corporation without the City's consent, and once again directed the Franchisee to initiate the consent process; and WHEREAS, the Franchisee, AT&T Corporation, and Comcast Corporation still have not acknowledged that the Tustin City Code requires City Council consent prior to their merger; and S:\City Council Items\02 City Council Items~pproval of Resolution consenting to AT&T-Comcast merger. DOC WHEREAS, a recent audit of the Franchisee's customer service standards indicates that the Franchisee is not meeting various customer service standards adopted by the City and the Federal Communications Commission (FCC); and WHEREAS, a recent audit of Franchisee's physical plant indicates that the Franchisee is not meeting local and state electrical code standards; and WHEREAS, AT&T-Comcast Corporation submitted evidence to the City Council of its legal, financial, and technical ability to control the franchisee; and WHEREAS, the City Council is committed to protecting the public safety and welfare of the City's residents. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF TUSTIN, CALIFORNIA, finds, determines and orders as follows: SECTION 1. Pursuant to Tustin City Code §§ 7418(d) and based on the foregoing facts and findings all of which are incorporated in this Section I by this reference, the City Council consents to the merger between AT&T Corporation and Comcast Corporation as parent of the franchisee, conditioned upon the following: A. The Franchisee shall submit to the City by Decemeber 31, 2002, adequate documentation certifying compliance of their physical plant with all applicable California Public Utilities Commission and Electrical Code requirements. B. Pursuant to the AT&T offer letter dated October 29, 2002 and submitted to the City by the Franchisee, The Franchisee shall pay to the City the minimum Sum of Five Thousand Dollars to reimburse the City for physical plant inspection costs by January 6, 2003. C. The Franchisee shall submit documentation within sixty days demonstrating compliance with FCC Customer Services Standards for the fourth quarter of 2002. S:\City Council Items\02 City Council Items~Approval of Resolution consenting to AT&T-Comcast merger. DOC PASSED AND ADOPTED at a regular meeting of the City Council of the City of Tustin on the~ day of December, 2002. MAYOR ATTEST: CITY CLERK STATE OF CALIFORNIA ) COUNTY OF ORANGE ) CITY OF TUSTIN ) RESOLUTION NO. 02-120, City Clerk and ex-officio Clerk of the City Council of the City of Tustin, California, does hereby certify that the whole number of the members of the City Council of the City of Tustin is five; that the above and foregoing Resolution was passed and adopted at a regular meeting of the City Council held on the 16th day of December, 2002, by the following vote: COUNCILMEMBER AYES: COUNCILMEMBER NOES: COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: City Clerk S:\City Council Items\02 City Council ItemsWpproval of Resolution consenting to AT&T-Comcast merger. DOC