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HomeMy WebLinkAbout17 SBC-AT&T LIGHTSPEED PROJECT & LEGISLATION 06-19-06AGENDA REPORT MEETING DATE: JUNE 19,2006 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: CITY ATTORNEY SUBJECT: INFORMATION PERTAINING TO SBC-AT&T PROJECT L1GHTSPEED AND UPDATE ON PROPOSED LEGISLATION THAT WOULD PREEMPT THE CITY'S REGULATORY AUTHORITY SUMMARY: AT&T has launched a project in the City to upgrade its communications facilities to provide video services. The City Code requires providers of video services to obtain a franchise, pay a franchise fee, and comply with other regulations. AT&T claims that its video service is a telecommunications service that is not subject to regulation by the City under its cable franchising regulations. Instead of a franchise agreement, AT&T initially indicated a willingness to enter into a "Video Services" agreement with the City. However, the terms AT&T proposes contradict the City's policies. On the other hand, legislation moving forward in the State Legislature and U.S. Congress may preempt significant portions of the City's regulatory authority. We believe AT&T anticipates that this legislation will ultimately be enacted and that AT&T is no longer interested in pursuing either a franchise agreement or a video services with the City. RECOMMENDATION: Provide staff and the City Attorney's Office such direction as the Council deems appropriate. FISCAL IMPACT: In the proposed agreement and impending State or Federal legislation, AT&T would be responsible for paying 5% of gross video service revenues to the City. The proposed legislation would limit the types of revenues to AT&T that would be subject to the 5% fee. The City currently collects approximately $500,000 per year in cable television franchise fees from Cox Communications and Time Warner based on a 5% franchise fee on the cable companies' gross cable services receipts. Page 2 BACKGROUND: SBC, now merged with AT&T and using the AT&T brand, has launched a project in the City to upgrade its communications facilities to provide video services. The City Code requires providers of video services to obtain a franchise, pay a franchise fee, and comply with other regulations pertaining to customer service standards, support for governmental programming, and the extension of facilities throughout all residential areas (anti-red lining or anti-cherry picking). AT&T claims that its video service, which will be delivered on demand through the Internet networking protocol, or "IP," which it calls an "IP-enabled Video Service," is a telecommunications service that is not subject to regulation by the City under its cable franchising regulations. DISCUSSION: AT&T's proposed video service meets the definition of a "cable television system" under the City's Cable Television Systems Ordinance. Furthermore, current Federal regulations support the City's requirement for AT&T to obtain a franchise. Project Lightspeed is a cable service and a cable television system. The Federal Cable Act, 47 USC S 522(6), defines "cable service" as follows: (6) the term "cable service" means-- (A) the one-way transmission to subscribers of (i) video programming, or (ii) other programming service, and (B) subscriber interaction, if any, which is required for the selection or use of such video programming or other programming service; The City's Cable Television Systems Ordinance, Section 7410 of the Tustin City Code defines "Cable Television System" as follows: "'Cable television system, CATC and CTV' are terms describing a system employing antennae, micro-wave, wires, wave-guides, coaxial cables, or other conductors, equipment or facilities, designed, constructed or used for the purpose of: 1. collecting and amplifying local and distant broadcast television or radio signals and distributing and transmitting them; Page 3 2. transmitting original cablecast programming not received through television broadcast signals; 3. transmitting television pictures, film and video-tape programs, not received through broadcast television signals, whether or not encoded or processed to permit reception by only selected receivers; 4. transmitting and receiving all other signals: digital, voice and audio-visual, provided, however, that any of the services, permitted hereunder to be performed, as described above, shall be those performed by the Grantee for subscribers, as herein defined, in the operation of a cable television or CATV system franchised by the City and not otherwise." The information available to the City pertaining to AT&T's IP-enabled Video Service indicates that subscribers would rent or purchase an access box or receiver (similar to a cable box, high-definition tuner, Tivo, or satellite receiver) through which the subscriber selects programming. After the subscriber selects the programming through the receiver, the program is then sent from a video server to the receiver. It is apparent that the service is very similar to "on-demand" services currently offered by Cox and Comcast in the City, and meets the foregoing definitions of "cable service" and "cable television system." Federal Law requires AT&T to obtain a franchise before it provides video services in the City. Under Federal Law, 47 USC 9 571, telephone companies may provide video services in one of four ways: a. Through radio communications. b. As common carriers. c. Through Cable System. d. Through Open Video System. In addition, 47 USC 9 571 (a)(3), and 9 541(b)(1) pertaining to cable services and video services by telephone companies under c and d above require AT&T to obtain a franchise before it provides video services in the City. The City requires that franchise agreements be implemented by means of a City ordinance. In an attempt to overcome AT&T's objections to a franchise, the City and AT&T have attempted to negotiate a Video Services agreement to address the City's policies. However, the parties have not come to terms on provisions applicable to cable services, such as franchise fees, anti-redlining regulations, and support for Governmental and Educational programming access. Page 4 Cox CATV Franchise has a Most Favorable Conditions provision. A complicating factor in this matter is the City's franchise agreement with Cox Communications. Ordinance No. 1228, Section 19, provides that in the event that the City grants another franchise for cable television service, which contains material terms or conditions more favorable or less burdensome than those contained in the Cox franchise, then Cox has the right to have its franchise equitably revised. While the City may avoid this provision by not granting AT&T a "CATV franchise," an argument still exists that under current regulations the City should require AT&T to enter into a "CATV franchise" under the same conditions as those imposed upon the cable companies. Lobbvinq to Preempt Local Requlation of Video Services bv Telephone Companies Verizon, which is the other major incumbent telephone company in California, has obtained cable franchises from various California communities to provide its version of IP-enabled on-demand video services. However, it has also joined forces with AT&T before Congress, the Federal Communications Commission, and the California legislature to seek new regulations that would preempt local regulation over video services. AB 2987 As the Council knows, in February 2006, Assembly Member Nunez introduced AB 2987, which would grant telephone companies and eventually cable companies a statewide franchise issued by the Department of Corporations, and which would preempt local regulation of video and cable services. On May 31, 2006, the State Assembly passed the bill 70-0 with 3 abstentions, giving AT&T a strong victory over local government. The bill is now being considered by the State Senate. Although AB 2987 would preserve to the City some authority over the use of the right- of-way by video services providers, and it would preserve the payment of a 5% gross receipt fee for use of the right of way, we are concerned that the definition of "gross receipts" is narrower than the definitions contained in the City's current cable franchises and City Code. Also, the Bill changes the support for Public, Governmental and Educational programming. The Bill would require video services providers to pay a 1 % gross receipt fee for this support, but would require the City to ensure that the programming is in the form compatible with the system of the video services provider (currently, cable companies are required to ensure that the City's programming is able to be transmitted in their system, and they provide the equipment necessary to accomplish this task). Additionally, the Bill would in effect allow new entrants into the video service business to redline or cherry pick the areas in the City they would serve. H.R.5252 Staff previously reported to you the introduction of H.R. 5252 in the U.S. Congress. On March 27, 2006, House Commerce Committee Chairman Joe Barton (R-TX) released a Page 5 revised version of H.R. 5252, "The Communications, Promotion, and Enhancement Act of 2006," also referred to as the "COPE" Bill or the "Barton" bill. Again, this bill would, in part, . Provide a national franchise system for video services providers; . Preserve the City's right to collect up to a 5% gross receipt fee from video services providers; . Require video services providers to provide the same channel capacity on their systems as the existing cable operator for public access, educational and governmental channels (PEG); . Provide for a 1% gross receipt fee for support of PEG and institutional networks; and . Allow cities to develop their own broadband networks. We have not fully reviewed all provisions of H.R. 5252 as they would affect the City's existing franchising authority, but the definitions of "gross receipts" is more in line with existing law. One area that would need clarification involves the allocation of revenue and discounts for bundled services that may not be subject to the fee (Le., the fee is applicable to video services, which telephone and cable companies may bundle at discounted rates with telephone or Internet services). Additionally, the support for PEG has changed, but not as dramatically as proposed by AS 2987 in the State. Finally, the bill is silent as to build-out requirements preventing redlining or cherry-picking. On June 8, the House passed this bill 321-101 with 11 abstentions, which signals support for the telephone companies over local regulation of the rights-of-way by video services providers. 5.2686 On May 1, 2006, the U.S. Senate Commerce Committee released S. 2686, which would maintain the basic framework of existing Cable Act regulations, including the authority of cities to require the payment of franchise fees, PEG support, and anti-red lining or anti- cherry picking. The major changes affecting cities attempt to streamline the franchising process. For example, the bill would: . Set a shot clock of 30 days by which franchise applications must be processed. In addition, the FCC is charged with promulgating a national franchise application form. . Franchise agreements would be no shorter than five years and no longer than 15 years. . The new streamlined provisions would apply to an incumbent cable provider when (whichever is earlier): (1) The cable operator's current franchise agreement expires; or (2) A phone company is granted a franchise in the same franchise area as the cable operator. Page 6 . Require new entrants to offer the same number of PEG channels as are currently being offered by the incumbent cable operator. In addition, local authorities may add channels over time. . Preserve existing I-Nets and require all video service providers to contribute to the support of PEG channels and I-Nets up to 1 percent of the gross revenues. . Redlining and consumer protection and service requirements would be set nationally and monitored by local franchising authorities (i.e., the City). A state commission would adjudicate disputes arising out of discrimination complaints. The bill would also provide remedies against discrimination, such as to require the video service provider to provide service, to assess penalties, and even revoke the franchise. . authorize cities to provide municipal broadband services. Other than the streamlined review process for issuing franchise agreements, this bill would change existing cable franchising regulations the least, and would require only minor changes in the City's existing Cable Television Franchise Ordinance. This bill is still being reviewed in committee. Aqreement Talks Are Stalled AT&T initially proposed an agreement similar to the one it executed with the City of Anaheim. In that agreement, Anaheim waived all regulatory authority over AT&T's IP Video service, except for right-of-way management under its encroachment permit regulations. In return, AT&T committed to "work with Anaheim to ... provide continuous access to City Channel 3 (PEG channel), and develop the technology necessary to convert existing City Channel 3 video stream to work within AT&T's IP video protocol." Unfortunately, the proposed Anaheim agreement fails to address Tustin's video service policy pertaining to franchise fees for private use of the public rights-of-way, governmental and educational access to the video provider's facilities, and cherry- picking (or anti-redlining), among other requirements identified in the City's Cable Television System Ordinance. City staff and this Office attempted to compromise by proposing an agreement that would be called a "video services agreement," and which would address the various policies outlined in the City's Cable Television System Ordinance. However, AT&T would not agree to the following terms, which we have proposed: . Require AT&T to provide compensation to the City in an amount of 5% of the gross revenues collected by AT&T for its IP Video service product. The "product" would be defined by mutual agreement of the parties prior to AT&T's marketing and offering the "product" to subscribers in the City. . Require AT&T to carry the City's noncommercial public, educational and governmental programming (PEG), which include the carriage of televised Council meetings. AT&T and the City would coordinate to develop the Page 7 technology necessary to convert the City's programming to work within AT&T's video protocol. The City would be responsible for programming content, but AT&T would have to provide and maintain the equipment necessary to enable the delivery of the programming. Furthermore, the costs of equipment would not be included as part of the 5% gross receipt compensation identified in the first bullet above. . Prohibit AT&T from discriminating between or among any individuals and require AT&T to provide its IP Video service to all residential areas of the City and make its service available to all businesses in the City within 12 months of the effective date of the agreement. . Comply with the customer service standards adopted by the FCC, the State of California, and any additional standards mutually agreed upon between the City and AT&T. . Require AT&T to indemnify the city for any claims, injuries or damages arising out of performance of the agreement. A T& T has instead proposed amendments to the foregoing terms as follows: .As to compensation, AT&T's revisions would provide that the compensation will be based on 5% of the gross revenues collected for the "product" that would be solely defined by AT&T. . As to PEG support, AT&T would require the City to make the City's programming compatible with AT&T's system, at the sole expense of the City. . As to service area, AT&T will not commit to extending its IP Video to all residential and commercial areas of the City. Instead, AT&T wants to mask its discriminatory intentions by stating that it will offer video services through technology of its choosing, including direct to the home satellite services. This is a mask because AT&T has partnered with Dish Network to bundle phone services with satellite television service provided by Dish Network. However, this bundling only means that the customer will pay for phone and television service in one bill, and get the services from two different companies. These services are already available and are not the equivalent of AT&T's new IP Video service, which carries the added benefit of high speed networking and Internet access. . AT&T will commit to comply only with California customer service standards and would preclude the City from seeking to enforce any additional or different standards. . AT&T would limit its indemnification of the City to those claims, injuries and damages arising our of AT&T's physical use of the right-of-way. Page 8 We have told AT&T that we are not in the position to recommend that the Council agree to the terms they have proposed because in our opinion these terms are inconsistent with the City's current policies as evidenced in the City's Cable Television System Ordinance. AT&T has not replied to our last communication and we sense that they are no longer interested in negotiating with the City after the State's Assembly voted overwhelmingly in support of AB 2987, which would make any negotiation and agreement moot. Furthermore, Federal legislation favorable to AT&T is advancing in Congress. At this time, it appears the only practical option left for the City is to work with its State and Federal representatives to address the City's concerns respecting the proposed legislation that would preempt the City's authority to regulate the use of its rights-of-way by private or investor-owned video service companies. Respectfully Submitted, OMAR SANDOVAL ASSISTANT CITY ATTORNEY cc: William A. Huston, City Manager Tim D. Serlet, Public Works Director Elizabeth A. Binsack, Director of Community Development Joe Meyers, Administrative Services Manager Douglas C. Holland, City Attorney