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Home My WebLink About2005-07-25 05-256 RESOLVEItem No 05_256 Date: 07-25-05 item/subject Resolve, Approving an Assignment of the Cable Televidon Franchise from Adelphla Communications Corporation to Time Warner NY Cable, LLC Responsible Department: Legal Adelphia currently operates the cable television franchise in Bangor. As part of its banlwptcy procceding, Adelphia will be transferring its franchise to Time Warner NY, an indirect subsidiary of Time Warner Cable, Inc. Section 9.1 of the cable communications regulatory ordinance requires the any transfer of control of the franchise be approved by the City. Time Warner has requested approval of the transfer and has submitted the required FCC 3% form (Application for Franchise Authority Consent to Assignment or Transfer of Control of Cable Television Franddse.) The purpose of this Resolve is to consent to the assignment of the franchise from Adelphia to TWNY. The transfer does not, however, reopen the existing agreement to renegotiation- TWNY wig continue to be bound by the franchise agreement until it expires in 2012. The Finance Committee recommended approval at its July 18, 2005, meeting. Department Head Manager's CRmmenb: s dry Manager AssodaW Information: Ul,!rcrd Budget Approval: n Finance Director Legal Approval: Cry Soli itor Introduced for V passage First Reading page _ of _ _ Referral 05-256% "gigned to q ilor Heves July 25, 2005 CITY OF BANGOR A' (TITLE.) Resolve, Approving an Assignment of the Cable Television Franchise from Adelphia Communications Corporation to Time Warner NY Cable, LLC. WHEREAS, the City of Bangor, Maine (the "Franchise Authority") has granted a cable television franchise to Adelphia Communication Corporation (the "Franchisee") as the result of a transfer from FromierVision Operating Partners dated July 26, 1999, CR 99-267; WHEREAS, the Franchisee is the debtor-in-possession in its bankruptcy proceeding; and WHEREAS, the Franchisee and Time Warner NY Cable LLC ("TWNY") have entered into an agreement whereby the cable system serving Bangor operated by the Franchisee will be acquired by TWNY (the "Trensamion'; and WHEREAS, upon closing of the Transaction, TWNY expressly agrees to assume the obligations under the Franchise; and WHEREAS, the Franchisee and TWNY have fled a FCC Form 394 providing details regarding the Transaction and establishing the qualifications of TWNY; and WHEREAS, the Franchise Authority wishes to gram its approval for the Transaction as described above. NOW, THEREFORE, BE IT RESOLVED BY THE CITY OF BANGOR THAT: Section 1: The Franchise Authority hereby approves the Transaction. Section 2: Upon the closing of the Transaction, TWNY shall assume the obligations under the Franchise. Section 3: This Resolution shall become effective ten (10) days after Passage by the Franchising Authority. PASSED, ADOPTED AND APPROVED this day of 2005. t (T M&)Apyrov m Assieoueat of the Cable R1eYltl Pfmchise Prou Adelphia Ca Icatfoos CoeooraHw to Tim Mercer " Ceble, b beigoW bCoundlox "-"� 05-256 Memorandum To: Finance Committee Date: 18Ju1y2005 From: John Hamel, Assistant City Soucitar - Rw Transfer of Cable Franchise form Adelphia to Time Flamer Adelphia Communications Corporation currently operates the cable television franchise in Bangor pursuant to a franchise agreement dated October 7, 1997.1 As you may recall, on June 25, 2002, Adelphia filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code in the Southern District of New York. On April 21, 2005, Adelphia reached agreements for Time Warner Inc. and Comcast Corporation to acquire substantially all of its U.S. assets. In this region, Time Warner W (a subsidiary of Time Warner Cable, Inc.) will be taking over Adelphia's cable operations. Cable Television Ordinance Remtirements Section 9 of the City's Cable Television Ordinarrce requires that any transfer of control of the cable franchise be approved by the City. Since this transfer is being effectuated under the auspices of the federal bankruptcy court, it is likely that the City is preempted from objecting to the transfer. Nevertheless, Time Warner has requested that the City issue a Resolve approving the transfer of the franchise from Adelphia to Time Warner. The Ordinance requires an application for transfer to contain information on the legal, financial, and techncal qualifications of the transferee. Accordingly, Time Warner has submitted FCC Form 394 (Application for Franchise Authority Consent to Assignment or Transfer of Control of Cable Television Franchise) to all local franchise authorities that will be impacted, including Bangor. Appended to FCC Form 394 are Forms 10-K (for the year ending December 31, 2004) and 10-Q (for the fist quarter of 2005), containing consolidated historical balance sheets and results of operations and sources and uses of funds statements. While the City cannot unreasonably withhold consent to a transfer request, it may properly consider: (1) the transferee's legal, financial, and technical qualifications; (2) whether the current cable operator (Adelphia) is in noncompliance with the ordinance and/or franchise agreement; (3) whether the transferee owns any other cable system in the City (or whether the transfer will otherwise reduce or eliminate I The original franchise agreement was with FronderVisicn. FronfierUsion, with the City's approval, assigned the franchise to Adelphia in July 1999. Ib 05-256 cable competition within the City); and (4) whether the transfer will adversely affect subscribers. 1 Transferee's Qualifications Time Warner classifies its operations into five reportable segments: AOL, Cable, Filmed Entertainments, Networks and Publishing. Among Time Warner's brands are HBO, CNN, AOL, People, Sports Illustrated, Time and Time Warner Cable. Time Warner Cable (and its subsidiaries) is the second largest operator of cable systems in the U.S. in [eons of subscribers served. As of December 31, 2004, it managed cable systems serving nearly 10.9 million basic cable subscribers (of which approximately 9.3 million were in cable systems owned by consolidated entities, as will be the case in Bangor) in 29 states. During the three months ending March 31, 2005, the Time Warner generated revenues of $10.483 billion (up 3% from $10.185 billion in 2004), Operating Income before Depreciation and Amortization of $2.581 billion (up 7% from $2.405 billion in 2004), Operating Income of $1.779 billion (up 10% from $1.616 billion in 2004), Net Income of $963 million (flat from $961 million in 2004(, Cash Provided by Operations of $1.854 billion (up slightly from $1.819 billion in 2004) and Flee Cash Flow of $1.173 billion (up 9% from $1.073 billion in 2004). 2. Adelphia Compliance with Ordinance and Franchise Ameement Adelphia is currently m compliance with the franchise agreement and Cable Television Ordinance. 3. Other Cable Systems Time Warner does not aura any other cable systems in the City and its acquisition of the franchise will not otherwise reduce or eliminate cable competition within the City. 4. Other Adverse Effects Staff does not anticipate any other adverse effects from the transfer. The level of service proposed appears to be equivalent to the existing level of service. Time Warner Cable's video subscribers are typically charged monthly subscription fees based on the level of service selected and, in some cases, equipment usage fees. Movies on demand, pay-per-view, movies and special events are charged on a per use basis. Time Warner Cable offers subscribers different packages of video services, including basic, standard and digital packages, for a flat monthly fee. Basic and standard service together provide, on average, approximately 80 channels, including local broadcast signals. Subscribers to digital video service receive all the channels included in the basic and standard tiers plus up to 60 s The Company has produced and divxibuted Edna including The Lord of the Rings trilogy, the Harry Potter series, Million Bullar Baby and The Polar Express and television programs including ER, Two and a Half Men and The West Wag. , `) additional digital cable networks and up to 45 CDy slity audio music services. Digital subscribers also have access to ""mini Hers" of specialized and ruche programming (e.g., sports tiers, Spanish language Hers). Regardless of service level, subscribers may purchase premium channels for an additional monthly fee. Review of Purchase Price The Ordinance reserves the right to the City to review the purchase price to the extent permissible by law and, if the price is unreasonable, can consider this fact in a subsequent request for a rate increase. Time Warner's total purchase price of all of Adelphia's assets is approximately $9.15 billion plus 160A of Time Wamer Cable's common equity (worth approximately $3.5 billion). The amount attributed to acquisition of the City's franchise cannot be ascertained. Nevertheless, the reasonableness of the purchase price can be presumed because the transfer must be approved by the bankruptcy court- which it will not do if the price is unreasonable. Existing Franchise Agreement Unchanged Transferees are required to abide and accept all terms of the ordinance and transfer agreement. The transfer does not, however, reopen the existing franchise agreement to renegotiation. The franchise agreement is a contract that cannot be reopened without consent from both parties. The current franchise agreement expires in 2012. Conclusion It appears that Time Warner is qualified to operate Bangor's cable television system, both from financial and technical viewpoints, and there are no other reasons upon which to base a denial of the transfer request. Accordingly, staff recommends that this Committee recommend passage to the City Council. JKH cc: Bangor City Council Edward A. Barnett, City Manager Deborah A. Cyr, Finance Director 05-256