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HomeMy WebLinkAbout07/13/2009 • • Telecommunications Advisory Committee City of Apple Valley July 13, 2009 7:00 P.M. Municipal Center Minutes 1. Call to Order Chair Westbrook called the meeting to order at 7:00 p.m. Members Present: Rollin Bible, Jerry Brown, Scott Hugstad-Vaa, John Magnusson, Dale Rodell, David Westbrook Members Absent: Others Present: Charles Grawe, Mark Moore 2. Consider Proposed Transfer of the Cable Television Franchise Mr. Westbrook provided a brief introduction to the issue, explaining that in recent months, Charter Communications petitioned the courts to help it restructure financially. The restructuring would reduce Charter's level of debt by giving the debt holders part ownership of the company. With the debt load decreased, Charter anticipates being able to emerge from the restructuring a stronger company and able to competitively provide its services in to the future. Under Minnesota law, a significant change in ownership such as the proposed restructuring requires consent from the local franchising authorities. The City's cable television attorney (Bradley & Guzzetta) provided a report to the City regarding its options with the transfer of the franchise to the new ownership group. The options for the City would be to approve the transfer without conditions; approve the transfer with conditions; or to deny approval of the transfer and risk legal action against the City. As the attorney concluded that the City does not have a reasonable basis to deny, the attorney recommended approval with conditions. Mr. Hugstad-Vaa asked what would happen if Charter was sold again to a new ownership group. Mr. Grawe said the terms of the current franchise would remain in full force and effect. Mr. Moore said if the company was sold again, another franchise transfer proceeding would be required. Mr. Brown asked if Charter appears to be financially healthy after the restructuring. Mr. Moore responded that from articles in the trade publications that he had read as well as the docuxnents that Charter has submitted to the City to date, it would appear that Charter will emerge financially stronger. The level of debt service reduction is quite substantial. He noted, however, that the general state of the overall economy is always a variable that is difficult to project. � , The group discussed possible options for the conditions. While the group agreed that residents may have concerns about the rates for various levels of service or the channel offerings, the City does not have regulatory authority over rates or the channel offerings. Mr. Moore noted that Charter's financial condition has probably prevented it from rolling out higher levels of service in the recent past and hopefully the ability to roll out more offerings will improve with a financial reorganization. MOTION: Mr. Bible moved, second by Mr. Rodell, to recommend the City Council approve the transfer of the franchise under the conditions outlined by the attorney in his report to the City. Motion passed 6— 0. Mr. Westbrook provided a brief introduction to the issue of settling a previous franchise audit review as part of the franchise transfer. In 2004 and 2005, the City of Apple Valley participated jointly with the Cities of Fannington, Lakeville, and Rosemount to have an auditing firm perform an audit review of the fees paid to the Cities by Charter Communications between January l, 2001 and December 31, 2003. The audit review revealed several areas of potential underpayments, subject to interpretation of the ordinance. Two of these potential areas were relatively minor and relatively clear in the franchise terms--$1,745.01 due to a deduction of bad debt expense, $457.36 in interest for a late franchise fee payment, and $1,600.00 penalty for a late franchise fee payment. Two other potential areas were less clearly defined, more subject to interpretation, and debated by Charter--$27,731.91 for unapplied launch fee revenue in the definition of "gross revenues" and $12,759.48 for fees on Internet modem service which was subsequently determined by the Federal Communications Commission (FCC) not to be eligible in the gross revenue calculation. At the time, Charter offered a settlement of $5,000.00. The City of Lakeville accepted the settlement. A similar settlement for a lesser amount was offered to the Cities of Rosemount and Farmington and Rosemount rejected it. . The issue was discussed by the Apple Valley Telecommunications Advisory Committee. The intent of the audit review was to ensure that there was legal compliance with the franchise and to make the cable company aware that future auditing was possible. The audit review revealed what could be characterized as minor underpayments. The two areas that would potentially yield significant dollars were highly subject to interpretation and would most certainly ha�e required additional legal expense to pursue with a questionable probability of being awarded any funds. Also, at the time, there was considerable activity in terms of proposed telecommunications legislation, FCC rulings, and court proceedings which could potentially result in relevant telecommunications case law. The general consensus of the Comxnittee was to neither accept nor reject the settlement, thus not relieving Charter of any of its obligations to the City, with the hope that new legislation, new FCC rulings, or new case law might provide clarification on either of the two larger potential areas without requiring costly legal expense by the City. Such outside clarification has not occurred. The City's telecommunications attorney negotiated the settlement of the audit as part of the transfer. � � Mr. Westbrook asked if the City would have the ability to audit years prior to the financial restructuring. Mr. Grawe said the City has been advised that the bankruptcy process will likely clear Charter of past debt, so regardless of acceptance of the settlement, it is probable the City will not have the ability to recover any other underpayments prior to the bankruptcy. Mr. Bible agreed that the judge may well rule that the City is unable to make claims for years prior to the restructuring. Mr. Westbrook clarified that this essentially means that the City would have to accept this settlement not just for the time period that was part of the audit review, but for all the years up to the restructuring. The group indicated that there was no evidence to suggest that there was fraud or other underpayment in recent years, so that agreeing to the settlement would not be a disadvantage to the City. MOTION: Mr. Hugstad-Vaa moved, second by Mr. Magnusson, to recommend the City accept the settlement offer of $5,000.00 as part of the franchise transfer. 3. Adj ourn MOTION: Mr. Westbrook moved, second by Mr. Magnusson, to adjourn the meeting. Motion passed 6- 0. The meeting was adjourned at 7:35 p.m.