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HomeMy Public PortalAbout08-29-1991 - Special Meeting A SPECIAL MEETING OF THE BOARD OF PUBLIC WORKS AND SAFETY OF THE CITY OF RICHMOND. INDIANA, AUGUST 29. 1991 FOR A HEARING ON DEFAULT OF THE FRANCHISE AGREEMENT BY TCI 1 The Board of Public Works and Safety of the City of Richmond, Indiana, met in special session August 29, 1991 2 at the hour of 10:00 A.M. in the Municipal Building in said City. Ms. Hauptstueck presided with Ms. McFarland 3 and Mr. Smith in attendance. Absent: None. The following business was had to-wit: 4 5 HEARING FOR DEFAULT OF FRANCHISE AGREEMENT BY TCI OF INDIANA.INC. 6 7 Ms. Hauptstueck opened a public hearing on a Notice of Default of the current Franchise Agreement between 8 the City of Richmond and TCI of Indiana, Inc. Persons in attendance representing TCI of Indiana were: Mr. 9 Paul Glist, Attorney at Law, Mr. Rich Cody, Mr. Lee Endicott and Mr. Al Gioneti. Persons in attendance 10 representing the City of Richmond were: Mr. Paul Miller, Mr. Francis Daniels, Mr.John Von Pein, Jr., Mr. Bruce 11 Metzger and Mr.Adrian Herbst,Attorney at Law. 12 13 Ms. Hauptstueck invited comment regarding the default issue based on non-payment of all franchise fees due 14 the City of Richmond and asked that all comments be kept relevant to that issue. 15 16 Mr. Adrian Herbst, representing the Telecommunications Council, referenced a memo of August 20, 1991 that 17 had been presented to the Board to give them background information on the proceedings leading to the 18 determination of default by the Telecommunications Council. Mr. Herbst said the City's current Franchise 19 Agreement does not include provisions for the hearing procedure and these proceedings were established in the 20 Resolution recommending the Board of Works declare default. Mr. Herbst said the Telecommunications Council 21 has looked at the past performance of TCI as a part of the renegotiation of the Franchise Agreement and there 22 were questions raised regarding payment of franchise fees due the City. He said when this was further 23 investigated it was believed the payments were not consistent with the Telecommunications Council's 24 interpretation of the Franchise Agreement's definition of gross revenues. Mr. Herbst stated that TCI takes a 25 more narrow view of the definition of revenue and it is now the job of the Board of Public Works and Safety to sift 26 out the information presented and to be presented and to decide on the definition. 27 28 Mr. Herbst concluded his remarks on the default issue by reminded the Board they have thirty (30) days to 29 review the matter and to issue a written decision and if they find TCI in default, TCI has sixty (60) days to 30 respond to the default. 31 32 Mr. Paul Glist, Attorney at Law, representing TCI of Indiana, Inc. stated that the Resolution of the 33 Telecommunications Council determined that 22 of 29 revenue accounts were omitted from the franchise fee 34 calculations. He said there was no factual or legal basis for this determination and that the 29 revenue accounts 35 are used nationwide for their billing system. Mr.Glist said the local system does not carry many of the items that 36 are included in those revenue accounts making thirteen (13) of the accounts not applicable to the City of 37 Richmond. 38 39 Mr. Glist informed the Board that nobody could argue TCI owes Franchise Fees with this type of public 40 information available, when we don't deliver those services in Richmond. Mr. Glist said the current Franchise 41 Agreement is very specific and does not say gross revenue from all sources, but rather from (1) basic or regular 42 subscriber service afforded to all subscribers in Richmond, Indiana and from (2) pay Cable TV less royalties and 43 subscription fees paid by the company to the originating source. Mr. Glist pointed out that the Franchise 44 Agreement identifies all sorts of other items in the revenue stream for the City of Richmond that are not included 45 in the franchise fees,which Mr.Glist outlined for the Board. 46 47 Mr. Glist presented a copy of the Franchise Agreement to the Board and noted his disbelief that the nowhere in 48 the Default Resolution or subsequent correspondence with the Board was any reference made to the Franchise 49 Agreement. He pointed out that items such as installation were not part of the franchise fee clause nor were 50 optional and auxiliary services. He said that many options are now available that were not available when the 51 Franchise Agreement was issued and cited a case to the Board where franchise fees included only revenue at 52 the time of signing of the agreement. Mr. Glist stated that TCI will not pay on items not intended by the 53 Franchise Agreement and are considered auxiliary services as addressed by the Franchise Agreement. 54 55 Mr. Glist cited a 1984 case which distinguished regular from auxiliary services be separate or be put in a tier. 56 He said that broadcast signals and access are basic service and other are auxiliary services. Mr. Glist also cited 57 a case before the FCC dealng with Clearview Cable in 1978 and 1979 where the FCC ruled that the optional 58 channels they were offering were optional services covering which also covered tiers and converters. He 59 offered another citation where the court ruled that remotes were never a part of basic service. 60 61 Mr. Glist went over the revenue sources stating that tier revenue was not a part of basic or regular service, 62 converter revenue with the signal unscrambled is not a part of regular subscriber service, remote control is not a 63 part of basic or regular service, program guide is competitive with the TV Guide and is not a tax and was not in 64 existence when the Franchise Agreement was signed, late fees are not a part of basic service but are a remedy 65 for failure to meet agreement, non-return converter charge is not part of basic or regular service but an incentive to return the converter, installation is identified in the Franchise Agreement as a separate charge. Board of Works Minutes Cont'd August 29, 1991 Page 2 1 Mr.Guist said that given the plain language of the Franchise Agreement and the franchise fee clause it was clear 2 that revenue was on regular service and net pay. 3 4 Mr.Glist told the Board he was struck by Mr. Herbst making no reference to law in his correspondence regarding 5 the default, but rather his experiences and the dictionary. Mr. Glist stated there was a lot of law involved and 6 could not understand how this issue could get this far without reference to law or the Franchise Agreement. He 7 said it was unbelievable that the City would drag TCI through the mud in the press and TCI values its reputation. 8 9 Mr. Glist said the Telecommunications Council was wrong and if the issue would go to court, the court would 10 uphold TCI with only the lawyers winning. Mr.Glist stated that TCI wanted to work with the City as shown in the 11 negotiations session yesterday. 12 13 Mr. Glist said he would provide the Board any information necessary and would walk them through the laws and 14 added there was no basis in law or fact for this default issue. 15 16 Ms. Hauptstueck requested Mr.Glist provide the Board with a list of the cases cited. 17 18 Ms. McFarland asked if Mr. Herbst might respond to the comments from Mr.Glist. 19 20 Mr. Herbst informed the Board that the Telecommunications had no choice but to recommend default to get this 21 issued resolved as a part of their process for negotiation. He said when they were unable to get information 22 from TCI, as requested,the only other alternative was to come to the Board of Works. Mr. Herbst said there are 23 many interpretations of gross revenue and the language in the Franchise Agreement may differ from the cases 24 cited by Mr. Guist. Mr. Herbst said that the franchise fee language is all revenue derived from basic or regular 25 subscriber service and installation is a basic subscriber service or they could not be a subscriber. He added that 26 the other revenue items as outlined were all related to regular subscribers and basic service and all were 27 revenue derived from providing these basic services. 28 29 Mr. Herbst explained to the Board that he took the information for the Board as provided by TCI on the 29 30 revenue accounts and all are revenues derived from providing basic service and they should be included in the 31 franchise fee formula. 32 33 Mr. Guist responded to Mr. Herbst's comments by reminding the Board that Mr. Herbst did not cite any law and 34 he had heard enough about the 22 of the 29 revenue items missing and was tired of all ignoring the truth. 35 36 Ms. Hauptstueck assured Mr.Glist that all agree that not all revenue items are in question. 37 38 Mr. Al Gioneti told the Board he believed that TCI has correctly interpreted the Franchise Agreement and have 39 paid the franchise fees promptly. He said that Mr. Glist had cited law to uphold the case and they have enjoyed 40 working with the City of Richmond and he believed that under the language of the Franchise Agreement and its 41 reference to certain revenue and the case law cited, that TCI has not avoided paying any franchise fee due and 42 payable to the City of Richmond. He told the Board he hoped they would not find TCI in default of the current 43 Franchise Agreement 44 45 Ms. McFarland asked if TCI had been involved with other disputes over revenue definition and Mr. Gioneti said 46 there have been questions raised, but each franchise agreement has different language on what revenue should 47 be taxed, but the language in this agreement is rather explicit and if the revenue is not in place at the time of 48 signing it is non taxable. 49 50 Ms. McFarland asked if TCI had ever gone to court to argue the definition of gross revenue with respect to any 51 other city and Ms. Hauptstueck asked about a reference to the 1984 Cable Act having definitions. 52 53 Mr.Glist explained that was the Community Cable Case of 1984 that had definitions. 54 55 Mr. Gioneti told the Board that now TCI even has unbundled services in Richmond offering as expanded basic 56 and they are still paying franchise fees on that. He said it might be perceivable they have overpaid their 57 franchise fees. 58 59 Ms. Hauptstueck asked about basic service and expanded basic definitions and Mr. Rich Cody explained the 60 channels that were included in the expanded basic and that franchise fees are paid on the basis service plus the 61 six channels under the expanded basic service and net payment on the premium channels. 62 63 Ms. McFarland clarified that when TCI remits a franchise fee it is just broken down by basic and net premium 64 and they have never provided a further breakdown and inquired as to why. 65 Mr. Cody said the City has never questioned the franchise fee payments or asked for further explanation. Board of Works Minutes Cont'd August 29, 1991 Page 3 1 Ms. Hauptstueck asked if the City had ever asked to see records and Mr. Cody indicated had in an earlier default 2 issue. 3 4 Ms. McFarland asked why the Telecommunications Council checked into the franchise fees and Mr. Bruce 5 Metzger explained it was part of the negotiations process for a franchise renewal with TCI. 6 7 Mr. Herbst informed the Board that looking into past performance is a part of the renewal process and gross 8 revenues are different in franchise agreements and they are trying to interpret this issue. He said that converters 9 were originally a part of basic service and if they are no longer made a part of basic are fees due. Mr. Herbst 10 told the Board that TCI, in its own annual report, does not distinguish income. Mr. Herbst stated this was an 11 issue the Telecommunications Council wanted resolved. 12 13 Mr. Gioneti said that if the Board wants to examine the case of converters, cable ready sets were not available 14 when this Franchise was signed, but when they became available,TCI gave the option to their subscribers to not 15 have a converter or to purchase one elsewhere or to use the ones offered by TCI. 16 17 Ms. McFarland stated that if she were a subscriber and needed a converter to receive cable, that without the 18 converter the cable would be useless. 19 20 Mr.Glist said some channels might be received, but not all of them. 21 22 Mr. Gioneti said a VCR might also be used, and they do not feel it right to put an unnecessary piece of 23 equipment in the home. He said the Franchise Agreement speaks of auxiliary services as a separate revenue 24 and converters and installation are separate revenue. 25 26 Ms. Hauptstueck clarified that TCI does not make subscribers get their converters from them and Mr. Cody said 27 now they are selling the signal and how the subscribers gets it on their set is their business. 28 29 Ms. Hauptstueck asked if there was any definition of what regular subscriber and basic service is and Mr. Herbst 30 said that was not in writing. 31 32 Mr.Glist added that there are FCC rules and decisions and court cases to make that determination. 33 34 Mr. Herbst explained to the Board that gross revenues take on a different meaning as time goes on and there 35 are changes in the cable industry. He said this Franchise Agreement uses basic and regular subscriber services 36 and we think it was intended to mean any services provided be covered by the language of basic or regular 37 subscriber service. He said such things as expanded basic were not available when this agreement was made, 38 but all revenue derived from providing basic or regular subscriber service was intended to be covered in this 39 agreement. Mr. Herbst said he felt the agreement was written broad so that technological changes would not 40 change the intent. Mr. Herbst ask the Board that now with changes taking place should that change the intent of 41 the original agreement and give basic a new definition. 42 43 Mr. Gioneti said that difference was the interpretation and he felt this agreement was very specific with the 44 language of basic and regular subscriber service and auxiliary services. 45 46 Mr. Glist reminded the Board there has never been a decrease in the amount of franchise fees paid to the City, 47 only increases in the fees. 48 49 Mr. Metzger told the Board the question is did the City take for granted with the general language of the 50 Franchise Agreement that with additional services that the items would automatically be added. He said he felt 51 the assumption made when the agreement was signed that franchise fees would be paid on all items, except 52 those specifically excluded. 53 54 Mr. John Von Pein, member of the Telecommunications Council, told the Board that TCI provided converters 55 with basic subscriber service and two years ago broke out the cost of the converter and made it optional. He 56 said he felt they should still include that in franchise fees since they made that change, but it was originally a part 57 of the basic service. 58 59 60 Ms. Hauptstueck clarified that to receive basic service it was not necessary to receive the guide, have a remote or a converter and Mr. Gioneti said that was correct. 61 62 Ms. McFarland asked if the City was notified when the changes with the converters took place and Mr. Gioneti 63 said that both the City and subscribers were notified. 64 65 Mr. Cody added that the City was formally notified of the "unbundling of services"and it changed in the summer of 1989. ADJOURNMENT There being no further business,on a motion duly made, seconded and passed the meeting was adjourned. Carrie N. Hauptstueck, President ATTEST: Mary Merchanthouse,City Clerk