Transfer of the Cable Television Franchise La Palma City Council June 20, 2006

La Palma’s Cable TV Franchise In existence since 1988; 5 cable operators since franchise’s inception Franchise agreement –Allows operators use of the public right-of-way for a franchise fee –Other operator obligations as negotiated –Gives the City the right to approve requests to transfer the franchise

La Palma’s Cable TV Franchise Franchise fee limited to 5% of gross revenues –Law exempts high-speed Internet or other telecommunications services from the franchise fee Franchise fee generates $73,900 annually to City’s General Fund Currently about 2,000 households subscribe to cable service

Franchise Transfer Request Received on June 14, 2005 (FCC Form 394) Requests transfer of Franchise from Comcast Cable, Inc. to a new entity controlled by Time Warner Cable, Inc. called C-Native Exchange I (CNE I)

Franchise Transfer Request The result of a buy-out of Adelphia Cable, negotiated by Comcast and Time Warner Time Warner will take over Comcast and Adelphia systems in southern California

Franchise Transfer Request On January 17, 2006, the City Council denied the Transfer Request without prejudice for several reasons –Completeness of Form 394 –Financial ability of entity assuming the franchise to meet comply with franchise obligations –Impact of the Transfer on provision of cable services –Impact of the Transfer on franchise renewal

Recent Developments Discussions have continued with Time Warner regarding a proposed Transfer Agreement Tentative agreement has been reached Recent State and federal legislation to eliminate local control of franchising rights creates urgency for approving the Transfer documents now

Transfer Documents Transfer Agreement Settlement Agreement Memorandum of Understanding

Transfer Agreement City gives consent and approval to transfer of franchise from Comcast to CNE I (Time Warner) Both parties agree that Agreement is not a new franchise or renewal of the existing franchise CNE I accepts terms and conditions of existing franchise agreement

Transfer Agreement CNE I will maintain or exceed current levels of local operations for customer service, maintenance, PEG support Time Warner provides financial guaranty for new CNE I entity City must enter into Settlement and Release Agreement with Comcast City and CNE I must enter into an MOU related to renewal of the Franchise

Settlement Agreement With Comcast of Cypress, LLC Resolves any and all non-compliance issues related to Comcast’s operation of the franchise Non-compliance issues based on Compliance Review conducted in 2003, include possible underpayment of franchise fees

Settlement Agreement Comcast shall pay City $17,000 within 10 business days of execution Both parties agree to fully waive and release all claims once payment has been made

Memorandum of Understanding (MOU) Between the City and CNE I Includes terms and conditions for renewing the existing cable franchise Salient points of MOU tend to be the most time consuming during renewal negotiations Approval of MOU streamlines renewal process

Memorandum of Understanding 10-year franchise term Funding for PEG access –Initial Peg Access grant based on number of subscribers as of $28 per subscriber; payable on 1/31/07 –Ongoing PEG Access grant of $0.50 per subscriber per month beginning 1/1/07; payable quarterly

Memorandum of Understanding Upon request, City shall provide CNE I with annual accounting of expenditures for both PEG grants to ensure they are expended for PEG purposes CNE I agrees that the PEG grants will not be charged against franchise fees payable to City

Memorandum of Understanding City retains right to grant additional franchises for cable TV services –Terms and conditions for new franchisees must be the same as those negotiated with CNE I City and CNE I will negotiate franchise renewal, including MOU terms, by 12/31/06 –Could be extended if both parties agree

Memorandum of Understanding MOU becomes effective upon City Council and CNE I approval Should transfer of assets between Comcast, Adelphia, Time Warner not occur by 12/31/06, MOU becomes null and void

Summary of Potential Financial Impacts Comcast Settlement$17,000 Initial PEG Grant*$56,000 Ongoing PEG Grant*$120,000 TOTAL (over 10 years)$193,000 *Based on estimated number of subscribers

Recommendation Adopt Resolution to: –Approve the transfer of the Cable TV Franchise –Approve the Transfer Agreement with Time Warner/CNE I –Approve the Settlement Agreement with Comcast of Cypress, LLC –Approve the MOU with Time Warner/CNE I

Transfer of the Cable Television Franchise La Palma City Council June 20, 2006