AGENDA #5b
TO: Mayor and Town Council
FROM: W. Calvin Horton, Town Manager
SUBJECT: Report on Discussions with Time Warner Regarding Basic Tier Cablevision Services
DATE: July 2, 2001
The attached report summarizes discussions between the Manager’s Office and Time Warner Cable staff regarding provision and cost of Basic Tier cablevision services.
The factor that has increased Basic Tier costs since 1996 was the Federal Communications Commission’s (FCC) Cost of Service filing, which followed an upgrade to the cable plant. The FCC allows cable operators to recover the cost of capital investment associated with upgrading a cable system, and triggered a $1.80 increase since 1996. The addition of channels to the Basic Tier did not cause a Basic rate increase.
We conclude that the $1.80 increase would have occurred regardless of the addition of channels. We believe that Time Warner’s explanation of its $1.80 increase in Basic Tier rates is sufficient and do not believe that there is further Council action necessary on this issue at this time. We recommend that the Council receive this report at tonight’s meeting.
At the April 10, 2000 meeting, Mr. Joe Capowski presented a petition to the Council, requesting that the Council “preserve an inexpensive basic cable TV service level, probably by reopening talks with Time Warner about our current franchise” (Attachment 1). Mr. Capowski explained that one of the original goals of the cable franchise was to seek a low-cost, basic level of service that included only the FCC-required, local, over-the-air stations and local access stations. Mr. Capowski requested that the Council review the Town’s cable franchise agreement and reopen talks with Time Warner to seek a less-expensive, minimal basic level of cable TV service for Chapel Hill subscribers.
At the time of the 1996 system upgrade, the Basic Tier consisted of 13 channels. The current Basic Tier line-up consists of 18 channels, including TBS, BET, The Home Buyer’s Channel, WRPX (PAX-TV), and Triangle TV, which were not in the 1996 system (Attachment 2). The 1996 Basic Rate was $7.70, compared to $9.50 in 2001.
The Town’s Cable Television Franchise Ordinance includes a provision for reopening discussions with Time Warner. Under Section 3.10(a), the Town may, with 30 days’ notice, “request evaluation and review sessions at any time during the term of this Agreement and Grantee (Time Warner) shall cooperate in such review and evaluation; provided, however, there shall not be more than one (1) evaluation and review session during any calendar year.” Under Sections 3.10(b) and 3.10(c), Time Warner shall cooperate with such an evaluation and provide reasonable documentation without cost to the Town (Attachment 3).
Over the last year, the Manager, Attorney, and staff have met with Time Warner representatives to discuss the costs of Basic Tier service and other cablevision issues. In an October 23, 2000 letter and in a December 8 meeting with Time Warner, the Manager restated the Council’s wish that Basic Tier be as inexpensive as possible (Attachment 4).
In a letter dated December 29, the Manager stated that three of the major goals of the 1996 cable upgrade were: reducing the necessity of addressable converter boxes, increasing the number of public access channels, and keeping the Basic Tier as inexpensive as possible (Attachment 5). Addressable converter boxes are no longer required for Basic or Standard cable service. The Franchise Agreement also provides for at least four access channels dedicated to non-commercial public, governmental, or educational purposes. Time Warner staff agreed to discuss the Basic Tier cost issue further with Central District President Randy Fraser and with other appropriate company officials (Attachment 6).
On March 2, 2001, Time Warner staff explained that the company had attempted to add value to its Basic Tier by adding the non-required commercial stations (TBS, BET, The Home Buyer’s Channel, and Triangle TV). The Manager asked for an explanation of how the cost of Basic service has increased because of the addition of these channels (Attachment 7).
At a meeting on April 23, 2001, Time Warner officials explained that the increase from 13 to 18 channels was not the determining factor in the $1.80 Basic Tier increase since 1996. Mr. Fraser explained that the addition of BET, TBS, the Home Buyers Channel, WRPX, and Triangle TV did not trigger a Basic Tier cost increase. WRPX (PAX-TV) is considered a “Must-Carry” station by federal law (Attachment 8).
Mr. Fraser also explained the following cost information:
· The Basic Tier rate for Chapel Hill is $9.50 per month, which is the lowest rate in the Triangle. The average number of Basic Tier channels in the Triangle is 18, the same as in Chapel Hill.
· The current $9.50 rate is 60 cents less than the maximum rate permitted under the Federal Communications Commission (FCC) formula.
· The Basic Tier rate in 1996 was $7.70 per month, a difference of $1.80.
· The $1.80 increase over the last five years was the result of application of the FCC cost of service formula, and not due to an increased number of channels.
Mr. Fraser summarized various reasons not to remove the five channels at this time:
· Removal of the additional channels would not affect price.
· Moving the channels from Basic Tier to a more expensive tier would require customers to pay a higher fee for an existing service.
On May 23, Mr. Fraser responded to follow-up questions from the Manager, further explaining the cost formulas used by the FCC. The major factor that has increased the costs since 1996 was the FCC Cost of Service filing, which followed the upgrade to the cable plant. The FCC allows cable operators to recover the cost of capital investment associated with upgrading a cable system, and hence the associated $1.80 increase (Attachment 9).
We believe that Time Warner’s explanation of its $1.80 increase in Basic Tier rates since 1996 is acceptable. We understand that the cost increase has occurred not because of the addition of five channels to the Basic Tier since 1996, but because of FCC cost formulas related to the upgrade of the cable system. We do not believe that there is further Council action necessary on this issue at this time, and recommend that the Council receive this report at tonight’s meeting.