Memo: The City published a Notice of Intent to Franchise on May 14 and May 21, 2015.

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1 To: Telecommunications Advisory Commission Re: CenturyLink Competitive Cable TV Franchise Date: September 23, 2015 From: Reg Dunlap Memo: BACKGROUND: CenturyLink expressed interest in obtaining a franchise to offer cable television (TV) service in St. Louis Park in December, CenturyLink s Director of State Regulatory and Legislative Affairs, Patrick Haggerty, attend the May 13, 2015 Telecommunications Advisory Commission meeting to provide background on the company s TV product and answer questions. The City published a Notice of Intent to Franchise on May 14 and May 21, CenturyLink submitted an application for a cable TV franchise in St. Louis Park on June 8, 2015, and submitted a $10,000 franchise application fee. As required by Minnesota statute, the St. Louis Park City Council held a public hearing July 6, CenturyLink attended and answered Council s questions. Over the summer, CenturyLink has met multiple times with the city s franchise negotiating team including Telecommunications Advisory Commissioners Bruce Browning, Toby Keeler and Maren Anderson; City staff members Jacqueline Larson, Reg Dunlap and John McHugh; and Moss & Barnett Attorney Brian Grogan, who has been in regular contact with City Attorney Joel Jamnik. A key constraint on the cable TV franchise negotiations is this section of Minnesota Statute : (b) No municipality shall grant an additional franchise for cable service for an area included in an existing franchise on terms and conditions more favorable or less burdensome than those in the existing franchise pertaining to: (1) the area served; (2) public, educational, or governmental access requirements; or (3) franchise fees. Wherever possible, the city s negotiating team has insisted on parity with the existing Comcast franchise to avoid a legal challenge. Since there are some Comcast commitments that CenturyLink cannot agree to meet, they have made other commitments that are not required of Comcast. The sections of the franchise that address enforcement, the letter of credit or bond requirements are all the same as what is required of Comcast.

2 There are two key topic areas that are different in the two franchises: build out requirements (area served) and Public, Education and Government (PEG) access requirements. Build out requirements: CenturyLink has standard language in many of their franchises around the country that describes their market-based approach to offering service to a franchise area. Language in the St. Louis Park franchise, addresses the City team s concerns about redlining and build out to the entire City: 1. Initial Build Out. No later than the second anniversary of the Effective Date of this Franchise, Company shall be capable of serving a minimum of fifteen percent (15%) of the City s households with Cable Service, provided, however, Company will make its best efforts to complete such deployment within a shorter period of time. Company agrees that a significant portion of its investment will be targeted to areas below the median income in the City. This initial minimum build-out commitment shall include a significant number of households below the median income in the City. City shall provide detailed maps of such areas. Nothing in this Franchise shall restrict Company from serving additional households in the City with cable service. 2. Quarterly Meetings. In order to permit the City to monitor and enforce the provisions of this section and other provisions of this Franchise Ordinance, the Company shall, upon demand, promptly provide to the City maps and other documentation showing exactly where within the City the Company is currently providing Cable Service either through FTTN or FTTH. 3. Additional Build-Out Based on Market Success. If, at any quarterly meeting, including any quarterly meeting prior to the second anniversary of the Effective Date of this Franchise as referenced in Section (5) herein, Company is actually serving twenty seven and one-half percent (27.5%) of the households capable of receiving Cable Service, then Company agrees the minimum build-out commitment shall increase to include all of the households then capable of receiving Cable Service plus an additional fifteen (15%) of the total households in the City, which Company agrees to serve within two (2) years from the quarterly meeting; provided, however, the Company shall make its best efforts to complete such deployment within a shorter period of time. For example, if, at a quarterly meeting with the City, Company shows that it is capable of serving sixty percent (60%) of the households in the City with Cable Service and is actually serving thirty percent (30%) of those households with Cable Service, then Company will agree to serve an additional fifteen percent (15%) of the total households in the City no later than two (2) years after that quarterly meeting (a total of 75% of the total households). This additional build-out based on market success shall continue until every household in the City is served. There is no guarantee that CenturyLink will have enough market success to build out to serve every household in St. Louis Park. However, CenturyLink has an important incentive for market success, which is that the franchise term is five years from an effective date beginning about December 16, If CenturyLink has market success and is in compliance with all franchise

3 terms, including build out, the city has the unilateral right to extend the franchise no less than five years and no more than ten years. If CenturyLink has very little market success and few customers, the franchise ends after five years. Please note that the initial term of the proposed franchise with CenturyLink would end within about one month of the current franchise with Comcast. Having a second cable TV company in the City provides a competitor to the incumbent company, Comcast. The city handles dozens of complaints from residents each year, and not having a second choice for cable TV is a frequent complaint. There is evidence that having competition keeps rates from rising as quickly and can result in better customer service. The policy decision will be whether this franchise commitment is enough for the City Council to approve. Public, Education and Government (PEG) access requirements: The PEG channels are collectively called Park TV in St. Louis Park and include channels 14, 15, 16, 17 and 96. Park TV is funded by Comcast franchise fees of 5% of the gross revenues from cable TV services in St. Louis Park, in exchange for use of the public right-of-way. In addition, Comcast committed to a series of equipment grants over the life of its franchise: $800,000 in 2006; $200,000 in 2011; and $100,000 in Comcast has a 15-year franchise that ends in January The CenturyLink franchise does not require lump sum payments but requires a PEG fee of $1.12 per month for each subscriber. This is the exact same amount Comcast charges customers each month to pay for their lump sum equipment grants. Another key difference is that CenturyLink uses what they call a mosaic channel for local PEG channels. For example, if a viewer tuned to channel 17 on the CenturyLink system, they would see a miniature version of all five Park TV channels. They would hear the sound for channel 17, and could listen to, for example, a Council meeting while watching all five Park TV channels. When they decide to go to another Park TV channel they would use their CenturyLink remote control to select that preview image and switch to that channel. The actual channel assignments would be in the 8000 range, so direct tuning to the local channels would not be as easy as on the Comcast cable system. However, staff has experimented with the CenturyLink equipment and believes Park TV users will quickly learn how to use the last channel feature on the remote control to switch to the channel 17 mosaic channel to preview all Park TV channels. In addition, while tuned to channel 8017, for example, CenturyLink will have a program guide that will show the adjacent five channels. CenturyLink customers will benefit in that almost 200 local PEG channels around the metro area will be available. This means that when St. Louis Park High School plays at a Bloomington school, or in Richfield, and the game is carried on CenturyLink cable TV in those cities, the St. Louis Park CenturyLink customer could watch it on that community s PEG channel. Currently, Park TV typically covers home games and as many regional playoff games as possible. Many other events are covered around the metro area that St. Louis Park customers could watch, like Edina or Minnetonka city council meetings, Hopkins Center for the Arts concerts, parades, performances or weekly news programs.

4 Another area where CenturyLink s commitments exceed those of Comcast is in providing high definition (HD) channels. Without negotiations, Comcast will not offer HD channels for Park TV before the end of its franchise in CenturyLink will carry all Park TV channels in HD as soon as the city offers their channels in HD. This is a real benefit, since virtually all new TV production equipment is HD or Ultra HD so eventually all Park TV programs will be recorded in HD. Customers that have only SD TV s will be able to see the Park TV channels in SD, since the CenturyLink system will automatically convert the HD channels to SD. Channels 16 and 17 could be fairly easily converted to be fully HD within one year, but channels 14, 15 and 96 will still have to show standard definition (SD) programming for several years. Currently, all of the van productions are in HD and converted to SD to play on the cable channel, so channel 16 could convert to HD as soon as control room equipment is upgraded to HD, which is budgeted for Camcorders and edit systems used by most Park TV staff have been HD since 2009, with the programs converted to SD to play on the cable channels Currently, Comcast allows the City to provide up to 20 hours per month of SD of video of demand (VOD) programming on their system, or five hours of HD programming. CenturyLink would allow up to 20 hours of HD programming on their VOD system. Comcast does not allow access to the electronic program guide (EPG) to allow customers to see the exact program listings for the Park TV channels. All Park TV channels are simply described as Pub17, and the specific program listing is community programming in the Comcast guide. In contrast, CenturyLink would: Use City branding information on channel descriptions, for example, Civic TV 17. Allow the city to provide the generic description language seen in the program listing area. For example: Civic TV 17: City topic programs, City Council and Planning Commission meetings. Supply contact information so the city could pursue the option of paying the third party responsible for the detailed program listings/this is very important when many cable TV customers are using digital video recorders (DVRs) to record programs to watch later. Comcast s obligations are greater than those of CenturyLink in two areas Comcast provides fiber connections to allow live programming from five locations: City Hall control room (for Council Chambers and eventually, Community Room productions) School Board meeting room, High School football field, The Rec Center (which areas?) Wolfe Park Veterans Amphitheater. These sites are used for dozens of TV productions each year. CenturyLink will not duplicate links to these sites. However if any of the sites were to become unavailable, CenturyLink would then step in and provide the fiber, equipment and maintenance to those sites. Also, CenturyLink would provide fiber, equipment and maintenance for any new live locations the city might decide to add. Finally, Comcast provides free cable TV service and three digital adapters (DTAs) at 19 city or school district buildings. This is a very significant benefit. CenturyLink will provide service to

5 those locations but only if they are not served by Comcast, with these exceptions: City Hall, so Park TV staff can monitor the City channels on the CenturyLink system, and the Police Station and Fire Station #1 Emergency Operations Centers for a redundant connection in case of emergency. Here s a summary of the differences in the franchise obligations: Comcast obligations Up-front capital equipment grants totaling $1.1 million Free cable TV service to 19 city and school district buildings 20 hours of standard definition (SD) video on demand (VOD) programs; or five hours of high definition (HD) VOD programs. Five SD cable TV channels. No HD Park TV channels before the end of the franchise (2021) unless negotiated. No City control over electronic program guide (EPG) Live production from four remote sites (high school football field, school board meeting room, The Rec Center and Wolfe Park Amphitheater) and City Hall control room, for Council Chambers events. CenturyLink obligations Match the amount Comcast charges to each customer per month, $1.12 Free cable TV service to any city or school district building not served by Comcast, including those the city chooses to switch to CenturyLink s Prism TV service. 20 hours of HD VOD Will carry Park TV channels in HD when the City is prepared to deliver them. The city will eventually convert all Park TV channels to HD, but could be ready for two HD channels within one year. City control over EPG channel descriptions and generic program listing description Will provide fiber link from City Hall control room. If the four remote sites are no longer available for whatever reason, will provide links to the sites. If any additional live remote sites are needed to schools or other locations, would provide the fiber, equipment and maintenance to those sites. Brian Grogan has said that this franchise negotiation is relatively straight-forward because the City s franchise is shorter than most other franchises that he is working with because we are five years away from renewal with Comcast. Other city s franchises require a higher PEG fee, for example, or have other Comcast commitments that St. Louis Park s franchise doesn t cover. However, because of the possibility of legal challenge by Comcast, the franchise negotiation team has strived to keep the obligations of Comcast and CenturyLink as similar as possible to comply with the State law requirement for a level playing field. PRESENT CONSIDERATIONS: Recommended Commission Motion: To direct staff to complete franchise negotiations with CenturyLink and to recommend that the City Council adopt the proposed franchise ordinance to allow CenturyLink to offer Cable TV services in St. Louis Park.

6 NEXT STEPS: CenturyLink has been granted one franchise in Minnesota, with the City of Minneapolis in May, St. Louis Park would be the second CenturyLink franchise, if approved on this timeline: September 28: City Council Study Session, with a written report from staff. November 2: City Council meeting with public hearing and first reading of proposed CenturyLink franchise. Brian Grogan and CenturyLink rep available. November 16: City Council second reading of CenturyLink franchise ordinance