OFFICIAL MINUTES ST. LOUIS PARK TELECOMMUNICATIONS COMMISSION SPECIAL MEETING OF June 25, 2014 ST. LOUIS PARK COUNCIL CHAMBERS

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1 OFFICIAL MINUTES ST. LOUIS PARK TELECOMMUNICATIONS COMMISSION SPECIAL MEETING OF June 25, 2014 ST. LOUIS PARK COUNCIL CHAMBERS MEMBERS PRESENT: MEMBERS ABSENT: STAFF PRESENT: Bruce Browning, Dale Hartman, Cindy Hoffman, Toby Keeler, Rolf Peterson, and Andrew Reinhardt Bill Theobald Reg Dunlap, Civic TV Coordinator; John McHugh, Community TV Coordinator 1. Call to Order Chair Hoffman called the meeting to order at 7:00 PM. 2. Roll Call Present at roll call were Commissioners Browning, Hartman, Hoffman, Keeler, Peterson and Reinhardt. 3. Comcast Franchise Transfer Mr. Dunlap indicated that Comcast was working on a deal with Time Warner Cable to absorb those franchises into the Comcast system. They plan to divest all systems in Minnesota, including those in St. Louis Park. The City received official notice on June 18 th, which means in 30 days the City needs to act and let Comcast know if there are any deficiencies in the information that was provided. He and other City staff, along with Commissioners Keeler and Browning, attended the MACTA annual conference which had sessions about this. The City role is, within 120 days, to evaluate and decide to approve or deny a transfer of the franchise to the new cable company that will be operating as a spinoff of Charter Communications called Midwest Cable. The Commission has received some background on Comcast and Time Warner and the divestiture, and should make a recommendation to the City Council. The City has the authority to look at the legal, technical and financial capability of the new company that will hold the franchise. That company, Midwest Cable, will have 2 ½ million subscribers, which are currently Comcast subscribers. It doesn t currently exist, and has only two employees, so we don t know as much as we d like to know about Midwest Cable. Staff is asking the Commission to consider hiring a legal expert to help the city with the legal review and determine whether the city should be involved in financial review of the Midwest Cable Company. Commissioner Keeler can speak about the MACTA piece, since he s been active with the planning as part of the MACTA Board. Commissioner Keeler said that, based on the available documents that they had been provided in the FCC form 394 and those documents publicly available with the FCC and SEC, there is not enough financial information to comfortably determine that the new

2 company, Midwest Cable, will have the capital available to continue the technical upgrades that would be expected of a cable provider such as Comcast. This would be a significantly smaller company than Comcast. In the 394, the structure of the Midwest cable company has yet to be determined. There is language that says an arrangement would be made to provide services like administrative, IT, government service, etc., in an agreement that would be made after the deal goes through. Right now they only have two employees. We re not sure if the Comcast employees would be working for Charter or for Midwest Cable or if they would have a job at all. There are a lot of unknowns and the documents available today don t make it clear. Part of the review process is to look at the financial underpinnings of the new company, and to do that, someone needs to collect a lot of data from Time Warner and Comcast and do an analysis to determine if they would be able to provide services, or if they needed more information, or to approve with conditions. To do this analysis alone would cost the City $50-60,000. Rather than having each local franchise authority (LFA) go after the information, MACTA looked at combining the membership and having one consulting company do the report to provide the financial analysis for the members that signed up and shared the cost. They had been negotiating with two companies, Ashpaugh and Sculco and Front Range Consulting. Mr. Dunlap noted that the City had hired Front Range in the past for a franchise fee review. Commissioner Keeler said they are some of the more prominent consultants that have dealt with cable companies. They are trying to get enough local franchise agencies to agree to combine to do this to cover their costs. They negotiated a sliding scale cost to do the review. If only three LFA s agreed, it would cost $7,500 each, total cost $22,500. There are other LFA s that may join in. If more LFA s agree to do this, the sliding scale cost will go down. The most would be $7,500 and the lowest is $5,500. The MACTA Board thought this was a good thing for the membership so MACTA would be the middle man and bill the LFA s for the ultimate cost. A variety of things came up at the recent annual conference that convinces me it s a critical vetting piece to the 394 analysis by each of the franchising authorities. Commissioner Browning added there was talk about a reimbursement for a portion of the cost, and asked it that was likely? Mr. Dunlap said that pertained to the legal review, not the financial review. St. Louis Park s franchise does not specify that. The transfer only occurs because the cable company wants to transfer the franchise and some see it as part of the fixed expenses of the deal. The City could ask for that as one of the transfer approvals, but it might not happen. Chair Hoffman asked if just cable TV would go to Midwest, and if phone and internet would stay with Comcast or Charter? Mr. Dunlap said all of the physical structures and services would go to Midwest, who would offer those services. Commissioner Keeler said it would also include Comcast s commercial side for business and commercial entities. It includes all of the assets and current services that Comcast provides today.

3 Mr. Dunlap asked the city attorney about the legal review and he recommended they hire an outside specialist to handle the legal review. Staff recommended they hire Brian Grogan of Moss and Barnett whom they had worked with in the past, including 2006, and is very respected in this field. Commissioner Keeler added that time was of the essence in the decision to do the financial analysis, because we have until July 16 th to reply to the 394. Either they agree with everything in there, or we disagree and have to state why, and what is incomplete. Commissioner Peterson asked if the consultants would do a presentation in person on the legal and financial reviews or if it would be a written report. Commissioner Keeler said built into the contract is a webinar for all of the cities that signed up for the report to go through the results. If the LFA had a specific need above and beyond the general report, they can negotiate separately with the consultants to provide additional information if required. Mr. Dunlap said that if you want to customize terms and conditions, for example, for the financial information, they ll assist with that for $175/hour to provide supporting information. Commissioner Peterson stated a concern about the technical capabilities of the company as well as a human capital issue. How do we protect ourselves and make sure we have the people in place that we ve come to appreciate? Mr. Dunlap said there was past precedent when there are transfers from one company to another, there was duplicate staff that might not be needed in a merged company. He said Commissioner Keeler gave this example earlier today at the MACTA Conference. In this case, that would be addressed in a service agreement that isn t drawn up yet. Apparently it s a strategic thing to request the transfer and then develop the service agreement later. That makes it difficult for the cities who have to evaluate what the new company is going to look like, if they can t be forthright about what happens to the employees and is one reason the information is incomplete. Commissioner Keeler said that Charter does things differently than Comcast. One example is that Charter deducts the cost of the educational access fees from the franchise fee. If they provide educational access, they deduct that from the franchise fee that they pay the local franchise authority. Mr. Dunlap said it was specifically mentioned that the free cable service that is provided to the different institutions such as city and school district buildings is deducted from the franchise fees that are paid. Commissioner Keeler said, in essence, that would be less revenue for St. Louis Park. Once the LFA sends in the 394 saying that they need additional information, that will set another 120 day clock. Embedded in that is the opportunity to ask for additional information and it could extend beyond that 120 days, so that could move the finalization out even further. One of the things that gives the LFA s a little leverage is that contract

4 negotiations or renewals must be completed before the transaction is complete. That would not include St. Louis Park. We can also make the approval with conditions such as protecting current service levels or technology. We don t know what those are yet, but something like having them provide state of the art services or something such as that. Mr. McHugh suggested they consider having a condition for approve that the cost for any broadband provided to educational institutions, equipment or cable signals to education buildings, be an operating expense of the company and something not to recover from the franchise fee. Commissioner Peterson asked if their agreement with Comcast reflects that Comcast provides that service for free to the schools? Mr. Dunlap said yes it does. In that case, he said that we re OK in the sense that it says in the franchise that free drops be provided at these locations, however, it has become Comcast s practice to issue DTA s. That could be handled differently, right now the service we get through the DTA s is standard cable service but it could be changed to basic instead. Commissioner Peterson asked if there were other things like that? Commissioner Keeler replied the thing that was most difficult in this complex transaction, actually four transactions over the next year and a half, would be the unknowns. It will be critical that those unknowns are identified and addressed. This process gives us an additional 120 days to discover some of the unknown unknowns. Mr. McHugh said in the past other cable operators take the position that because the franchise agreement is silent on a particular issue, therefore a new fee is legal. As a condition of transfer, consider that whatever they are not charging for, like a service call to trouble shoot their I-Net or return path for local channels, should be spelled out so it doesn t become a reoccurring expense for the City. Commissioner Browning asked if that was spelled out in the existing franchise? Mr. McHugh stated if it was not spelled out, they could say the franchise agreement was silent and therefore, they could change their position. They should go on record with the unknowns because it was new management. Commissioner Browning said that we want to make sure it s spelled out. Commissioner Peterson there should be some opportunity to negotiate or have longer-term notice for technology changes. Mr. McHugh said it s like their decision to digitize, then encrypt all signals on the cable TV system. Now you can t watch cable without cable company equipment. Then, after two years, that company equipment must be charged for. That s a big shift. Commissioner Keeler said MACTA needs to hear from LFA s that are willing to commit so the consultants can start. MACTA will then make a down payment out of operating

5 funds. He said he d be part of the group working with the consultants and providing oversight. Chair Hoffman asked when they could bring up the conditions? Commissioner Keeler said they first needed to either accept the 394 or not and list the conditions of why we reject it, and what we are looking for. Then that resets the clock for 120 days for additional discovery. Commissioner Peterson said, so the lawyers have 30 days to draft the legal response and the financial guys get 120 days for their review. Commissioner Keeler said there are two pieces here, one for the legal review and one for the financial review. Chair Hoffman noted that Commissioner Theobald shared his thoughts and supported the city in requesting more information from Comcast regarding to the transfer. He also supported hiring Brian Grogan to do a thorough review the transfer and felt a financial review by an accounting firm was a must and a technical review was a good idea. It was moved by Commissioner Peterson seconded by Commissioner Browning to recommend that the City of St. Louis Park partner with MACTA to conduct a thorough financial review and Moss and Barnett for the legal analysis of the Comcast franchise transfer request. Commissioner Keeler abstained. The motion passed Mr. Dunlap said that he would revise the report for the City Council and include the Commission s recommendation which would go to them on July 7 th. He will notify MACTA and be sure not to miss any deadlines. The Council has the final determination, and if they approve, the City can make the down payment the following Friday which will meet the MACTA deadline of July 14. Chair Hoffman asked if there were any members of the public wishing to speak. A member of the audience said there has been discussion about legal and financial review, but what about a technical review? Commissioner Keeler said because it was unclear what the structure of Midwest Cable was going to be, it could turn out there were just two employees and everything was managed by Charter. The way it was structured today, 4.25% of the gross revenues from Midwest cable will be paid to Charter each month. If they brought all of the current Comcast overhead (people, trucks, call centers, assets, etc.), and those costs into Midwest Cable, paying over 4% for someone else to be a holding company didn t make sense. The speculation is that Midwest Cable may turn out to be a financial holding operation and Charter will have all of the Comcast employees and provide the services. They can t do a technical review now because they don t know what the company was going to look like. As they progress, the technical review may become more doable.

6 Mr. Dunlap said the City is in a partnership to do the financial review, and with Moss and Barnett to do the legal review. There hadn t been discussion on partnering to do a technical review because that seemed less necessary. Commissioner Keeler added if they were customers of a tiny cable company and they were moving over, the technical piece would be more important. But since we re talking about Comcast, they are near the top for technical capability. The language will be critical to make sure those performance levels we discussed are identified and are conditions that we can continue at that level. 4. Adjournment Commissioner Keeler made a motion, Commission Browning seconded to adjourn at 7:35. The motion passed. Respectfully submitted by: Amy L. Stegora-Peterson Recording Secretary