SANTA BARBARA COUNTY GRAND JURY 1995-96

FINAL REPORT

SANTA BARBARA CITY CABLE TELEVISION FRANCHISE RENEWAL

Released: April 15, 1996


INTRODUCTION

The cable television franchise between the City of Santa Barbara and Cox Communications Santa Barbara, Inc.1 is the first of the long-term, county-wide franchises to come up for renewal since the sweeping Telecommunications Act was enacted on February 8, 1996. (See Exhibit A.) Most of these franchises are for a 15-year term.

The rapidly changing telecommunications environment requires that local leaders be keenly aware of existing opportunities to position Santa Barbara on the Information Super Highway leading into the 21st Century.

OBJECTIVE

To study the upcoming franchise renewal for cable television services between the City of Santa Barbara and Cox Communications Santa Barbara, Inc., with consideration of changes developing from the Telecommunications Act of 1996.

APPROACH

The Grand Jury interviewed the following people:

The Grand Jury also had telephone interviews with the following individuals or groups:

OBSERVATIONS

BACKGROUND AND MISCONCEPTIONS

Cox has approximately 65,000 subscribers on the South Coast through its franchises with Santa Barbara County and the cities of Santa Barbara and Carpinteria. Of this number, about 31,000 subscribers are served in the City of Santa Barbara. This number represents some 76% of the total households that could be served by cable in the city.

There are several misconceptions about the cable television franchise. One is that the city must renew the franchise with Cox. Existing law does limit the ability of the city to deny a franchise.2 However, on December 29, 1995 a U. S. District Court in Kentucky upheld a city’s franchise denial. This landmark decision marked a city’s right for the first time to deny a cable franchise because the city thought the cable operator’s proposal did not meet its future needs.3 “This should provide an education to the industry that it needs to do its own legwork ... as to a city’s future cable-related industry needs,” said one telecommunications lawyer.4

Another misconception is that the franchise is a monopoly. Cox does operate under a non-exclusive franchise, but no other provider has bid on the franchise. According to city officials, another provider would either have to buy the costly infrastructure installed by Cox or install at great expense its own infrastructure. Therefore, the franchise with Cox has been a perceived monopoly but is not a real monopoly.5 The new Telecommunications Act should serve to stimulate future competition.

TELECOMMUNICATIONS LAW

Three federal laws determine regulation of and processes for national and local telecommunications. The Cable Communications Policy Act of 1984 was the first major change in communications law in 50 years. This Act delineated the franchise and renewal process, including the compensation to local franchise authorities up to a maximum of 5% gross revenues for use of the public rights-of-way. (The City of Santa Barbara has a 3% franchise fee.) The 1984 law specified limited criteria for a franchising authority to grant or deny a renewal and it also eliminated rate regulation. In the Cable Television Protection and Competition Act of 1992, however, rate regulation for basic and expanded basic service was reinstated. The Telecommunications Act of 1996 once again deregulates cable rates but only for the expanded tier as of March 1999.

This Act is the most encompassing revision yet of the nation’s telecommunications laws. It creates competition for a host of telecommunications providers including the cable television industry, long distance telephone companies, local telephone companies, competitive access providers (CAPS), satellite television businesses, wireless technologies, and other new competitors.

According to a publication for city management, “The new legislation is very complicated. Cities should be wary of what cable operators and telecommunications providers tell them the legislation means.”6

As a result of this new legislation, in the future citizens can expect to receive long distance telephone service, local telephone service, Internet computer networks, interactive services and cable television services from just one provider.

Local governments won a last minute victory in this telecommunications overhaul: inclusion of language to recognize that local governments can manage their public rights of ways and receive “fair and reasonable compensation” from their telecommunications providers.7

Local governments now can control siting, construction, and modification of wireless facilities such as zoning for cellular towers or more fiber-optic cable to provide full service networks (video, voice, data).8 Testimony to the Grand Jury stated that with the potential demands on finite resources, local regulatory authorities have a responsibility to ensure that such resources are being used to the maximum benefit. For example, in a recent agreement between Thousand Oaks, California and GTE Media Ventures Incorporated, GTE will provide video services and pay a franchise fee for use of the public rights of way.

During 1996, the Federal Communications Commission (FCC) will adopt a number of new regulations. Many of these will affect the ability of local governments to realize the full potential of telecommunications. For example, the FCC will be establishing new rules for how governments may be involved in setting the requirements for Institutional Networks (I-NET) on new Open Video Systems, which the Telecommunications Act allows telephone companies to build and operate.9

CONSIDERATIONS AND VIEWPOINTS FOR ASCERTAINMENT

Both the city and Cox are conducting ascertainment studies, the process of gathering information about community needs and interests in regard to cable television during the franchise renewal process. The results of this information gathering will then help form the city’s proposal to satisfy future community needs. The results will help Cox formulate its proposal so that it reflects the future needs and interests of the Santa Barbara community.

The Grand Jury heard a number of differing viewpoints during its investigation. What follows is a summary of some of these considerations.

One telecommunications activist stated, “We have a technological revolution in telecommunications happening throughout the nation, and Santa Barbara seems to be asleep.”

From Cox Cable management: The Telecommunications Act is good for the consumer and good for Cox. During the franchise negotiations, Cox wants to find a balance of interests. Local management stated that the company has tried to be a good neighbor to Santa Barbara and has made a $34 million infrastructure investment by providing a state of the art fiber-optic backbone. The renewal process does not have to be adversarial. The city must act with due diligence, and the community must not be left out of the process.

City officials also asked the Grand Jury to try to encourage the public to participate in ascertainment. The city has an ambitious timeline for the renewal process.10 To assist the city, a professional consulting company was to be hired by March 15, but no contract has been signed to date. According to the Request for Proposal (RFP), at this time the consultant should be conducting “a complete community needs assessment including subscribers, non-subscribers, businesses, and educational and institutional agencies regarding the existing level of services provided and the desirability/willingness to pay for future programming/services.”11

In addition to completing these objectives by May 6, 1996, the consultant also must finish engineering and financial studies. Also required in the RFP are assessments of Public Access, Educational Access, and Government Access (PEG) and Local Origination (LO) programming.12

The Industry Education Council (IEC), composed of leaders in business and education, sees a unique window of opportunity for the community as the franchise is negotiated. This group has proposed the creation of a Local Programming Center and an Advisory Committee. The long-term vision is one “of creating a telecommunity that connects schools, government, businesses, nonprofits, libraries and homes.”13

Pilot projects for linking at least two local public schools to Santa Barbara City College and the County Education Office for interactive projects can be negotiated. Other pilot projects to be discussed include Internet access, on-line services and expansion of the Institutional Network (I-NET). Members representing business interests have noted that in parts of downtown Santa Barbara there is no cable service. Currently, Cox does not have to provide cable infrastructure in places where residential density is low.

The South Coast Public Access Advisory Council (PAAC),14 the Advocates for Community Television (ACT), the Santa Barbara Chamber of Commerce, and the Santa Barbara Taxpayers Association are expected to publish position papers about the franchise renewal.

Testimony to the Grand Jury indicated that municipalities and regions need to adopt long-term communications policies that deal with the fast-paced development of new technologies in this Age of Information.

NEW CONSIDERATIONS

While in the past, considerations for franchise renewal and amendments in Santa Barbara have centered on PEG Access and LO programming, testimony to the Grand Jury has indicated a much broader spectrum of critical ingredients of franchise renewal:

Other possible issues for negotiation include adding provisions in the franchise for matching services provided by future competitors in the community, authority over transfers of control, requirements for periodic consumer surveys, non-cable services review and approval prior to proceeding, requirement of bonds and insurance (performance bond/letter of credit/security fund), and a parent company guarantee with dedicated financing specifically for the City of Santa Barbara.

FINDINGS AND RECOMMENDATIONS

FINDING 1: The County of Santa Barbara has franchises coming up for renewal within the next five years. All cities in the county except Guadalupe have a cable franchise that will have to be renewed during that time period.

FINDING 2: Because of the rapidly changing telecommunications technology, the County of Santa Barbara and its cities need to work together to develop a common plan for telecommunications needs and services in the county.

FINDING 3: The member of President Clinton’s National Information Infrastructure Advisory Council (NIIAC) representing cities and counties, and the Chairman of the NATOA FCC Liaison Committee are based in Southern California. These persons have expertise and experience and have offered to share technical, governmental and industry information with local authorities, including Santa Barbara.

FINDING 4: The City of Santa Barbara’s time table for renewal is very brief, especially considering the changes made by the recent Telecommunications Act.

FINDING 5: It is important for the public to participate in the ascertainment process and make their wishes about cable television known during this time of franchise renewal.

FINDING 6: The City of Santa Barbara should plan for future technological changes that will be brought about through the competition created by the Telecommunications Act and new FCC rulings.

FINDING 7: More companies may be providing communications within the City of Santa Barbara and will need access to install infrastructure and use the public rights of way.

FINDING 8: Some areas in the city, including parts of the downtown area, do not have cable television service.

AFFECTED AGENCIES (California Penal Code 933c requires that comments to Findings and Recommendations be made in writing within 60 days by all affected agencies except governing bodies, which are allowed 90 days. The Grand Jury requires that all responses must be supplied in both a printed version and on a computer disk):

End Notes