SR-501-002-03
Council Meeting: January 24, 2006 Santa Monica, CA
TO: Mayor and City Council
FROM: City Staff
SUBJECT: An Ordinance Approving and Consenting, Subject to Certain Conditions,
to the Transfer of Control of Century-TCI California, LP from Adelphia to
Time Warner and Authorize the City Manager to Execute all Necessary
Documents
SECTION 1.Introduction
This report provides an update on the City?s due diligence to ascertain, among
other things, the legal, technical and financial qualifications associated with the Cable
TV transfer application of Adelphia to Comcast and ultimately to Time Warner. The
report recommends that the City Council adopt an ordinance approving and consenting,
subject to certain conditions, to the transfer of the franchise from Century-TCI California,
LP to an entity controlled by Time Warner, Inc. and authorize the City Manager to
execute all necessary documents.
SECTION 2.Background
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Time Warner Inc. (TWI) and Comcast Corporation (Comcast) recently
announced an agreement to acquire substantially the assets of Adelphia
Communications Corporation (Adelphia). As a result Time Warner will acquire Century-
TCI California, LP d/b/a Adelphia Cable Communications (Adelphia) in Santa Monica.
Staff received the FCC form 394 transfer application to Comcast and then to an entity
controlled by Time Warner, Inc the new operator on June 14, 2005.
Under applicable law, including the Cable Communications Policy Act of 1984,
review of requests for franchise transfer include, among other things, consideration of
the legal, technical and financial qualifications of the company and the impact of the
transfer upon services. In addition, the transfer process may be used to require that
issues of non-compliance with the franchise be resolved. The City?s interest is to
ensure the Franchisee?s ability to perform, and to guarantee the performance itself, i.e.
to ensure that service is not suspended or degraded, that facilities on the public right of
way are well maintained and comply with all applicable codes and that the construction
in the public right-of-way is not disrupted or delayed because of financial problems, or
lack of financially qualified parent guarantees. In addition, the City should secure
commitments from the new companies to cure all breaches of franchise issues including
field conditions and to assume all the franchise obligations.
Discussion
Adelphia filed for bankruptcy protection on June 25, 2002 as a result of
significant financial fraud by management of Adelphia. Adelphia has proposed a Plan
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of Reorganization whereby the assets of Adelphia will be sold to Time Warner and
Comcast. Time Warner and Comcast have also agreed that they would swap systems
across the country as part of the agreement to purchase the assets of Adelphia. The
proposed corporate ownership of the City?s franchise will be one of several newly
formed companies which have been formed solely for purposes of the Adelphia sales
transaction. The proposed transaction is extraordinarily complex.
Adelphia and Comcast have entered into an ?Asset Purchase Agreement? dated
April 20, 2005 pursuant to which Comcast Cable Holdings, LLC (CCH), a subsidiary of
Comcast, will purchase Adelphia?s partnership interest in Century-TCI LP d/b/a
Adelphia Cable Communications. Comcast and Time Warner Cable Inc. (Time Warner
Cable) have entered into an ?Exchange Agreement? dated April 20, 2005 pursuant to
which Comcast will cause Century-TCI to assign its assets, including the Santa Monica
Franchise to CAC Exchange I, LLC (CAC), and then forthwith transfer and exchange
100% of the outstanding equity securities of CAC to Time Warner Cable.
On June 14, 2005, Time Warner Cable submitted to the City on behalf of
Century-TCI, Adelphia, Comcast, and CCH, materials including Federal
Communications Commission (FCC) Forms 394 dated June 10, 2005, requesting that
the City approve the transaction transferring control of Century-TCI from Adelphia to
CCH. In materials filed with the City on June 14, 2005, Comcast represented that an
internal transaction would result in the assignment of the assets of Century-TCI,
including the Santa Monica franchise from Century-TCI to CAC, but that this internal
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assignment would only occur immediately prior to, and for the sole purpose of,
consummating the transfer and exchange transaction. On June 14, 2005, Time Warner
Cable also submitted to the City on behalf of Century-TCI, Time Warner Cable,
Comcast, and CAC, materials including FCC Forms 394 dated June 10, 2005
requesting that the City approve the transaction transferring 100% ownership and
control of CAC (whose assets will at this point include the Santa Monica Franchise from
Century-TCI to Time Warner Cable (the Comcast-Time Warner Transfer Applications);
and Comcast has represented that the exchange transaction should close
contemporaneous with the proposed transaction. CCH agrees, from and after closing of
the proposed transaction, to accept control over Century-TCI serving the Santa Monica
Franchise area and accepts, acknowledges, and agrees that it and Century-TCI and
CAC are bound by all the commitments, duties, and obligations, present, continuing and
future; and Time Warner Cable has agreed to unconditionally guarantee the
performance of CAC Franchises after the close of the exchange transaction. CCH
agrees to unconditionally guarantee the performance of Century-TCI and CAC under
the Santa Monica Franchise from the close of the Proposed Transaction until such time
as the exchange transaction closes and Time Warner Cable becomes the guarantor.
In addition, while the City had requested assumption of the franchise obligations
by the ultimate parent corporation, Time Warner Inc., instead Time Warner Cable has
unconditionally guaranteed the performance of CAC.
Safety Code Violations
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The City?s technical consultants have completed field investigations in Santa
Monica and have documented conditions related to violations of mandatory safety
codes, including as they relate to grounding drops to subscriber?s homes. Further, the
technical reports documented failure to fully comply with the Multiple Dwelling Units
(MDU) upgrade requirement of the franchise. Similar violations exist in the single family
homes and MDU?s of less than 8 units. These violations constitute a breach of the
franchise and appropriate notice has been provided to Adelphia. The violations
identified in the initial field audits have been fixed. However, the City has delineated a
repair and maintenance program for the entire system and established an 18 month
cure period to ensure measurable system compliance. Quarterly performance reviews
will be held to review progress. The City will conduct an evaluation to independently
verify compliance. Penalties will be levied for noncompliance with the plan in
accordance with the franchise. The companies have accepted the City?s proposed
corrective action plan.
Settlement
The City and Adelphia have agreed to settle claims by the City arising from the
performance by Century ?TCI/Adelphia pursuant to the terms and conditions of a
settlement and mutual release agreement (the Century-TCI Settlement Agreement).
The settlement resolves outstanding disputes including owed franchise fees, utility user
taxes, fees and penalties and includes a settlement payment of $950,000 to the City
and an 18 month compliance cure period for construction violations. Time Warner
Cable agrees to provide the same level of customer service to its customers in Santa
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Monica as provided to its customers in the City of Los Angles. In addition, the
companies warrant and represent that the costs associated with the proposed
transactions will not result in any increase in subscriber rates. The franchise with
Adelphia expires in October 2007. If the transfer to Time Warner Cable is not
completed for some reason, the approval of the transfer is void. All terms of the current
Franchise are assumed by the transferee. As noted Time Warner Cable will guarantee
performance of all franchise and settlement obligations.
SECTION 3.Budget/Financial Impact
The settlement resolves all outstanding financial claims of the City with the City
receiving $950,000. Of that amount, $63,152.16 is payment for Adelphia?s FY 2005-06
business license. The remaining funds will be deposited into the General Fund
Miscellaneous Revenue account (01224.404170).
SECTION 4.Recommendation
Staff recommends that the City Council adopt an ordinance approving and
consenting, subject to certain conditions, to the transfer of control of Century-TCI
California, LP from Adelphia to Time Warner and authorize the City Manager to execute
all necessary documents.
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Prepared by: Kathryn Vernez, Assistant to the City Manager for Government
Relations
Steve Stark, Chief Financial Officer
Joseph Lawrence, Assistant City Attorney
Robin Gee, Cable TV Manager
Attachment: Ordinance
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F:\MunicipalLaw\Share\LAWS\JL\TimeWarnerCableFranchise 012406 mtg.doc
City Council Meeting: January 24, 2006 Santa Monica, California
ORDINANCE NUMBER _________ (CCS)
(City Council Series)
AN ORDINANCE APPROVING AND CONSENTING, SUBJECT TO
CERTAIN CONDITIONS, TO THE TRANSFER OF CONTROL OF CENTURY-TCI
CALIFORNIA, L.P., WHICH OPERATES CABLE SYSTEMS IN THE
CITY OF SANTA MONICA, FROM ADELPHIA COMMUNICATIONS CORPORATION
TO COMCAST CABLE HOLDINGS, LLC AND TO THE TRANSFER OF
OWNERSHIP AND CONTROL OF CAC EXCHANGE I, LLC
FROM COMCAST CABLE HOLDINGS, LLC TO TIME WARNER CABLE INC.
WHEREAS, Century-TCI California, L.P. (?Century-TCI?), which is jointly owned
by Century-TCI California Communications, L.P. and Century-TCI Holdings, LLC, and
affiliated with Adelphia Communications Corporation (?Adelphia?), owns, operates and
maintains cable television systems in the City, and is providing service under the terms
and conditions of Franchise Agreement dated June 4, 2002 with an effective date of
October 1, 1999 and an expiration date of July 3, 2007 (?Franchise Agreement?),
Ordinance 6.108 of the Santa Monica Municipal Code (?Ordinance?), Resolution 9766
passed May 21, 2002 (?Resolution?); Settlement Agreement between the City and
Century-TCI dated May 28, 2002 (?2002 Settlement Agreement?), I-Net and
Construction Agreement dated May 28, 2002 between the City and Century-TCI (?I-Net
Agreement?) and have agreed to enter into a Settlement and Mutual release Agreement
with the City in January 2006 (?2006 Settlement? or ?Century-TCI Settlement
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Agreement?). The Franchise Agreement, Ordinance, Resolution, 2002 Settlement
Agreement, I-Net Agreement and 2006 Settlement are referred to collectively herein as
the ?Franchise Documents;? and
WHEREAS, Century-TCI has preserved its rights with respect to renewal of the
Franchise under 47 U.S.C. § 546(a)-(g); and
WHEREAS, the City and Century-TCI have agreed to settle claims by the City
arising from the performance by Century-TCI under the terms and conditions of the
Franchise Documents pursuant to the terms and conditions of the Century-TCI
Settlement Agreement; and
WHEREAS, Adelphia and Comcast Corporation (?Comcast?) have entered into
an ?Asset Purchase Agreement? dated April 20, 2005 (the ?Purchase Agreement?),
pursuant to which Comcast Cable Holdings, LLC (?CCH?), a subsidiary of Comcast, will
purchase Adelphia?s partnership interest in Century-TCI (the ?Adelphia Transaction?);
and
WHEREAS, Comcast and Time Warner Cable Inc. (?Time Warner Cable?) and
other parties named therein, have entered into an ?Exchange Agreement? dated April
20, 2005 (the ?Exchange Agreement?), pursuant to which CCH will cause Century-TCI
to assign its assets, including the Franchise to CAC Exchange I, LLC (?CAC?), which will
become a wholly-owned subsidiary of Century-TCI, and forthwith to transfer 100% of
the outstanding equity securities of CAC to Time Warner Cable (the ?Exchange
Transaction?). The Adelphia Transaction and the Exchange Transaction are referred to
collectively herein as the ?Proposed Transactions?; and
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WHEREAS, on June 14, 2005, Time Warner Cable submitted to the City on
behalf of Century-TCI, Adelphia and CCH, materials including Federal Communications
Commission (?FCC?) Form 394 dated June 10, 2005, requesting that the City approve
the transaction transferring control of Century-TCI from Adelphia to CCH (the ?Century
Change of Control Application?); and
WHEREAS, in the materials filed with the City on June 14, 2005, Comcast
represented that an internal transaction, for which Comcast did not request City
approval, would result in the assignment of the assets of Century-TCI, including the
Franchise from Century-TCI to CAC, but that this internal assignment would only occur
immediately prior to, and for the sole purpose of, consummating the Exchange
Transaction; and
WHEREAS, on June 14, 2005, Time Warner Cable also submitted to the City on
behalf of Century-TCI, Time Warner Cable, CCH and CAC, materials including FCC
Form 394 dated June 10, 2005 requesting that the City approve the transaction
transferring 100% ownership and control of CAC (whose assets will at this point include
the Franchise) from Century-TCI to Time Warner Cable (the ?Comcast-Time Warner
Transfer Application?). The Comcast-Time Warner Transfer Application and the
Century Change of Control Application are referred collectively to herein as the
?Transfer Applications?; and
WHEREAS, the Proposed Transactions will result in a transfer of control of
Century-TCI and a transfer and change of control of the Franchise and CAC, which is
subject to the City?s approval under the terms and conditions of the Franchise
Documents ; and
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WHEREAS, CCH has represented that the Exchange Transaction should close
contemporaneous with the Proposed Transaction but acknowledges the possibility of a
delay in the closing of the Exchange Transaction which could result in CCH owning and
controlling Century-TCI for a period of time; and
WHEREAS, CCH agrees, from and after closing of the Adelphia Transaction, to
accept control over Century-TCI and accepts, acknowledges, and agrees that Century-
TCI is bound by all the commitments, duties, and obligations, present, continuing and
future, of the Franchise Documents; and
WHEREAS, CCH agrees to unconditionally guarantee the performance of
Century-TCI under the Franchise Documents if the Exchange Transaction does not
close contemporaneously with the Adelphia Transaction and only until such time as the
Exchange Transaction closes and Time Warner Cable becomes the guarantor; and
WHEREAS, Time Warner Cable has agreed to unconditionally guarantee the
performance of CAC under the Franchise Documents from and after the closing of the
Exchange Transaction; and
WHEREAS, Century-TCI has activated its rights with respect to renewal of the
Franchise under 47 U.S.C. § 546(a)-(g);
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF SANTA MONICA
DOES ORDAIN AS FOLLOWS:
Section 1. Pursuant to the Franchise Documents, the City consents to the
transfer of control of Century-TCI from Adelphia to CCH, the transfer of the Franchise
from Century-TCI to CAC, and the transfer of control of CAC to Time Warner Cable,
subject to the following conditions:
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(a) Century-TCI, Adelphia, CCH, CAC and Time Warner Cable shall
execute and file with the City Manager a Change of Control Agreement (?Change of
Control Agreement?) in the form attached hereto Appendix A no later than January 30,
2006.
(b) CCH shall execute and file with the City Manager an Acceptance in
the form set forth as Exhibit B to the Change of Control Agreement, no later than
January 30, 2006.
(c) CCH shall execute and file with the City Manager the Guarantee of
Performance in the form set forth as Exhibit C to the Change of Control Agreement, no
later than January 30, 2006.
(d) Time Warner Cable shall cause CAC to execute and file with the
City Manager an Acceptance in the form set forth as Exhibit D to the Change of Control
Agreement, no later than January 30, 2006.
(e) Time Warner Cable shall execute and file with the City Manager a
Guarantee of Performance in the form set forth as Exhibit E to the Change of Control
Agreement, no later than January 30, 2006.
(f) The Adelphia Transaction must close by October 31, 2006. The
Exchange Transaction must close by December 31, 2006. The Proposed Transactions
shall be consummated on the terms and conditions that are not in any material respect
different from those described in the Transfer Applications and other related materials
provided to the City, this Ordinance, and the Change of Control Agreement.
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(g) Adelphia shall execute and file with the City Manager the Century-
TCI Settlement Agreement, in a form acceptable to the City Manager and Century-TCI,
no later than January 30, 2006.
(h) The terms and conditions of the Century-TCI Settlement shall be
fully complied with according to the terms and conditions of that agreement.
Section 2. If any of the conditions specified in Section 1 hereof are not both
agreed to and timely satisfied, then upon written notice by the City to Adelphia, CCH
and Time Warner Cable, the City?s consent to the Proposed Transactions shall be
voidable by the City, in its sole discretion, in accordance with the terms of the Change of
Control Agreement and the applicable transfer(s) shall be deemed denied as of January
24, 2006, unless extended by written agreement of the City Manager.
Section 3. Any material misrepresentation in the Transfer Applications shall
constitute a violation of the Franchise Documents, subject to all the remedies available
to the City under the Franchise Documents.
Section 4. The City Manager is authorized to execute the Change of Control
Agreement and any amendments on behalf of the City.
Section 5. The City Manager is authorized to negotiate and execute the Century-
TCI Settlement Agreement and any amendments on behalf of the City.
Section 6. This Ordinance is a final decision on the Transfer Applications within
the meaning of 47 U.S.C. § 537, and for these purposes the Transfer Applications are
deemed acted upon when this Ordinance is approved by the Council.
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Section 7. The Mayor shall sign and the City Clerk shall attest to the passage of
this Ordinance. The City Clerk shall cause the same to be published once in the official
newspaper within 15 days after its adoption. This Ordinance shall become effective 30
days from its adoption.
APPROVED AS TO FORM:
_________________________
MARSHA JONES MOUTRIE
City Attorney
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