SR-121074-9Aoffice of the President
December 5, 1973
i
City Council
City o£ Santa Ntonica
City Hall
1685 Main Street
Santa Monica, California
Honorable Sirs:
In compliance with the provisions of Section !~, Ordinance Number 731+,
an Ordinance of the City of Santa Ntonica, California, Theta Cable of
California hereby applies for an increase in certain of its rates and
charges for cable television service as set forth in the schedule
filed and approved with Thetas application, and the City~s resolutions
number 361,1, and 4211. Tab A.
This is the first request made by Theta Cable for an increase in
certain of its rates and charges since our service to the citizens
of Santa Konica began in 1969. Since then the cost of labor has
risen more than thirty percent while the cost of equipment and
supplies needed for system operation and reconstruction has increased
by as much as fifty percent. These cost increases coupled with ex-
panded regulatory obligations imposed by the Federal Cor¢nunications
Commission have caused a serious financial situation for. our company.
Some of the more important factors which are adversely affecting our
financial condition are discussed in detail for your information and
analysis.
First and most important from the standpoint of long range impact on
our financial condition is the increased number of cable television
channels which must be provided at this time to carry existing and
projected television signals in this area and by January 1977 in order
to comply with FCC regulations.
New Federal Communications Commission re ulations require that for
every broadcast station carried, an equi 'e rovided
by the cable system. ~a®
~e1 ~~~~
Tats ~~f~3' ee
.. ... .:J ~ ~~ ~E'ftlRNE6 TO T!dE
CITY CCERK'S OF~t+;€
f~6 F[~t[dG.
Box 25990, Los Angeles, California 90025 Telephone (213) 829-2676
A subsidiary of Hughes Aircraft Company and Teleprompter Corporation
City Council
City of Santa Monica
Page 2
December 5, 1973
In Santa Monica, there were twelve television stations on the air
when the Santa Monica Franchise was granted. Today there are thirteen,
with two more channels to be added in the near future. This reouires
that firstly, Theta expand its channel capacity now to meet franchise
requirements to carry all Los Angeles Market television signals. Second-
ly, tae must have one non-broadcast channel for every broadcast channel
carried.
This means that now, Theta is required by the FCC to be prepared +mith
a 30-channel system by January 1977 and if additional stations are
activated, a requirement for even more channels will exist. Note
that this channel capacity requirement is more than double that re-
quired when the franchise was granted.
In addition to the increased requirement for carriage of broadcast
signals, the FCC directed all CATV systems with 3500 subscribers to
engage in substantial local cable system program origination beginning
March 11, 1971. Compliance with this directive necessitated the expendi-
ture of substantial capital to construct a programming studio and mobile
origination facilities. In addition to capital debt incurred to build
and equip these facilities, a substantial operating cost to service that
debt and normal depreciation has been added to our operating expenses,
The FCC rules also require as a condition for continued operation, that
by January 1977, Theta have the ability to carry on its system not only
all broadcast television signals and a cable-system-operated local origi-
nation channel, but also at no cost to the users a Municipal Government
Channel, a Public Recess Channel and an F~ducational Access Channel. tiwre
must also be able at that time to provide one or more channels for leased
access.
These requirements have necessitated the considerable rebuild of sections
of our plant during 1972 and 1973 to provide the channels established
as a goal by the FCC for January 1977. A continuing reconstruction
effort through 1974 is needed to complete the expansion of our channel
capacity so that we may remain in compliance with FCC regulations and
provide good quality service to our customers.
Beginning shortly before March 1, 1971, Theta began originating CATV
programming in accordance with the FCC directive noted above. This
action imposed immediate and continuing costs for personnel such as
program directors, cameramen, recording technicians and others.
The capital costs and operating costs to support this directed activity
are shovm in Tab B.
City Council
City of Santa Monica
Page 3
December 5, 1973
In addition to these known costs for program origination, each of the
access channels will require varying amounts of personnel for operational
and administrative support. For example the FCC's Public Access re-
quirement directs that we provide channel capacity with a separately
equipped studio, and at least five minutes of public access programming
effort without charge to anyone who requests the use of such facilities
and services. The cost of this activity during 1973 and an estimate of
costs for 1974 are included in Tab`_B.
In addition to the adverse impact of the foregoing factors the rising
cost of money has created a serious additional load upon our financial
structure. Interest costs on our cable plant have risen from 6~ in 19b7
to 11-7/16% at this time. The effect of this is shown in Tab C.
In the past three years the electronic device known as the Television
Channel Selector has changed in nature from a twelve channel device
designed to improve the subscriber's television set picture clarity to
an instrument which expands the channel capacity of a T~1 set from twelve
to thirty or more so that our customers may receive all off-the-air and
cable system originated channels available to them.
These programs include those carried by Channel 40, Educational Channels
58 and 68, Theta's Time and ~rdeather Channel, Theta's Shopping and other
service channels, and the Educational, idunicipal, Public Access and
Leased Channels for which we are being required by the FCC to provide
channel capacity at great expense. The Channel Selector thus becomes
a piece of equipment which Mme must purchase, install and maintain for
our subscribers.
We have included a breakdown. o£ the various elements of cost on which
we have based our charge for a Channel Selector as Tab D.
The cost of cable plant maintenance has risen rapidly since oux• service
began in 1967. Maintenance costs per mile of plant now average 5571
per year.
As previously stated, during the period from 1969 to the present, Theta
Cable has made no effort to obtain a rate increase even though it has
been shown in the foregoing discussion that a basis for such an increase
has been developing for the past three years.
We believe the foregoing discussion with Tabs A through D provide a clear
justification for the subscriber service rate increase requested.
City Council
Gity of Santa Monica
Page 4
December 5, 1973
Please note that even though this rate increase is granted and becomes
effective January 1, 1974, Theta will continue to operate at a loss for
the coming year as indicated in Tab A.
Very truly yours,
;John ~i1. Atwood
i ;`President
i,~~ JGdA:eb
TAB A
Our monthly subscriber service rate is $5.00. A charge of $1.00 is
made for a Channel Selector.
The resulting financial losses incurred during the past three years
under this fixed rate structure in the face of continually rising
operating costs is shown below:
THETA CABLE OF CALIFORNIA STATEMENT OF EARNINGS (000)
Forecast
1971 1972 l~ 1974
INCOP~
Subscriber Fees $ 1,945 $ 2,51$ $ 3,257 $ 5,543
Recommended Rate
Increase - - - 894
Installation 92 129 108 163
Advertising and
Other - $ 20 412
TOTAL INCOME 2,037 2,655 343$5 7,012
EXPENSES
Fixed Expenses•
System Lease Rents 948 1,657 2,650 3,700
Pole Rents 127 169 225 316
Property Taxes 284 521 584 650
Franchise Taxes 66 102 135 250
Other (Deprec.,
Amort., etc.) 128 336 576 700
1,553 2,785 4.170 5,616
Operating Expenses:
System I~4aintenance 211 328 565 800
General and Admini-
strative 236 249 308 550
Selling 35$ 402 450 730
Program Origination 149 292 399 720
TOTAL EXPENSES 2.507 4,056 5,g92 8,416
OPERATING LOSS ®
$ ~ 470/ $C1,401~ $(2,507 $<1 0
_ 1
TAB A
In order to reduce this loss to a more manageable figure, Theta
Cable of California hereby requests a revision of the rate structure
specified in City of Santa Monica Resolutions Number. 3644 and 4211
to read as follows.
I. Installation Charge
A. Residence
1. First Outlet
a. Overhead Service
i. The charge shall be $10.00
ii. In the event that the distance measured along
the cable from the center line of the street,
alley,. or easement occupied by the Feeder cable
to the point of attachment of the cable with
the subscribers residence exceeds 150 feet,
the grantee may make an additional charge not
to exceed the actual direct cost to the grantee
attributable to such distance in excess o£
150 feet.
b. Underground Service from Underground Feeder Cable
i. In the event that the subscriber independent-
ly provides for his own trenching (including
back-filling repaving and~or replanting),
the charge shall be as stated above for Over-
head Service (a. i. and ii.).
ii. In the event that the subscriber contracts
with the grantee to provide the trenching and
related work, the charge for the trenching,
etc., shall be the variable cost incurred
by the grantee and the charge for the duct,
cable and installation shall be as stated
above for Overhead Service (a. i. and ii.)
iii. In either event, grantee shall bear the full
cost of providing the trenching and all other
facilities from the feeder cable to the sub-
scriber.{s property line.
_ z -
TAB A
iv. The grantee shall inform the subscriber of
the above options and the grantees estimated
costs, therewith.
c. Underground Service from Overhead Feeder Cable
i. The charge shall be as stated above for Over-
head Service (a. i. and ii.) and in addition
thereto, the difference between the grantees
incurred variable cost of providing the under-
ground facilities and the estimated cost of
constructing equivalent aerial facilities.
2. Each Additional Outlet
a. There shall be no charge for additional outlets
if the subscribers order for same is made not
later than the time the first outlet is installed
or reconnected or any other outlet is relocated.
b. U1hen the subscribers order is made subsequent
to the time specified in 2.a. above, the charge
shall be $10.00 for the additional outlet and
no charge for each further additional outlet,
if any, ordered installed concurrently.
c. The condition stated in 1. a. ii. above shall be
applicable.
d. ?then an additional outlet is installed in a sep-
arate structure on subscribers premises and the
distance measured along the cable, between points
of attachment of the cable to the separate struc-
tures exceeds 50 feet, the grantee may make an
additional charge not to exceed the actual direct
cost to the grantee attributab~ to such distance
in excess of 50 feet.
3. Reduced Charges During Certain Periods
a. At the option of the grantee, any of the fore-
going charges may be reduced by any amount.
b. Reduced charges, if offered, shall be on a non-
discriminatory, nonpreferential basis.
-3-
TAB A
4• Reduced Charges Under Certain Conditions
2. In those instances where a grantee serves a
subscriber through a service drop and~or
outlets installed as part of a prior commercial
CATV system, or previously installed facilities,
no installation charge shall be made for such ser-
vices in place, except that a charge not exceed-
ing the actual variable cost to the grantee may
be made for such replacements or repairs as may
be necessary. In no event shall these charges
exceed those prescribed under 1, and 2. above.
5. Additional Charge for Non-Standard Installations
a. In the event that a subscriber requests a non-
standard installation, such as concealed wiring,
etc., that is not economically feasible for the
grantee to provide at the foregoing rates and
charges, the grantee upon agreement with the
subscriber may make an additional charge not to
exceed the actual variable cost to the grantee
attributable to such nonstandard installation.
B. Multiple Apartments, Hotels, Motels and Non-Residence
1. All installation charges £or the above-captioned
classes of subscribers (where Pultiple Apartments
are not under one ownership with one customer billing)
shall not exceed the actual variable cost to the grantee
of making such installations.
2. Each grantee shall keep such records as may be necessary
to identify the costs and charges associated with each
of the foregoing subscribers.
C. Schools and City-Owned Facilities
1. Theta will provide, without charge, one service drop
for all public and nonprofit private sehools and colleges,
and for City buildings as agreed on between Theta and
the Council, provided that such locations are passed
by the transmission cable maintained for the service of
paying subscribers. Additional outlets for such buildings
will be provided at cost,
-4-
TAB A
II. Monthly Rate
A. Residence
1. First Outlet
a. The rate shall be $6.95 per month
2. Each Additional Outlet
a. The rate shall be $1.50 per month
B. Multiple Apartments
1, PSumber of Apart:
1 4 $6.50
5 - 19 5.50
zo - 49 4.50
50 or more 3,50
2. The rate for each additional outlet within an Apartment
Unit shall be $1.50 per month.
3. The above rates shall apply only vrhere all outlets
are on the same premises, under one ownership and with
billing to one customer..
4. The application of the above rates in lieu of the
rates specified in II. A. , shall be at the option of
the grantee.
C. Hotels, Motels and Non Residence
1. The rate for each unit of transient type facilities
shall be $3:50 per month for up to 100 units. For
facilities with more than 100 units, the rate shall be
$2.50 per month.
D. Prorating for Less Then One Months Service
1. The monthly rate shall be prorated on the basis of
the number of days in the period for which service was
rendered to the number of days in the billing period.
-5-
TAB .A
E, Billing and Payment
1. The bill £or the monthly rate may be rendered in ad-
vance. Such bill is due and payable not more than five
days in advance of the period during which service is to
be furnished.
2. ^1 he billing period shall not exceed two calendar months.
F. Convertor: NLinimum Capacity 30 Channels
1. The rate shall be $1.50 per month per unit.
2. The grantee shall not reduce the number of available
channels, previously provided by its system, to any
subscriber not desiring to use the convertor.
G. ~rlaiver of Service Charge to Schools
1. The grantee shall waive the foregoing monthly charges
for CATU service it provides public, parochial and other
non-profit schools.
H. ;^Taiver of Service Charge to City-Owned Facilities
1. The grantee shall waive the foregoing monthly charges
for CATU service it provides City-owned facilities.
III. Relocation Charge
A. The charge shall be $20.00 per relocated outlet, except
that where the subscriber's order for same is made not
later than the time an additional outlet is installed or
the subscriber's service is reconnected the charge shall
be $10.00 per relocated outlet.
B. Ir, the event that more than one outlet is ordered relocated,
concurrently, the charge far the first such outlet shall
be as set forth in III. A. above, and the charge for each
additional relocated outlet shall be $10.00.
C. The condition stated in I. A. 1. a. ii. above shall be
applicable.
-6-
TAB A
IV. Reconnect Charge
A. The charge shall be X10.00 per subscriber.
B. The charge shall apply where the grantee had previously
served the premises, and £acilities are substantially
in place, but service was cancelled, suspended or terminated
for any good cause.
C. The charge may be applied where the service is not interrupted
but a subscriber name change occurs.
D. The charge shall not be made in addition to the installation
charge set forth in I. A. 1. or I. B. above.
E. The grantee shall not remove, rearrange or otherwise
disturb any of its existing facilities for the purpose
of making a greater charge than would otherwise be applicable.
F. During periods o£ reduced installation charges specified in
Section I. A. 3. the above reconnection charge shall be
reduced in the same proportion that the installation charge
specified in Section I. A. 1. is reduced.
V. FM Radio Outlets
A. Where the grantee provides FM radio signals to the subscribers
FM radio receiver, the rates and charges for each connection
or outlet providing such service shall be identical with those
set forth above for TV outlets.
VI. Zine Extension Charges
A. In the event that a potential subscribers premises are
located at such a distance from the feeder cable that it
is not economically feasible for the grantee to provide
service at the foregoing rates and charges, the grantee
shall determine, upon request from the potential subscriber
the amount, terms, conditions and refund provisions of
the line extension charge which, in addition to the foregoing
rates and charges, would be fair and reasonable under the
particular conditions and circumstances.
7
TAB B
THETA CABLE OF CAI,IFORNIA_
VITAL STATISTICS
(IN DOLLARS)
{FCST.) (FCST.)
1271 1972 ~ 1974
Gross Program
Origination Expenses 160,233 544,136 413,000%` 800,0003`
Capital Expenditures
£or Studio and
Equipment 179,372 154,742 100,000
-~-- Includes $17,500 Public Access in 1973 and $25,000 in 1974•
TAB C
Total Plant Investment as of August 26, 1973, was $34,686,000 of which
$21,971,000 is on Long Terms Lease Financing. Of this $21,971,000
lease $12,119,000 is on a Variable Interest Rate tied to the ~~London
Interbank Rate: - and as a result, the increase in interest cost has
added $350,380 to our interest costs alone during 1973• If these
current interest rates continue during 1974, this cost will rise to $558,000
by year end 1974•
TAB D
CHANNEL SELECTOR
Purchase price from vendor
Installation Cost (including travel time)
SUB-TOTAL
20~ move factor - disconnecting
and reconnecting subscribers
10% loss factor - customers take away
and destruction
Maintenance and Tuning
1 call per year for 5-year life
TOTAL COST
A. At proposed $1.50 per month or
$18.00 per year rate, it would
take:
4~ years to break even
on cost alone (normal
life - 5 years)
B. At current $1.00 per month or
$12.00 per year rate - ire will
not get our full cost out before
unit is salvaged.
$35.00
10.00
45.00
3.00
3.50
25.00
76. o
Santa Monica, California, I3ecember 31, 1973
i
TO: Mayor and City Council
FROM; The Staff
~ U£3ECT: Theta Gable Television Rate Increase Request
The subject rate' increase7eguest is presently. under study by the Finance
P
f
j ]3epartmeni. A xecommendation tivill be submitted to-ihe Council either for
i~ the meeting Sanuary 22, 1974 cr the meeting .February 13, 1974.
j Prepared by: 3isn Connolly
JEC:Ik
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