COUNTY OF SAN MATEO

Inter-Departmental Correspondence

Department of Public Works

DATE:

March 28, 2006

BOARD MEETING DATE:

April 4, 2006

SPECIAL NOTICE/HEARING:

None

VOTE REQUIRED:

Majority

TO:

Honorable Board of Supervisors

FROM:

Neil R. Cullen, Director of Public Works

SUBJECT:

Execution of a Cable Franchise Agreement with Comcast, and Direction to the Director of Public Works on the Distribution of Public, Educational, and Governmental (PEG) Access Capital Grants Being Made by the Cable Provider - County Wide

Recommendation

Adopt resolutions:

1)

authorizing the President of the Board to execute:

a)

a 15-year, non-exclusive Cable System Franchise Agreement (Agreement) with Comcast of California, IX, Inc., Comcast of California/Colorado/Florida/Oregon, Inc., Comcast of California/Illinois, LP and Comcast of California/Colorado/Washington, LP (collectively “Comcast”) which includes the provision for financing and construction of a fiber network (INET) to specific County facilities/campuses, to be determined by the County within 90 days of the execution of the Agreement;

b)

a side letter to the Agreement which provides additional information on PEG access channels, technical grants, and future cable transfers; and

2)

authorizing and directing the Director of Public Works to:

a)

make payments to MCTV, the PEG provider on the Coastside, in an amount not to exceed $83,000 from PEG Capital Grants that are to be provided by Comcast as a condition of the Agreement, based on signed purchase orders or receipts for PEG capital equipment requested and purchased by MCTV;

b)

develop a proposed program to be approved by your Board for the expenditure of the remaining PEG Capital Grant funds that the County will be receiving from Comcast for the acquisition of PEG capital equipment by PEG television providers (i.e. MCTV or Pen-TV [the PEG provider on the Bayside]) or by the County; and

c)

work with the County Manager and the Director of the Information Services Department to develop a priority list of County facilities that could be connected to the INET in accordance with the Agreement, and report back to your Board within 90 days of execution of the Agreement with said recommended priority list.

Vision Alignment

Commitment: Responsive, effective and collaborative government.

Goal(s): County and local governments effectively communicate, collaborate and develop strategic approaches to issues affecting the entire County; and government decisions are based on careful consideration of future impact, rather than temporary relief or immediate gain.

The Agreement and side letter are a result of a collaborative effort of the member agencies of the San Mateo County Telecommunications Authority Communication (SAMCAT) who have existing franchises with Comcast; and authorizing the Director of Public Works to initially reimburse MCTV for replacement capital equipment and to develop a program to use the remainder of the Capital Grants for PEG equipment by MCTV, Pen-TV or at County facilities, can maximize the benefits to the rate payers who will ultimately be financing these programs.

Background

Previous Board Action

1.

Entered into cable franchise agreements with the predecessors of Comcast that provide cable service to various communities in the unincorporated areas of the County including: Broadmoor, Burlingame Hills, San Mateo Highlands, North Fair Oaks, Los Trancos Woods, Skylonda, El Granada, Montara, Moss Beach, La Honda, and Pescadero.

2.

Became a member of SAMCAT, which originally included the cities of Belmont, Brisbane, Daly City, Hillsborough, Millbrae, Redwood City, San Carlos, and San Mateo County, and now includes all cities in the County except Menlo Park, East Palo Alto, and Atherton, as the latter three cities are in a different franchise area and have cable franchise agreements that have not as of yet expired.

3.

Entered into an agreement with MCTV in 1995, that designated MCTV as the PEG access provider for the Coastside area of the County, and provided funding for the services provided by MCTV for the coastside unincorporated franchised area.

History

The County, in cooperation with SAMCAT and the other seven cities within the franchise area (Belmont, Brisbane, Foster City, Millbrae, Redwood City, San Carlos, and San Mateo), have been negotiating with Comcast for the past four years to develop a new Agreement that defines the service to be provided and the remedies, including liquidated damages, that a subscriber or the County can pursue if the service is not provided in a timely fashion.

Concurrently, SAMCAT developed the concept of a fiber network (INET) with Comcast and the individual franchising agencies, that links the franchising agencies’ facilities and which can be used to broadcast and receive voice and video via Comcast's fiber network. The INET can also be used for live broadcasting over PEG television.

The County is somewhat of an anomaly with regards to both the location of its facilities that can be served by the INET and in PEG providers, as County facilities are primarily located in other jurisdictions’ franchised areas, and specific County areas within the franchise area receive PEG service from one of two PEG providers – Pen-TV on the Bayside and MCTV on the Coastside. Comcast does not have a “hard wired” or microwave link between the Bay and Coast, and therefore these two stations can only share programming by receiving them via hard copy media.

Discussion

Subscriber Related Provisions of the Franchise

The proposed Agreement is comprehensive and includes several issues in addition to cable television service. Summarized below are the subscriber related major topic areas.

Subscriber Related Topic Area

Franchise Provisions

Franchise Type

Non Exclusive Franchise

Duration

15 years

Interruption of Service

Prorata reduction in bill if over
12 continuous hours in 30 days

Service

Connected to system at no additional charge if within 125 feet of nearest tap

Lockout Devices

Available for sale or lease to subscribers

Regulation of Rates

County regulates pursuant to FCC regulations

Billing

Convenient and local customer service and bill payment location to be maintained in the County

Answer Time

Toll free number available 24/7; wait time not to exceed 30 seconds 90% of the time

Service Calls

Standard installations within
7 business days of order if within 125 feet of system

Service Interruptions

Corrected within 24 hours after interruption known and “best effort” to resolve within 48 hours

Notification to Subscribers

Written notification at time of installation, at least annually to subscribers and at any time upon request

Billing Disputes

Written response to written complaints within 30 days

Other Complaints and Disputes

Written procedures to be provided to County

Liquidated Damages

Provides liquidated damages on per day basis for varying amounts for failure to extend cable service ($75); violation of customer service standards ($100) failure to provide required reports and maps ($50) and failure to obtain permits ($100)

PEG Related Topics

The Agreement and side letter also provide resources for PEG access facilities including channel capacity, funding for necessary equipment, and cabling to permit the operation of the PEG Channels. Summarized below are the PEG related major topic areas.

PEG Related Topic

Provisions

Drops to Designated Buildings

Connection of existing and designated public locations that are within 200 feet of a cable plant and as designated by County. May include all state accredited public schools in franchise area

PEG Access Facility Management

County may designate to more than one entity

PEG Programming

Non Commercial in nature only

Listing of PEG Programming

Included in electronic program guide in same manner as other programs

Change from Analog to Digital Format

PEG will be carried on digital platform when format changes

PEG Channel Relocation

County managed channels - Comcast pays $2,500 and equivalent amount of advertisement spots; for Pen-TV - $5,000; MCTV not directly covered in this Agreement but has a separate agreement with Comcast

PEG Capital Funding

See PEG Access Capital Grant Section of this report

INET Funding

See INET Fiber Network Section of this report

INET Fiber Network

The Agreement also provides for “construction credits” that Comcast will use to construct a fiber network (INET) to interconnect County, city, and public school facilities across the eight franchising agencies. In addition, Comcast will provide an allocation for the necessary equipment to connect the County sites to the INET; and an allocation that is apportioned out to all eight Comcast franchises to connect the Pen-TV studio at the SamTrans Building in San Carlos, to the Pen-TV broadcasting site in Foster City. The INET can allow for the broadcast of live programming from the connected locations throughout San Mateo County. The Agreement requires the County to identify the locations it wants connected to the INET within 90 days of the Agreement being executed.

The County’s INET allocations are as follows:

INET Fiber Construction Credits

Allocation to County

Construction Cost for INET Fiber to County Sites

$496,195

County’s allocated portion of edge and switching equipment to enable activation of video and voice at County sites

$118,404

County’s allocated portion of costs associated with origination sites for Pen-TV

$5,607

Total

$620,206

Seven sites have been suggested for connection to the INET:

400 County Center

555 County Center

Human Services Agency in Belmont

Elections at Tower Road Belmont

San Mateo County Medical Center – San Mateo

Health Services Offices - San Mateo

County Office of Education

Comcast is required to construct the fiber system to serve the County sites as described above and which will use a combination of underground and aerial fiber cable. However, the Director of the Information Systems Department (ISD) does not believe the allocation for equipment is sufficient to connect all the suggested sites. In addition, additional costs to the County may be associated with interconnecting County buildings with the INET sites and maintenance of the equipment that connects County facilities to the INET, once the system is operational.

We have not identified any of the suggested sites in the Agreement as the Agreement also provides that your Board can reduce the construction credits for the INET and use the funds for additional PEG access capital funds or for County PEG related uses. We believe our recommendation to develop a priority list of sites after the Agreement is signed, will allow ISD and the County Manager sufficient time to determine and recommend if sites should be connected and which sites, the estimated costs of connection, or if the funding should be used for other PEG capital improvements for both Pen-TV and MCTV.

The allocation of money for Pen-TV is for the County’s portion of the costs associated with the origination sites for Pen-TV. Similar allocations are being provided to Pen-TV by the other 7 cities and were determined based on the number of subscribers within their jurisdictions.

PEG Access Capital Grant

The Agreement also provides the County with PEG Access Capital Grant funds in the amount of $379,908. The Grant must be used to support local PEG providers for the acquisition of PEG capital equipment (i.e. MCTV and Pen-TV) or by the County to support PEG Access. The schedule and amount of the grant funds is as follows:

Date of Distribution

Peg Access Capital Grants

30 Days of Signing

$82,197

60 Days of Signing

$50,000

4/4/2006

$82,197

1/31/2007

$53,428

1/31/2007

$56,043

1/31/2016

$56,043

TOTAL

$379,908

Distribution of the PEG Access Capital Grant money is at the discretion of your Board.

MCTV Requests for Other than Capital Improvement Grants

MCTV had asked that other Comcast/MCTV issues be resolved either prior to, or as a part of the proposed Agreement being considered by your Board. We notified Comcast of MCTV’s issues regarding office space; change of MCTV’s channel number - currently channel 6; reimbursement of MCTV’s costs associated with changing channel locations; allowing MCTV to insert Public Service Announcements (PSAs) with Comcast programming; and the ownership of PEG equipment. Comcast responded that the terms in their agreement with MCTV will not be changed by the proposed Agreement and that they would honor their commitments as outlined in the Comcast/MCTV agreement. Staff conferred with the attorney that negotiated the Agreement on behalf of SAMCAT and its member agencies, and the attorney has either revised the Agreement language or is of the opinion that the Agreement will not impact the terms and conditions of the MCTV/Comcast agreement.

Outstanding issues that have not been resolved but which Comcast is continuing to investigate is the quality of the connection at the Seton Coastside Medical Center (Seton) in Moss Beach, where the MidCoast Community Council holds its meetings, and which has not been satisfactorily established. We have included the cable connection in the proposed Agreement and at the writing of this report Comcast was still investigating the availability of the bi-directional cable drop at Seton. We will report to your Board as soon as we hear from Comcast.

We also inquired as to when Comcast will be connecting the Bayside to the Coastside through a hard wire link and when high definition would be available on the Coastside. These issues are not specific to the proposed Agreement and Comcast responded that they are currently looking into these issues, that there is not a specific time line, but that they would contact us as soon as a time line was established.

MCTV Request for Capital Grants

As stated in the History Section of this report, there is currently no hard wire connection between Comcast on the coast and Comcast on the bayside, and therefore, there is no direct connection between the two PEG providers - MCTV and Pen-TV.

The funds that Comcast will use to finance PEG capital improvements and the INET will be generated by subscriber charges. However, there is no direct connection between MCTV and the proposed INET.

We are recommending that your Board authorize a payment of $83,000 to MCTV once purchase orders or receipts are provided by MCTV. The $83,000 is based on the cash amount proposed to be made available to the County by Comcast ($379,908) and the estimated subscriber base (22% MCTV). However, we are also recommending that you direct us to return with a policy on how your Board wishes to distribute the remainder of the funds, as funding of the INET is also being provided through user charges, and your decision on which sites, if any, are to be connected to the INET, will impact the amount of funds that could be made available, and the amount of funds that could be allocated to either MCTV or Pen-TV.

As an example, if your Board decides that all the credits proposed for INET construction should not be used to connect County facilities and should be used to finance capital grants to PEG (i.e. $620,206 + $379,908 = $1,000,114), then MCTV could receive up to $220,000 based upon the same criteria (i.e. $1,000,114 * 22% = $220,000). Our recommendation allows MCTV to purchase playback equipment while your Board is considering if the INET is beneficial, if the INET is beneficial to Pen-TV and not MCTV, or some combination of the above scenarios.

Other Items in the Franchise Agreement/Side Letter

Technical Grant to SAMCAT

An unrestricted technical grant will be available to SAMCAT within sixty (60) days following the effective date of this Agreement. This grant is for $280,000 for the eight (8) agencies involved in the renewal process and is an unrestricted grant in support of PEG access and other cable-related regulatory purposes. These funds can be used to help defray the costs of negotiating the new franchises and will be apportioned to the eight (8) agencies based on population.

Comcast reserves the right, and it is at their discretion, to pass-through these costs to the subscribers in the County in addition to the pass-through amounts specified in the Agreement.

Interconnections to Other Franchise Areas

The County is part of three franchise areas that provide Cable service to the unincorporated areas. These include the Palo Alto JPA where Comcast is the provider; the proposed franchise area; and the RCN Franchise Area. The Palo Alto JPA covers unincorporated areas which include: Ladera, Menlo Oaks, West Menlo, and Sequoia Tract. The RCN Franchise covers the Broadmoor Area near Daly City. The proposed Agreement allows for an interconnection between RCN and Comcast that will allow for broadcast of Pen-TV by both providers.

We requested that Comcast include an interconnection between the proposed franchise area and the Palo Alto JPA in the Agreement. This connection would allow the Palo Alto JPA franchise area subscribers to receive Pen-TV. Comcast will not agree to include specific language in the Agreement providing for the interconnection, but has agreed to language that states that interconnections are not precluded by the terms of the Agreement. Any costs associated with interconnections will have to be negotiated with Comcast.

Corporate Guaranty

The Agreement includes a Corporate Guaranty as Exhibit E, which would only be executed by the Guarantor (Comcast Corporation), the Franchising Authority (County of San Mateo) and the Company (Comcast of California, IX, Inc., Comcast of California/Colorado/Florida/Oregon, Inc., Comcast of California/Illinois, LP and Comcast of California/Colorado/Washington, LP), if the Franchise was sold by Comcast. The Corporate Guaranty acknowledges that the Guarantor unconditionally guarantees the due and punctual payment and performance of the debts, liabilities, and obligations under the Agreement if there was a question as to the financial strength of the third party that was acquiring the Franchise. No action related to the Corporate Guarantee is required of your Board at this time.

All seven cities covered under the franchise area have executed similar franchise agreements.

Resolutions have been approved as to form by County Counsel.

Fiscal Impact

Under Federal Law, Comcast is entitled to recover its costs associated with the franchise from its subscribers. The Agreement allows for Comcast to start collecting those costs after January 1, 2007, at a cost recovery rate not to exceed 55 cents ($0.55) per subscriber per month should Comcast exercise this right. This rate is less than one percent (1%) of the average cable bill.

The Agreement also allows Comcast to pass through to the subscribers a seven percent (7%) “Cost of Capital” on the grants and construction credits specified in the Agreement, which cannot occur prior to January 1, 2007. This is essentially an interest charge on the funds to be provided, and will accrue until the funds and interest are recovered through subscriber fees.

The County has received through previous franchise agreements and will continue to receive through the proposed Agreement an annual franchise fee of five percent (5%) of Comcast’s gross revenues for the use of the public right-of-way. These funds have been used to fund SAMCAT, Pen-TV, MCTV, County staff time spent on cable TV issues, and General Fund expenses.

Currently, there are State and Federal legislative proposals that could reduce or eliminate franchise fees in the future. However, it is uncertain as to when and if any legislation will be approved.

MCTV receives two percent (2%) of the County’s franchise fees collected on the Coastside for compensation for the services they provide to those residents on the Coastside, including Montara, Moss Beach, El Granada, La Honda, Loma Mar, and Pescadero. This percentage was determined by your Board through execution of an agreement between the County and MCTV dated September 12, 1995. MCTV received approximately $40,000 through this financing mechanism during the 2004-05 fiscal year. The percent of County franchise fees allocated to MCTV is at the discretion of your Board. MCTV also serves Comcast subscribers in the City of Half Moon Bay.

Pen-TV received $36,659 of the County’s franchise fees during the 2004-05 fiscal year.

There is no direct impact to the General Fund by your Board adopting the recommendations as presented. There may be some impact to the General Fund associated with the INET if your Board determines to connect County facilities to the INET, and depending on the use that is made of the INET.