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HomeMy WebLinkAboutP- 4 Letter protesting Charter Communications Action in Regard to the Increase in Franchise fee CIT OF AZUSA 11111111. AGENDA ITEM TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: PAYMANEH MAGHSOUDI, LIBRARY AND COMMUNITY SERVICES DIRECTOR VIA: RICK COLE, CITY MANAGER(L . SUBJECT: LETTER PROTESTING CHARTER COMMUNICATIONS ACTION IN REGARD TO THE INCREASE IN FRANCHISE FEE RECOMMENDATION It is recommended that the City Council authorize the City manager to send attached letter to Charter Communications protesting the proposed increase in the franchise fee to be charged by Charter Communications for subscribers of Cable Television. BACKGROUND On January 21, 1999 Charter communications notified the City of their intention to increase the franchise fee from 5.25%to 5.75% in order to collect the amount that is paid to the City on revenues from advertising sales, home shopping purchases and other revenues that are subject to the franchise fee that do not appear on the bills. After careful review by the legal consol the City of Azusa along with other cities covered by Charter Communications are protesting Charter Communications declared intentions to raise the franchise fee from 5.25%to 5.75% or higher. This action has caused serious concern for Azusa and other cities served by Charter Communications. Q- 4" K/ circ ' Lit .110 The City of Azusa 9<<FORN- Mr. Rob Schwietz March 22, 1999 Vice President of Operations Charter Communications 2215 W.Mission Road Alhambra, CA 91803 Dear Mr. Schwietz: The City of Azusa joins other cities served by Charter Communications to protest Charter Communications' recently declared intentions to raise the franchise fee form 5%to 5.75%or higher. We are distressed by this proposed course of action and protest the increase for the following reasons: 1. Franchise fees are levied upon the gross revenues earned by cable companies. Although they may be passed through to subscribers,franchise fees are not a tax levied upon subscribers for use of the cable system. Consequently,Charter's intention to charge an increased franchise fee to all subscribers in each of the cities serviced by Charter for gross revenues earned by Charter including revenues derived from home shopping sales,advertising revenues and revenues obtained from sources other than the sale of cable programming services seems patently unfair. All subscribers would be unduly subsidizing home shopping channel purchasers and cable advertisers who contribute to gross revenue,but totally avoid payment of any portion of the franchise fee. This allocation of the franchise fee to subscribers on a disproportionate basis would result in an unduly discriminatory assessment of the franchise fee which is prohibited under the Cable Communication Act and other laws. : l _- .dude monies paid to Charter from I ome shopping sales and advertiser charges, Si.harter is o. i_a - • o • • - •,- - • i t c. se ees on a ose revenues That o. igation .y Charter does not translate into an entitlement for Charter to collect from those sub ribers who do not benefit. Further, since cable rates are based in part on Charter's cost of doing business, subscribers would be billed twice,once for the cost of programming and overhead and a second time for revenues derived from home shopping purchases and advertiser fees. 2. Since the franchise fee is a charge levied against the cable operator for gross revenues earned from all sources,the cable operator has an obligation to correctly attribute the franchise fees to the appropriate revenue source(s). In other words,the cable operator can and should find a way to allocate franchise fees to home shopping purchases and to advertiser fees paid to the cable operator. We suggest fees be billed to home shopping channels and to advertising firms to recoup franchise fees due to the cities. �`"' 3. Charter has mailed postcards to subscribers indicating that "...there will be an increase in franchise fee tax from 5.25%...". This statement is not correct for several reasons. First,the franchise fee is not a tax on the subscriber nor a tax levied upon the company. It is in effect a rent for use of the public rights-of-way. Second,the statement mailed by Charter to its Southern California subscribers implies that cities raised the franchise fee,and are the cause of higher cable rates. This also incorrect because the undersigned cities took no action nor did they encourage Charter to initiate this course of action. The declared intention to pursue this effort by Charter is a clear misrepresentation, because it is not a tax and Charter wrongfully represents that cities are assessing an unlawful franchise fee in excess of 5% established by federal and state law. 4. The franchise fee as defined in Section 622 [USC Section 542] states in part that: A(b)For any 12-month period,the franchise fees paid by a cable operator with respect to any cable system shall not exceed 5 percent of such cable operator's gross revenues derived in such period from the operation of the cable system. The federally imposed limit on cities is a five percent franchise fee. Should Charter intend to raise the percentage amount of the franchise fee, we request that you provide us with a legal justification for any such increases. We do not believe that federal law permits franchise fees be levied at one rate by the cities and another by cable operators. 5. We believe that residents of Azusa have been damaged because Charter has misrepresented to its subscribers that the City is charging an unlawful franchise fee. We demand that Charter correctly disclose to its subscribers precisely what Charter is doing-requiring subscribers to subsidize the franchise fee cost which should properly be charged to home shopping channels and cable advertisers. Please be advised that should Charter be found to have acted unlawfully in this matter and have to reimburse its subscribers,for this disproportionate overcharge of the franchise fee, we at the City of Azusa expressly prohibit Charter from passing through to subscribers the obligation to refund those monies. The above issues are of paramount importance to subscribers and we suggest a meeting at the earliest possible date with representatives acting on behalf of all southern California Charter cities and representatives of Charter in an effort to resolve this matter. At your earliest convenience please call Rick Cole at(626)812-5239 to arrange a meeting. Sincerely, Rick Cole City Manager cc: Mr. Melvin L Matthews