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CR 05-090 Order Public Hearing on Transfer of Control of Cable Television System July 5, 2005 ~ Council Report 2005-090 Order Public Hearing on Transfer of Control of Cable Television System Proposed Action Staff recommends adoption ofthe following motion: Authorize staff to inform Time Warner of the need for a public hearing to be held on August 3, 2005 to consider the proposed transfer of control of the cable television franchise from Time Warner Cable to Comcast Cable Communications and to determine whether the proposed transfer mav have an adverse affect on cable television subscribers. This motion will result in a public hearing being held to determine the effect ofthe proposed transfer of the City's cable franchise to Comcast. Overview Time Warner Cable and Comcast Cable Communications have entered into an agreement to purchase the assets of Adelphia Communications. In addition to acquiring Adelphia cable systems, this agreement calls for Time Warner and Comcast to transfer cable systems throughout the United States in order to have individual markets, such as the Minneapolis/St. Paul area, be served by only a single company. The proposed transfer of control requires approval under our franchise and Minnesota Law. Primarv Issues to Consider . Is a public hearing necessary? Supportin2 Information . Letter from Brian Grogan re: Time Warner Transfer of Control . Section 25 of the Cable Franchise Ordinance regarding Transfers of Ownership I es Genellie Assistant City Manager Financial Impact: $ None Budgeted: Y/N Related Documents (CIP, ERP, etc.): Notes: Source: Council Report 2005-090 Page 2 Is a public hearing necessary? A public hearing is not required. The City Council could simply approve a resolution approving the transfer. This would be an appropriate course of action if the Council feels that it does not require any additional information about the transfer's effect on local subscribers. If, on the other hand, the City Council determines that it wants more information and/or it wishes to allow residents an opportunity to learn more about this transfer then it should hold a public hearing. The Southwest Suburban Cable Commission's attorney, Brian Grogan, will be preparing a report on the transfer for all the cities that he represents that are served by Time Warner. This report could be presented to the Council by Mr. Grogan who would then be able to answer questions. I am sure representatives of Comcast would also make an appearance. The public would also have an opportunity to find out more about the transfer. Alternatives 1. Schedule a public hearing about the transfer. 2. Approve a resolution consenting to the transfer ofthe cable franchise to Comcast. 3. Take no action, which would also result in consenting to the change of control Staff recommends Alternative #1. MO S S & BARNETT A Professional Assoclatton 4800Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402-4129 Telephone 612.347.0300 Facsimile 612.339.6686 www.moss-barnett.com BR'AN T. GROGAN 612.347.0340 GroganB@moss-bamett.com VIA EMAIL AND U.S. MAIL June 30, 2005 Mr. Jim Genellie Assistant City Manager 1010 South First Street Hopkins, MN 55343 Re: Time Warner Transfer of Control Dear Jim: As we discussed, Time Warner Cable and Comcast Cable Communications, LLC ("Comcast") have announced that Comcast will acquire control ofthe cable systems and franchises in the member cities of the Southwest Suburban Cable Commission (Eden Prairie, Edina, Minnetonka and Richfield, Minnesota). The proposed transfer of control requires approval under I) Minnesota Statutes Section 238.083 and 2) the City of Hopkins' ("City") current Cable Television Regulatory Ordinance ("Ordinance"). As part of the regulatory approvals necessary for this merger, on or about June 14,2005, your City received, Federal Communications Commission Form 394 - Application for Franchise Authority Consent to Assignment or Transfer of Control of Cable Television Franchise ("Form 394") from Comcast. Form 394 is Time Warner's application seeking consent to the proposed transfer of control of the City's cable television franchise to Comcast. A number of procedural requirements control cable television franchise transfer requests. Under federal law, the City has 120 days from the date of receiving Form 394 to act upon the transfer request. Thus, the federal deadline for City action is approximately October 12, 2005. The City's failure to act within that time serves as an implied approval of Time Warner's transfer request. The City's Ordinance requires that the City either approve the transfer request within thirty (30) days of receiving Form 394 or determine the need for a public hearing. Your Ordinance provides that a public hearing may be held at the time of a proposed transfer of control in order to assess whether the transaction may have an adverse effect on the City's cable television Mr. Jim Genellie June 30, 2005 Page 2 subscribers. There is no requirement that a public hearing must be held, however, if the City chooses not to hold a public hearing, it must approve the proposed transfer of control within thirty (30) days ofJune 14,2005. If a public hearing is deemed necessary to determine whether the proposed transfer of control will have an adverse effect on the City's cable television subscribers, the public hearing must be held within thirty (30) days of the date the City makes its determination of the need for a public hearing. Notice of the public hearing must be published fourteen (14) days in advance of the public hearing. A final decision by the City regarding Comcast's transfer request must be issued within thirty (30) days of the close ofthe public hearing. I recommend you delay sending notice of the public hearing to Time Warner until July 12-14, 2005 to maximize the time available for the conduct of the hearing. This will allow the City to hold the hearing on August 3, 2005. Under state and federal law as well as the City's Ordinance, the City may review the qualifications ofthe prospective controlling party. These qualifications fall into three (3) categories; legal, technical and financial. On behalf of a number of clients which we represent, Moss & Barnett will be preparing a report regarding the legal, technical and financial qualifications of Comcast based on the proposed transfer of control. We will review the voluminous information provided by Comcast as part of Form 394 and may seek additional information to clarify unanswered questions. Mr. Yuri Berndt, an attorney in our office and former CPA, will perform a review of the financial qualifications of Comcast under the proposed transfer of control. We will also review Time Warner's compliance with the existing franchise. We intend to issue our report outlining our recommendations regarding the legal, technical and financial qualifications of Comcast under the proposed transfer. Our report will also incorporate appropriate closing documentation including a detailed resolution and related documents. We also expect the Southwest Suburban Cable Commission to issue a recommendation to the City later this summer. For your convenience, we have enclosed a memo regarding the public hearing and a letter addressed to Time Warner regarding the decision to call a public hearing. We have also enclosed a sample motion which may be used to call the public hearing. If you have any questions, please do not hesitate to contact me. Very truly yours, V-1-QI /7~ . /fv.r~ Brian T. Grogan BTG/tlh Enclosures 787357vl Sec. 25. Transfer of Ownership. A. A Franchise shall not be assigned or transferred, either in whole or in part, or leased, sublet or mortgaged in any manner, nor shall title thereto, either legal or equitable or any right, interest or property therein, pass to or vest in any person other than an Affiliate of Grantee without the prior written consent of City, which consent shall not be unreasonably withheld. Further, Grantee shall not sell or transfer any stock or ownership interest so as to create a new controlling interest except with the consent of City, which consent shall not be unreasonably withheld. B. Any sale or transfer of Franchise, including a sale or transfer by means of a fundamental corporate change, requires the written approval of City. The parties to the sale or transfer of Franchise shall make a written request to City for its consent. City shall reply in writing within 30 days of actual receipt of the request and shall indicate its approval of the request or its determination that a public hearing is necessary. City shall conduct a public hearing on the request within 30 days of such determination if it determines that a sale or transfer of Franchise may adversely affect the Grantee's subscribers. C. Unless otherwise already provided for by local law, notice of any such hearing shall be given 14 days prior to the hearing by publishing notice thereof once in a newspaper of general circulation in the City. The notice shall contain the date, time and place of the hearing and shall briefly state the substance of the action to be considered by City. Within 30 days after the public hearing, City shall approve or deny in writing the sale or transfer request. D. In a sale or transfer of only a Franchise, without the inclusion of the System in which at least substantial initial construction has commenced, a Grantee shall be required to establish to the sole satisfaction of City that the sale or transfer of a Franchise is in the public interest. E. For purposes of this section, fundamental corporate change means the sale or transfer of a controlling interest in the stock of a corporation or the sale or transfer of all or a majority of a corporation's assets, merger (including a parent and its subsidiary corporation), consolidation or creation of a subsidiary corporation. For the purposes of this Section, fundamental partnership change means the sale or transfer of all or a majority of a partnership's assets, change of a general partner in a limited partnership, change from a limited to a general partnership, incorporation of a partnership, or change in the control of a partnership. I F. The word "control", as used herein, shall apply to the sale or transfer of all or a majority of Grantee's assets or shares of stock, merger (including any parent and its subsidiary corporation), consolidation, creation of a subsidiary corporation of the parent company, or sale or transfer of stock in Grantee so as to create a new controlling interest. The term "controlling interest" as used herein is not limited to majority stock ownership, but includes actual working control in whatever manner exercised, including the creation or transfer of decision-making authority to a new or different board of directors. Every change, transfer or acquisition of control of a Grantee shall make the Franchise subject to cancellation unless and until City shall have consented in writing thereto, which consent shall not be unreasonably withheld. For the purpose of determining whether it shall consent to such change, transfer or acquisition of control, City may inquire into the qualifications of the prospective controlling party. The City reserves the right to seek reimbursement of its costs for conducting an inquiry to the extent pennitted by applicable state and federal law. The preceding statement does not constitute an agreement by any party to reimburse the City. G. In no event shall a transfer or assignment of ownership or control be approved without transferee becoming a signatory to a Franchise. H. Any transferee of a Franchise shall be subordinate to any right, title or interest of City. 1. For infonnation on the right ofthe City to purchase the cable system during a transfcr of ownership, see Section 26. J. Notwithstanding anything to the contrary, no such consent or approval shall be required for a transfer or assignment to any Person controlling, controlled by or under the same common control as the Grantee. Sec. 26. Right to Purchase. A. Transfer of Ownership. If at any time a Grantee receives a bona fide purchase offer for an asset sale of a System which a Grantee is willing to accept, a complete copy of such offer shall promptly be given to City and City shall have the right to purchase a System according to the tenns of that offer. City shall exercise such right by submitting to a Grantee, within 60 days after City's actual receipt of the bona fide offer, notice that City desires to purchase a System pursuant to said offer. If City does not exercise such right a System may be sold, but only on tenns substantially similar to those terms submitted to City. If any substantive changes are made in the purchase offer given to City, such purchase offer, as so changed, shall again be given to City and City shall have 60 days from actual receipt by City ofthe offer, as changed, within which to exercise its right to purchase a System pursuant to the offer, as changed, all as above provided. If City does not exercise its right to purchase a System pursuant to any offer given to City pursuant to this paragraph, and a System is not sold to the buyer and on the terms set out in the offer given to City, then the right of City to purchase a System shall continue, and all subsequent purchase offers shall be given to City pursuant to this paragraph. Also, the City's right to purchase pursuant to this paragraph shall survive every sale to a buyer and shall continue and be binding upon every buyer of the System. ! B. Upon Forfeiture, Revocation or Expiration (I) Upon forfeiture, revocation or termination of a Franchise, or at the nonnal expiration and denial of any renewal of a Franchise tenn, City shall have the right to purchase the System. Such right shall be exercised upon written notice to Grantee given within 120 days after the occurrence of any such event.