CR 2000-032 Order Public Hearing On Transfer Of Control Of Cable Television System
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January 25, 2000
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Council Report 2000-32
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Order Public Hearing on Transfer of Control of
Cable Television System
Proposed Action
Staff recommends adoption of the following motion: Order a public hearing on April 4, 2000 to
consider the proposed transfer of control ofKBL Cable Systems ofthe Southwest by virtue of the
proposed merger between Time Warner, Inc. and America Online, Inc. to determine whether the
proposed transfer of control may have an adverse affect on cable television subscribers.
This motion will result in a public hearing being held to determine the effect of the merger of Time
Warner and AOL on the cable television subscribers.
Overview
In January, America Online, Inc. (AOL) and Time Warner, Inc. (TW) allllounced a merger in which
both TW and AOL will become wholly-owned subsidiaries of a new holding company call AOL Time
Warner, Inc. Because Hopkins is served by KBL Cable Systems of the Southwest, Inc., a subsidiary of
TW, the proposed merger and resulting transfer of control requires approval under our franchise and
Minnesota Law.
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Primary Issues to Consider
. Is a public hearing necessary?
Supporting Information
. Letter from Brian Grogan re: Time Warner Transfer of Control
. Minnesota Franchise Transfer Requirements
. "Surfing the Web on Your Cable System"
. Resolution 2000-12, Approving the Transfer of Control ofKBL Cable Systems
mes Genellie
, Assistant City Manager
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Financial Impact: $ None Budgeted: Y IN
Related Documents (CIP, ERP, etc.):
Notes:
Source:
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Council Rep0l1 2000-32
Page 2
. Is a public hearing necessary?
A public hearing is not required. The City Council could simply approve a resolution approving the
transfer of control. This would be an appropriate course of action if the Council feels that it does not
require any additional infonnation about the merger'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 merger then it should hold a pubbc hearing. The
Southwest Suburban Cable Commission's attorney, Brian Grogan, will be preparing a rep0l1 on the
merger 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 Time Warner would also make an appearance.
The public would also have an opportunity to find out more about the merger. The public might also
have an opportunity to complain about the cost of cable, the lack of certain channels, etc. These are
issues that are not really relevant to the merger.
Alternatives
1. Schedule a public hearing about the merger
2. Approve a resolution consenting to the change of control of the cable company from Time
Warner, Inc. to AOL Time Warner Inc. A proposed resolution is attached.
. 3. Take no action, which would also result in consenting to the change of control
Staff recommends Alternative #1.
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SOUTHWEST SUBURBAN CABLE COMMISSION
c/o Moss & Barnett, A Professional Association
4800 N orwest Center, 90 South Seventh Street
Minneapolis, MN 55402
Phone: (612) 347-0349
Fax: (612) 339-6686
February 22,2000
VIA E-MAIL, FAX AND U.S. MAIL
Gordon Hughes
City Manager
City of Edina
480 1 West 50th Street
Edina, MN 55424
David Childs
City Manager
City of Minnetonka
14600 Minnetonka Boulevard
Minnetonka, MN 55345
Chris Enger
City of Eden Prairie
8080 Mitchell Road
Eden Prairie, MN 55344
Steve Devich
Assistant City Manager
City of Richfield
6700 Portland Avenue
Richfield, I'vIN 55423
Jim Genellie
Assistant City Manager
City of Hopkins
10 10 South First Street
Hopkins, MN 55343
Re: Time Warner Transfer of Control
Our File No.: 40092.1
Dear Gentlemen.
On January 10,2000, America Online, Inc. ("AOL") and Time Warner 1ne. ("TW")
announced a merger in which both TW and AOL will become wholly-owned subsidiaries of a
new holding company called AOL Time Warner Inc. Because your City is served by KBL Cable
Systems of the Southwest, Inc., a subsidiary ofTW, the proposed merger and respiting transfer
of control requires approval under I) Minnesota Statutes Section 238.081 and 2) your ClilTent
cable television franchise with TW.
As part of the regulatory approvals necessary for this merger, on or about February 9,
2000, 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 TW. Form 394 is TW's application seeking consent to the proposed transfer
of control of the City's cable television franchise.
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
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February 22, ?OOO
Page 2
transfer request. Thus, the deadline for City action is approximately Monday, June 8, 2000 The
City's failure to act within that time serves as an implied approval of TW' s transfer request.
Minnesota Statutes ~ 238.083 and your franchise with TW impose further procedural
requirements on the City. Minnesota law requires that the City either approve the transfer
request within thirty (30) days ofreceiving Form 394 or determine the need for a public hearing.
Your franchise 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 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 of February 9, 2000.
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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 Notice of the
public hearing must be published fourteen (14) days in advance of the public hearing. A final
decision by the City regarding TW's transfer request must be issued within thirty (30) days of the
closing of the public hearing. We have attached a chart describing the procedural requirements
to assist your review.
Under state and federal law as well as the City's franchise, the City may review the
qualifications of the 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 ofTW based on the proposed transfer of control. We will review the voluminous
information provided by TWas part of Form 394 and may seek additional information to clarify
unanswered questions. Mr. Michael Nixt, an attorney in our office and former CP A with
Coopers and Lybrand, will perform a review ofthe financial qualifications ofTW under the
proposed transfer of control.
We intend to issue our report to a number of franchising authorities which will outline
our recommendations regarding the legal, technical and financial qualifications of TW under the
proposed transfer. Our report will also incorporate appropriate closing documentation including
a detailed resolution and related documents. Historically, the Southwest Suburban Cable
Commission has undertaken such a review at the time of a proposed transfer although past
transfers may be more accurately described as an "assignment" of the franchise to a new entity as
opposed to a "transfer of control" as is proposed in the pending transaction.
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As part of recent transfer reviews of other cable operators, many cities around the country
have been considering the issue of whether cable operators should provide competitive Internet
Service Providers ("ISPs"), such as AOL, with "open access" to their cable lines. We have
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February 22,2000
Page 3
enclosed a brief summary of the "open access" issue we published in a recent Moss & Barnett
newsletter for :he City's review. Given that AOL, the largest ISP in the country, is a party to this
proposed merger some industry observers have speculated that the open access issue may playa
significant role in local transfer considerations.
For your convenience, we have also enclosed a proposed resolution which the City may
consider if it chooses not to hold a public hearing. We have also enclosed a sample motion
which may be used to call a public hearing if the City deems appropriate.
If you have any questions, please do not hesitate to contact me.
Very truly yours,
E~r
Brian T. Grogan
TLG/tlh
Enclosures
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Minnesota Franchise Transfer Requirements
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47 V.S.C. 537(a)
and 47 C.F.R ~
76.502
47 C.F.R
~ 76.502
47 C.F.R
~ 76.502
47 U.S,c. 537(e)
Minn. Stat. ~
238.083 (subd. 2)
"
"
(subd. 3)
(subd. 4)
Typically
required under
franchise
Often required
under franchise
State law
NfA
Must identify buyer's legal, tech. and
financial qual.
City may question accuracy of
information
Operator must respond to Cit),
request for information on Form 394
within 10 days
H city denies transfer request must
be based on buyer's qualifications or
statutory violation
Must make written request for
transfer approval
City must reply in writing by either
approving transfer or determining
need for public hearing
H public hearing is held, must
determine if transfer will result in
adverse impact on subscribers
City must publish notice of public
hearing in local paper
City must approve or den)' transfer
request in writing, approval cannot
be unreasonably withheld
Ol)erator makes written request for
transfer
Allow public input
Notice on newspapel Jf general
circulation
Grantee must file with City written
evidence of transfer~ become
si nator to franchise
Must submit to each city at
least 120 days before closing
Must notify operator within 30
days of receipt
Operator could extend 120 day
review period if ih'Dored
City must take action on Form
394 within l20 days of receipt
At least 90 days prior to
closing
City must reply within 30 days
from receipt of written notice
City must hold public hearing
within :iu days of
determination of need for
ublic hearin
Must be published 14 days in
advance of hearing
Cit)"s decision must be
reached within 30 days
following the public hearing
Cit)' determines whether to
exercise right of first refusal
Varies
Notice in newspaper published
14 days in advance of Public
Hearin
Typically within 30 days of
closing of transfer
312945/1
* All Southwest Suburban Cable Commission Franchises contain transfer provisions which parallel the procedural
requirements of the state law at Section 238.
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SURFING THE WEB ON YOUR CABLE SYSTEM
Cable television operators nationwide are beginning to provide access to the Internet over
their cable wires. Subscribers lease or buy "cable modems" that connect to the computer and
allow access to the Internet via cable, as opposed to local phone lines. Cable modem service is
often much faster than connections via phone lines and is a very attractive service offering.
Typically, the cable operator has an affiliation with an Internet service provider (ISP), such as
Road Runner or @Home, which subscribers use to obtain access to the Internet. There has been
considerable debate over whether cable television operators must allow unaffiliated ISPs, such as
America Online, "open access" to their cable modem platforms. Intending to provide more
competition and choice for subscribers, some local franchising authorities have taken an
aggressive approach by conditioning franchise renewals or transfers on open access
requirements. All who have done so have thus far found themselves in court.
One case that has gained national attention on this issue is AT&T Corp. v. City of
Portland, 43 F. Supp. 2d 1146 (D. Org. 1999). In this case the City of Portland and Multnomah
County, Oregon, in reviewing the proposed transfer of control ofTCI to AT&T, passed a
resolution requiring AT&T to allow unaffiliated ISPs to connect their equipment directly to
AT&T's cable modem platform, bypassing @Home, its proprietary cable ISP . AT&T refused
the open access requirement, which essentially led to a denial of the proposed transfer. AT&T
and Tel sued the City and County in federal district court, where the City and County received a
favorable decision. AT&T has since appealed, and a decision from the Ninth Circuit Court of
Appeals is expected sometime in February or. March of 2000.
Faced with ongoing criticism, AT&T recently announced its commitment to provide open
access to its cable and fixed wireless systems and afford subscribers a choice ofISPs. This will
become effective next year for subscribers served by AT&T's fixed wireless systems and in mid-
2002 for subscribers of AT&T's broadband cable systems, after AT&T's exclusivity contract
with cable ISP, @Home, expires. Whether others will follow AT&T's lead is unknown.
Many cable operators argue that it is bad policy to mandate access to new technologies
and infrastructures that are privately owned and financed. The Federal Communications
Commission has so far maintained a hands-off approach, intending to have competition controL
Local governments have pointed out that without regulation, cable providers may oe able to
monopolize the Internet, and subscribers will not be able to select their ISP of choice We will
provide an update on the status of the Portland decision and any further developments on this
issue in the months to come.
31294K'!
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RESOLUTION NO.
APPROVING THE TRANSFER OF CONTROL
OF KBL CABLE SYSTEMS OF THE SOUTHWEST~ INe.~ THE
CABLE TELEVISION FRANCHISEE, RESULTING FROM
THE MERGER OF TIME WARNER, INe. AND
AMERICA ONLINE, INC. INTO AOL TIME WARNER, INe.
WHEREAS, on or about November 19, 1996, the City of Hopkins, Minnesota ("City")
passed and adopted Ordinance No. 96-790, granting a Cable Television Franchise ("Franchise")
currently held by KBL Cable Systems of the Southwest, lnc. ("Franchisee"), a subsidiary of
Time Warner, Inc., doing business as Time Warner Cable (collectively, "TW"); and
WHEREAS, on January 10, 2000, a certain Agreement and Plan of Merger ("Merger
Agreement") was made and entered into by and among TW and America Online, Inc. ("AOL");
and
WHEREAS, the Merger Agreement contemplates the merging of a to-be-formed TW
subsidiary and a to-be-formed AOL subsidiary with a parent holding company known as AOL
Time Warner, Inc. CAOL Time Warner"); and
WHEREAS, TW and AOL have requested consent by the City to these mergers and the
resulting transfer of control of the Franchisee to AOL Time Warner; and
WHEREAS, under the Franchise and applicable state and federal law, the proposed
mergers and resulting transfer of control of the Franchisee require consent from the City; and
WHEREAS, based on information obtained and on the repOlts and information received
by the City from TW and AOL, the City has found no reason to disapprove of the proposed
transfer of control of the Franchisee to AOL Time Warner.
NOW, THEREFORE, the City Council for the City resolves as follows:
3156]~!1
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The Franchise is in full force and effect, and the Franchisee is the lawful holder of
the Franchise.
2. The Franchisee will remain the lawful holder of the Franchise after consummation
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of the mergers contemplated under the Merger Agreement.
3. The City hereby consents to and approves of the proposed transfer of control of
the Franchisee subject to:
a. Closing of the transaction contemplated within the Merger Agreement
pursuant to the terms and conditions described in information provided to
the City by TW and AOL.
b.
AOL Time Warner or the Franchisee notifying the City in writing of the
completion of the mergers and the transfer of control within thirty (30)
days of the date of closing.
The Franchisee, within thirty (30) days of the date of closing, providing
the City with a signed acceptance of this Resolution in the form attached
hereto and incorporated herein by reference.
d. AOL Time Warner, TW, or the Franchisee, within thirty (30) days of the
date of adoption of this Resolution, reimbursing the City for all reasonable
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c.
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costs, expenses, and professional fees related to the City's review and
action on the proposed mergers and the transfer of control.
4. The City hereby waives any right of first refusal which the City may have to purchase the
Franchise, or the cable television system serving the City, but only as such right of fIrst
refusal applies to the request for approval of the mergers and the transfer of control now
before the City.
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5.
In the event the mergers of the TW and AOL subsidiaries into AOL Time Warner
contemplated by the foregoing resolutions is not completed, for any reason, the City's
consent shall not be effective.
6. To the maximum extent permitted by all applicable local, state, and federal laws, this
Resolution shall not be construed to in any way relieve the Franchisee nor limit the
Franchisee from any liability under the Franchise.
This Resolution shall take effect and continue and remain in effect f)"om and after the date
of its passage, approval, and adoption.
A motion to approve the foregoing Resolution No.
was made by Council
Member
and duly seconded by Council Member
The following Council Members voted in the affirmative:
The following Council Members voted in the negative:
Passed and adopted by the City Council for the City this _ day of
,2000.
ATTEST:
CITY OF HOPKINS, MINNESOTA
By:
By:
Its:
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ACCEPTANCE OF THE RESOLUTION
APPROVING THE TRANSFER OF CONTROL
KBL Cable Systems ofthe Southwest, Inc. hereby agrees to comply with the terms and
conditions of this Resolution No.
Subscribed and sworn to me this
day of
,2000
Notary Public
lJ5G1Xil
and the Franchise referenced therein.
KBL CABLE SYSTEMS OF THE
SOUTHWEST, INe.
By
Its
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