HomeMy WebLinkAbout14.A. Proposed Transfer of the Cable Franchise and System from Time Warner Cable, Inc. to Cable Holdco II, Inc.-Res. No. 6303
/1. A.
City of Shakopee
Memorandum
TO: Telecommunications Advisory Commission
Mayor and City Council
Mark McNeill, City Administrator
PROM: Tracy Schaefer, Bradley & Guzzetta, LLC
SUBJECT: Proposed Transfer of the City Cable Television Franchise and
Cable Television System Prom Time Warner Cable, Inc. to Cable
Holdco II, Inc. an Indirect Wholly-Owned Subsidiary of Comcast
Corporation
MEETING DATE: October 3, 2005 (Telecommunications Commission) & October 4,
2005 (City Council)
Introduction
Attached is a copy of the Bradley & Guzzetta, LLC report on the proposed transfer of the
City of Shakopee, Minnesota cable television franchise and cable television system from
Time Warner Cable, Inc. to Cable Holdco II, Inc. an indirect wholly-owned subsidiary of
Comcast Corporation.
Background
The City of Shakopee received its 394 cable system transfer application documents from
Comcast Cable Communications, LLC ("Comcast") on June 15,2005. The
Telecommunications Commission directed Bradley & Guzzetta, LLC to conduct a review
of the transfer application.
Since that time, Bradley & Guzzetta, LLC has conducted a thorough review of the
transfer application and related materials and has submitted the attached September 28,
2005 Report for the Telecommunications Commission and City Council's review. While
conducting the review, Bradley & Guzzetta, LLC has worked with Mayor John Schmidt,
Telecommunications Chairman Bill Anderson and Administrator Mark McNeill to draft
Resolution 6303 - a resolution conditionally granting the application of Comcast
Corporation for approval of the transfer of ownership and control of the City of Shakopee
cable franchise and cable system currently owned by Time Warner Cable, Inc.
Although Comcast presented its own resolution as part of its June 15,2005 application
packet, Bradley & Guzzetta, LLC is recommending against its adoption. Comcast's
resolution does not provide for any protection for the City or its cable subscriber after the
transfer is completed. B&G, in its Report, has also not recommended an outright denial
of the Comcast transfer, although we have attached a denial resolution for consideration.
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However, Bradley & Guzzetta, LLC does believe that the City has a duty to protect itself
and its residents. With that said, the conditional resolution will help achieve such
protection.
The conditional resolution recommends the following City and subscriber protections be
incorporated into the franchise transfer documents:
1. The City should not waive any of its rights with regard to known or unknown
underpayments of franchise fees.
This is extremely important given the recommendations outlined in Front
Range Consulting, Inc.'s Franchise Fee Review Report;
2. The City should not waive any Franchise violations, whether known or unknown,
which may be identified as part of the technical audit.
This is also extremely important given the recent TimeWamer Cable, Inc.
cable system maintenance issues and the CBG Communications, Inc. Technical
Review and Audit;
3. The City should not waive any unknown yet existing Franchise non-compliance
issues.
Although the City has recently completed a technical audit and franchise fee
review, the City does not want to waive its rights to review or audit other
Franchise areas;
4. Comcast Corporation should be fully liable and/or responsible for Franchise
violations, obligations and any and all past, present and future financial
obligations under the Franchise in the same capacity as the New Franchisee
(Cable Holdco II, Inc).
As outlined in the B&G September 28, 2005 Report, Comcast has not
provided the City with sufficient information to determine Cable Holdco II, Inc.'s
technical, managerial, character or financial qualifications to assume the new
Franchise. However, as outlined in the Report, we do believe that Comcast
Corporation does have the operational history and resources needed to satisfy
Shakopee's franchise obligations;
5. Comcast should reimburse the Cityfor all fees and expenses it has incurred in
reviewing and acting on the Transfer Application.
The City has not budgeted or requested the Transfer, so Comcast should be
responsible for reimbursing for the City;
6. Comcast should agree that it will not enter into exclusive agreementsfor affiliated
or unaffiliated terrestrial and satellite-delivered programming which would
impact the. City or subscribers.
The City wants to make sure that Comcast does not "create
programminglchannel monopolies," which would prevent other video providers
from offering such services to the City or subscribers;
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7. Corncast should not increase subscriber rates and charges in the City as a result
of the Proposed Transactionfor a period of one (1) calendar year following the
closing of the Proposed Transaction.
Shakopee residents should not be responsible for increased charges or rates to
support a corporate transfer;
8. The City should not waive any right it may have to any open access issue or
information services (e.g. cable modem revenues); and
9. The City reserves all of its Franchise rights and does not waive any current or
future franchise compliance violations.
Transfer Options
1. Adopt Comcast's version of Resolution 6303 - a resolution to consent to
assignment and change of control with no additional conditions;
2. Adopt Resolution 6303 - a resolution denying, without prejudice, the application
of Comcast Corporation for approval of the transfer of Comcast Corporation for
approval of the transfer of ownership and control of the City of Shakopee cable
franchise and cable system currently owned by Time Warner Cable, Inc.; or
3. Adopt Resolution 6303 - a resolution conditionally granting the application of
Comcast Corporation for approval of the transfer of ownership and control of the
City of Shakopee cable franchise and cable system currently owned by Time
Warner Cable, Inc.
Recommendation
The Telecommunications Commission should recommend to the City Council the
adoption of Option 3, Resolution 6303 - a resolution conditionally granting the
application of Comcast Corporation for approval of the transfer of ownership and control
of the City of Shakopee cable franchise and cable system currently owned by Time
Warner Cable, Inc.
Action Required:
If the TAC makes this described recommendation and the Council concurs, it should, by
motion, adopt the following resolution: Resolution 6303 - a resolution conditionally
granting the application of Comcast Corporation for approval of the transfer of ownership
and control of the City of Shakopee cable franchise and cable system currently owned by
Time Warner Cable, Inc.
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ATTACHMENT 1
Op~h6~ l
, '.
RES.OLUTION NO. 6303
CONSENT TO ASSIGNlVIENT AND CHANGE OF CONTROL
WHEREAS, Time Warner Cable lnc, ("Franchisee") operates a cable television system
in the City of Shakopee, MN ("Franchise Authority"); and
WHEREAS, pursuant to a Redemption Agreement dated April 20, 2005 by and am::>ng
Comeast Cable Communications Holdings, Inc.; MOC Holdco II, Inc.; TWE Holdings II
Trust; Cable Hoidco II Inc. and Time Warner Cabie Inc.: (1) the Franchisee cable system
and franchise will be assigned to a wholly-owned subsidiary of Franchisee, Cable Holdcn
n, Inc. and (2) immediately thereafter, pursuant to the same Redemption Agreement, all
of the stock of Cable Haideo II, Inc. will be acquired by MOC Holdco II, lnc., an indirect
wholly-owned subsidiary of Comeast Cable Communications Holdings, Inc. The
assignment and change of control described herein shall collectively be referred to as the
"Transaction"; and
WHEREAS, Franchise Authority has concluded its approval is necessary for the above
described Transaction and has been provided an FCC Form 394 and related infonnation
for such Transaction; and
WHEREAS, the Franchise Authority has considered and approves of the Transaction
described above.
NOW, THEREFORE, IT IS RESOLVED AS FOLLOWS:
SECTION 1. The foregoing recitals are approved and incorporated herein by reference.
SE.CTION 2. The Franchise Authority consents to the Transaction described herein.
SECTION 3. This Resolution shall be deemed effective upon adoption.
.
SECTION 4. This Resolution shall have the' force of a continuing agreement with the
Franchisee and the Franchise Authority shall not amend or otherwise alter this Resolution
without the consent of the Franchisee.
PASSED, ADOPTED AND APPROVED this day of
,2005
By:
A TrEST:
Clerk
ATTACHMENT 2
o~ttiJ L
RESOLUTION NO. 6303
A RESOLUTION DENYING, WITHOUT PREJUDICE, THE APPLICATION OF
COMCAST CORPORATION FOR APPROVAL OF THE TRANSFER OF OWNERSHIP
AND CONTROL OF THE CITY OF SHAKOPEE CABLE FRANCHISE AND CABLE
SYSTEM CURRENTLY OWNED BY TIME WARNER CABLE, INC.
WHEREAS, the City of Shakopee, Minnesota ("City") has granted a nonexclusive cable
television franchise ("Franchise") to Time Warner Cable, Inc. (the "Franchisee"), to provide
cable television service via a cable system (the "System"); and
WHEREAS, Comcast Cable Communications Holdings, Inc., a Delaware corporation,
MOC Holdco II, Inc., a Delaware corporation, TWE Holdings I Trust, a Delaware statutory trust,
TWE Holdings II Trust, a Delaware statutory trust,Comcast Corporation, a Pennsylvania
corporation, Cable HoldcoII, Inc., a Delaware corporation, Time Warner Cable Inc., a Delaware
corporation, TWE Holding I LLC, a Delaware limited liability company, and Time Warner, Inc.,
a Delaware corporation, have entered into a Redemption Agreement (the "Agreement") dated as
of April 20, 2005; and
WHEREAS, under the Agreement, the Franchisee's System and Franchise will be assigned
to Cable Holdco II, Inc., a wholly-owned subsidiary of the Franchisee (the "New Franchisee"), and
all of the stock of the New Franchisee will be acquired by MOC Holdco II, Inc. (the "Transferee"),
an indirect wholly-owned subsidiary of Comcast Corporation (the "Proposed Transaction"); and
WHEREAS, under the Proposed Transaction, the New Franchisee, the Transferee and
the New Franchisee's ultimate parent corporation will be different and the ultimate ownership
and control of the Franchise apd the System will change; and
WHEREAS, the City has concluded the Proposed Transaction will result in a change of
ownership and control of the Franchise and the System; and
WHEREAS, the Proposed Transaction requires the prior written approval of the City;
and
WHEREAS, Comcast Corporation filed with the City a copy of Federal
Communications Commission Form 394 (submitted June 15,2005), together with certain
attached materials, and the Debtor's Second Amended Joint Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code (June 24, ~005), which documents more fully describe the
Proposed Transaction and which documents, with their attachments, contain certain promises,
conditions, representations and warranties (the "Transfer Application"); and
WHEREAS, Comcast Corporation, through its subsidiaries, provided written responses
to some of the data requests issued by the City, including directing the representatives of the City
to publicly filed and available information, and information posted to Comcast Corporation and
other websites (the "Data Request Responses"); and
WHEREAS, Comcast Corporation and its subsidiaries refused to provide certain
requested data to the City, even though that data is relevant to understanding the Proposed
Transaction and its impact; and
WHEREAS, the Transfer Application and the Data Request Responses provide
inadequate information concerning the qualifications of the New Franchisee and the impact the
Proposed Transaction will have on subscriber rates and services; and
WHEREAS, Comcast Corporation has indicated that the City should rely on its
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qualifications, rather than the New Franchisee's qualifications, even though it will nothold the
Franchise or manage and operate the System on a day-to-day basis; and
WHEREAS, Comcast Corporation has refused to provide appropriate performance
guarantees for the New Franchisee, even though such guarantees have been requested; and
WHEREAS, the City has reviewed the Transfer Application, the Data Request
Responses, and the September 28,2005, "Report on the Proposed Transfer of the City of
Shakopee, Minnesota Cable Television Franchise and Cable Television System from Time
Warner Cable, Inc. to Cable Holdco II, Inc., an Indirect Wholly-Owned Subsidiary of Comcast
Corporation" prepared by Bradley & Guzzetta, LLC, including the attachments thereto (the
"Transfer Report"), and has considered all relevant factors, including (but not limited to) the
New Franchisee's and Comcast Corporation's financial, technical, legal, managerial and
character qualifications, Comcast Corporation's refusal to provide an appropriate performance
guarantee for the New Franchisee and the Proposed Transaction's impact on services and rates;
and
WHEREAS, the City has concluded that, for the reasons specified in the Transfer
Report, which is incorporated herein by reference, the New Franchisee and Comcast Corporation
have not independently demonstrated that the New Franchisee possesses the financial, technical,
management, and character qualifications necessary to own and control the Franchise and to
manage and/or operate the System; and
WHEREAS, the City has concluded that, for the reasons specified in the Transfer
Report, the New Franchisee and Comcast Corporation have not demonstrated that the Proposed
Transaction will not have an adverse impact on subscriber rates and services in the City; and
WHEREAS, in reliance upon the representations made by and on behalf of the
Franchisee, the New Franchisee, the Transferee and/or Comcast Corporation, the City has
determined that it would not be in the best interests of the City and subscribers to approve the
Proposed Transaction.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF SHAKOPEE, MINNESOTA AS FOLLOWS:
1. For the reasons set forth above, the Transfer Application is denied, without prejudice to
any party to re-file for approval of the Proposed Transaction or a similar transaction.
2. Should Comcast Corporation or its subsidiaries, Time Warner Cable, Inc., Cable Holdco
II, Inc. and/or MOC Holdco II, Inc. wish to further discuss the necessary terms and
conditions for approval of the Proposed Transaction with City staff, staff is authorized to
undertake those discussions.
3. This Resolution is a final decision on the Transfer Application within th~ meaning of 47
V.S.C. S 537.
4. This Resolution shall be effective immediately upon its adoption by the City.
Adopted in session of the City Council of the City of Shakopee,
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Minnesota held this 4th day of October, 2005.
By:
Mayor
Attest:
City Clerk
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ATTACHMENT 3
ortl6 Q '3
RESOLUTION NO. 6303
A RESOLUTION CONDITIONALLY GRANTING THE APPLICATION OF COMCAST
CORPORATION FOR APPROVAL OF THE TRANSFER OF OWNERSHIP AND
CONTROL OF THE CITY OF SHAKOPEE CABLE FRANCmSE AND CABLE
SYSTEM CURRENTLY OWNED BY TIME WARNER CABLE, INC.
WHEREAS, the City of Shakopee, Minnesota ("City") has granted a nonexclusive cable
television franchise ("Franchise") to Time Warner Cable, Inc. (the "Franchisee"), to provide
cable television service via a cable system (the "System"); and
WHEREAS, Comcast Cable Communications Holdings, Inc., a Delaware corporation,
MOC Holdco II, Inc., a Delaware corporation, TWE Holdings I Trust, a Delaware statutory trust,
TWE Holdings II Trust, aDelaware statutory trust, Comcast Corporation, a Pennsylvania
corporation, Cable Holdco II, Inc., a Delaware corporation, Time Warner Cable Inc., a Delaware
corporation, TWE Holding I LLC, a Delaware limited liability company, and Time Warner, Inc.,
a Delaware corporation, have entered into a Redemption Agreement (the "Agreement") dated as
of Apri120, 2005; and
WHEREAS, under the Agreement, the Franchisee's System and Franchise will be assigned
to Cable Holdco II, Inc., a wholly-owned subsidiary of the Franchisee (the "New Franchisee"), and
all of the stock of the New Franchisee will be acquired by MOC Holdco II, Inc. (the "Transferee"),
an indirect wholly-owned subsidiary of Comcast Corporation (the "Proposed Transaction"); and
WHEREAS, under the Proposed Transaction, the New Franchisee, the Transferee and
the New Franchisee's ultimate parent corporation will be different and the ultimate ownership
and control of the Franchise and the Sy~tem will change; and
WHEREAS, the City has concluded the Proposed Transaction will result in a change of
ownership and control of the Franchise and the System; and
WHEREAS, the Proposed Transaction requires the prior written approval of the City;
and
WHEREAS, Comcast Corporation filed with the City a copy of Federal
Communications Commission Form 394 (submitted June 15,2005), together with certain
attached materials, and the Debtor's Second Amended Joint Plan of Reorganization Under
Chapter 11 of the Bankruptcy Code (June 24,2005), which documents more fully describe the
Proposed Transaction and which documents, with their attachments, contain certain promises,
conditions, representations and warranties (the "Transfer Application"); and
WHEREAS, Comcast Corporation, through its subsidiaries, provided written responses
to some of the data requests issued by the City, including directing the representatives of the City
to publicly filed and available information, and information posted to Comcast Corporation and
other websites (the "Data Request Responses"); and
WHEREAS, Comcast Corporation and its subsidiaries refused to provide certain
requested data to the City, even though that data is relevant to understanding the Proposed
Transaction and its impact; and
WHEREAS, the Transfer Application and the Data Request Responses provide
inadequate information concerning the qualifications of the New Franchisee and the impact the
Proposed Transaction will have on subscriber rates and services; and
WHEREAS, Comcast Corporation has indicated that the City should rely on its
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qualifications, rather than the New Franchisee's qualifications, even though it will not hold the
Franchise or manage and operate the System on a day-to-day basis; and
WHEREAS, Comcast Corporation has refused to provide appropriate performance
guarantees for the New Franchisee, even though such guarantees have been requested; and
WHEREAS, the City has reviewed the Transfer Application, the Data Request
Responses, and the September 28,2005, "Report on the Proposed Transfer of the City of
Shakopee, Minnesota Cable Television Franchise and Cable Television System from Time
Warner Cable, Inc. to Cable Holdco II, Inc., an Indirect Wholly-Owned Subsidiary of Comcast
Corporation" prepared by Bradley & Guzzetta, LLC, including the attachments thereto (the
"Transfer Report"), and has considered all relevant factors, including (but not limited to) the
New Franchisee's and Comcast Corporation's financial, technical, legal, managerial and
character qualifications, Comcast Corporation's refusal to provide an appropriate performance
guarantee for the New Franchisee and the Proposed Transaction's impact on services and rates;
and
WHEREAS, the City has concluded that, for the reasons specified in the Transfer
Report, which is incorporated herein by reference, Comcast and the New Franchisee have not
independently demonstrated that the New Franchisee possesses financial, technical,
management, and character qualifications sufficient to own and control the Franchise and to
manage and/or operate the System; and
WHEREAS, the City has concluded that, for the reasons specified in the Transfer
Report, the New Franchisee and Comcast Corporation have not demonstrated that the Proposed
Transaction will not have an adverse impact on subscriber rates and services in the City; and
WHEREAS, in reliance upon the representations made by and on behalf ofthe Franchisee,
the New Franchisee, the Transferee and/or Comcast Corporation, the City is willing to grant its
consent to the Proposed Transaction, so long as those representations are complete and accurate, and
the conditions set forth in this Resolution are satisfied at all times.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
CITY OF SHAKOPEE, MINNESOTA AS FOLLOWS:
Section 1. The City's consent to and approval of the Transfer Application is hereby
GRANTED in accordance with the Franchise and applicable law, subject to the following
conditions:
1.1 The City does not waive any of its rights with regard to known and unknown
underpayments of franchise fees. Comcast Corporation, or a subsidiary acceptable to the
City, shall agree that it will be responsible and liable for any known and unknown
franchise fee underpayments, and shall provide a written guarantee acceptable to the City
within thirty (30) days of the effective date of this Resolution;
1.2 The City does not waive any Franchise violations, whether known or unknown, which
may be identified as part of a technical audit completed prior to or after the
consummation of the Proposed Transaction. Comcast Corporation, or a subsidiary
acceptable to the City, shall agree that it will be responsible and liable for such Franchise
violations, and shall provide a written guarantee acceptable to the City within thirty (30)
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days of the effective date of this Resolution;
1.3 The City does not waive any unknown yet existing Franchise non-compliance issues.
Comcast Corporation, or a subsidiary acceptable to the City, shall agree that it will be
responsible and liable for any unknown yet existing non-compliance issues under the
Franchise and applicable laws, regulations, standards, codes and decisions, and shall
provide a written guarantee acceptable to the City within thirty (30) days of the effective
date of this Resolution;
1.4 Comcast Corporation must, within thirty (30) days of the effective date of this
Resolution, provide a written performance guarantee for the New Franchisee, which
guarantee shall be acceptable to the City, specifying that the New Franchisee will at all
times comply with applicable technical and performance requirements set forth in the
Franchise and in applicable regulations, codes, standards and decisions;
1.5 Comcast Corporation must, within thirty (30) days of the effective date of this
Resolution, provide a written performance guarantee for the New Franchisee, which
guarantee shall be acceptable to the City, specifying that Comcast Corporation will be
fully liable and/or responsible for (i) any violations, losses and obligations beyond the
ability of the New Franchisee and/or the Transferee to address in connection with the
management, operation and/or maintenance of the System and (ii) any and all past,
present and future financial obligations under the Franchise in the same capacity as the
New Franchisee;
1.6 Comcast Corporation, or one or more appropriate subsidiaries acceptable to the City,
shall provide a written guarantee acceptable to the City within thirty (30) days ofthe
effective date of this Resolution specifying it and its subsidiaries will not enter into
exclusive agreements for affiliated or unaffiliated terrestrial and satellite-delivered
programming, including sports programming, which would impact the City or
subscribers;
1.7 Comcast Corporation, or a subsidiary acceptable to the City, shall provide a written
guarantee acceptable to the City within thirty (30) days of the effective date of this
Resolution specifying that subscriber rates and charges in the City will not increase as a
result of the Proposed Transaction for a period of one (1) calendar year following the
closing of the Proposed Transaction;
1.8 Comcast Corporation shall affirmatively guarantee in writing, within thirty (30) days of
the effective date of this Resolution, that it will not interfere, directly or indirectly, with
the New Franchisee's ability to comply with its Franchise obligations, and applicable
laws, codes, standards, decisions and regulations;
1.9 ComcastCorporation shall provide a written guarantee acceptable to the City, within
thirty (30) days of the effective date of this Resolution, specifying that it will cause the
New Franchisee to comply with the Franchise and applicable laws, regulations,
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standards, codes and decisions at all times;
1.10 The New Franchisee shall, within thirty (30) days of the effective date of this Resolution,
affirm in writing, in a form acceptable to the City, its understanding of and obligation to
comply with all Franchise requirements;
1.11 The New Franchisee and Comcast Corporation shall, within thirty (30) days of the
effective date of this Resolution, provide an unqualified written commitment, acceptable
to the City, to abide by aU terms of the Franchise and applicable laws, regulations, codes,
standards and decisions after the Proposed Transaction, and to assume all existing
obligations, liabilities and responsibility for all acts and omissions under the Franchise
and applicable law, known and unknown, including (but not limited to) all acts and
omissions ofthe Franchisee and its parent entities, affiliates and subsidiaries;
1.12 Comcast Corporation or the New Franchisee shall reimburse the City for all fees and
expenses it incurred in reviewing and acting on the Transfer Application. This
reimbursement shall not be passed through to subscribers in the City;
1.13 Neither the Franchise, nor any control thereof, nor the System, nor any part of the System
located in the City's public rights-of-way or on the City's property, shall be assigned or
transferred, in whole or in part, without filing a written application with the City and
obtaining the City's prior written approval of such transfer or assignment, but only to the
extent required by applicable law;
1.14 The City's approval of the Transfer Application is made without prejudice to, or waiver
of, any right of the City to consider or raise claims based on the New Franchisee's or the
Franchisee's defaults, any failure to provide reasonable service in light of the
community's needs, or any failure to comply with the terms and conditions of the
Franchise, or with applicable laws, regulations, codes, standards and decisions;
1.15 The City waives none ofits rights with respect to the Franchisee's compliance with the
terms, conditions, requirements and obligations set forth in the Franchise and in
applicable laws, regulations, codes, standards and decisions. The City's approval of the
Transfer Application shall in no way be deemed to be a representation by City that the
Franchisee is in compliance with all of its obligations under the Franchise and applicable
laws, regulations, codes, standards and decisions;
1.16 After the Proposed Transaction, the New Franchisee will be bound by all the
commitments, duties, and obligations, past, present and continuing, embodied in the
Franchise and applicable laws, regulations, codes, standards and decisions. The
Proposed Transaction will have no effect on these obligations, commitments and duties;
1.17 After the Proposed Transaction is consummated, the New Franchisee will be responsible
for all past acts and omissions, known and unknown, of the Franchisee under the
Franchise and applicable laws, codes, standards, decisions and regulations for all
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purposes, including (but not limited to) Franchise renewal and Franchise enforcement to
the same extent and in the same manner as the Franchisee and its parents, subsidiaries
and affiliates were responsible before the Proposed Transaction;
1.18 The conditioned approval of the Transfer Application does not amend or alter the
Franchise or any requirements therein in any way, and all provisions ofthe Franchise
remain in full force and effect and are enforceable in accordance with their terms and
with applicable law;
1.19 The Proposed Transaction shall not permit Franchisee its parent entities or affiliates, the
New Franchisee and Comcast Corporation or any of its affiliates or subsidiaries to take
any position or exercise any right with respect to the Franchise and the relationship
thereby established with the City that could not have been exercised prior to the Proposed
Transaction;
1.20 The City reserves all of its rights with respect to the New Franchisee's future compliance
with the terms, conditions, requirements and obligations set forth in the Franchise;
1.21 The City is not waiving any rights it may have to require franchise fee payments on
present and future services delivered by the New Franchisee or its subsidiaries via the
System;
1.22 The City is not waiving any right it may have related to any open access issue or
information services;
1.23 The conditioned approval of the Proposed Transaction and Transfer Application shall not
constitute a waiver or release of any of the rights of the City under the Franchise and
applicable laws, codes, standards, decisions and regulations, whether arising before or
after the date of consummation of the Proposed Transaction.
1.24 Receipt of any and all state and federal approvals and authorizations;
1.25 Actual closing of the Proposed Transaction consistent with the Transfer Application; and
1.26 The City does not waive its rights to require payment of identified franchise fee
underpayments, either from the Franchisee and its parent entities and/or subsidiaries or
the New Franchise and its parent entities, affiliates and subsidiaries.
Section 2. If any of the conditions specified in Section 1 are not completely satisfied at all
times, then the City's consent to, and approval of, the Transfer Application and Proposed
Transaction is hereby DENIED and void as of the date hereof.
Section 3. The New Franchisee or Comcast Corporation shall reimburse the City for the
actual professional fees and expenses it incurred in reviewing and acting on the Transfer
Application. The City will present a single invoice to the New Franchisee, itemizing the fees and
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expenses incurred. In the event that the City's costs or fees result from common work product of
outside contractors, the City's reimbursable costs and fees hereunder shall be no more than the City
of Shakopee's proportional, allocable share of any such fees and costs. The New Franchisee or
Comcast Corporation shall remit payment for such professional fees and expenses within thirty (30)
days of its receipt of the invoice. Such payment shall be made directly to the City and not through a
payment to any other entity. The New Franchisee and Comcast Corporation shall not assert any
right they may have to claim that the reimbursement made under this Resolution shall be considered
a franchisee fee. In addition, Comcast Corporation and the New Franchisee shall not pass the
reimbursement paid pursuant to this paragraph through to subscribers.
Section 4. If any of the oral or written representations made to the City by (i) the New
Franchisee, (ii) the Franchisee, (iii) the Transferee (iv) Comcast Corporation or (v) any subsidiary of
the foregoing prove to be materially incomplete, untrue or inaccurate in any respect, it shall be
deemed a material breach of the Franchise, and the City shall have available to it all rights and
remedies. under the Franchise and applicable law, including, without limitation, revocation or
termination of the Franchise.
Section 5. This Resolution shall not be construed to grant or imply the City Council's
consent to any other transfer or assignment of the Franchise and/or the System, or any other
transaction that may require the City's consent under the Franchise, or applicable law. The City
reserves all its rights with regard to any such transactions.
Section 6. This Resolution is a final decision on the Transfer Application within the meaning
of 47 U.S.C.~ 537.
Section 7. The transfer of ownership and control ofthe Franchise and the System from the
Franchisee to the New Franchisee, and from the New Franchisee to the Transferee shall not take
effect until the consummation of the Proposed Transaction.
Section 8. This Resolution shall be effectively immediately upon its adoption by the City.
Adopted in session of the City Council of the City of Shakopee,
Minnesota held this 4th day of October, 2005.
By:
Mayor
Attest:
City Clerk
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ATTACHMENT N
List of Documents for Public Record filed with the City Clerk's Office available for
review in connection with Comcast's transfer application.
FORM 10-K SECURITIES AND EXCHANGE COMMISSION: Comcast Corporation
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Fiscal Year ended December 31, 2004,
FORM 10-K SECURITIES AND EXCHANGE COMMISSION: Time Warner Inc
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Fiscal Year ended December 31, 2004,
FORM 10-Q SECURITIES AND EXCHANGE COMMISSION: Comcast Corporation
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the Quarterly Period Ended: March 31, 2005
FORM 10-Q SECURITIES AND EXCHANGE COMMISSION: Time Warner Inc
Quarterly Report pursuant to Section 13 or 15( d) of the Securities Exchange Act of 1934
for the Quarterly Period Ended: March 31, 2005
Form 8-K SECURITIES AND EXCHANGE COMMISSION: Comcast Corporation
Current Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of
1934 filed April 26, 2005 (period: April 20, 2005).
Form 8-K SECURITIES AND EXCHANGE COMMISSION: Time Warner Inc Current
Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of1934 filed
April 27, 2005 (period: April 20, 2005).
Asset Purchase Agreement between Adelphia Communications Corporation and Time
Warner NY Cable LLC dated as of April 20, 2005
Asset Purchase Agreement between Adelphia Communications Corporation and Comcast
Corporation dated as of April 20, 2005
Letter agreement, dated April 20, 2005 between Time Warner NY Cable LLC, Adelphia
Communications Corporation, and Comcast Corporation.
Exchange Agreement, dated as of April 20, 2005, by and among Comcast Corporation,
Time Warner Cable Inc, Time Warner NY Cable LLC and the other parties named
therein;
RedemptionAgreement, dated as of April 20, 2005, by and among, Comcast Cable
Communications Holdings, Inc, MOC Holdco II, Inc, TWE Holdings I Trust, TWE
Holdings II Trust, Cable Holdco II, Inc, Time Warner Cable Inc, and the other parties
named therein;
Redemption Agreement, dated as of April 20, 2005, by and among, Comcast Cable
Communications Holdings, Inc, MOC Holdco I, LLC, TWE Holdings I Trust, Cable
Holdco III, LLC, Time Warner Entertainment Company, LP, and the other parties named
therein;
1
List of Documents for Public Record filed with the City Clerk's Office available for
review in connection with Comcast's transfer application.
Form 8-K SECURITIES AND EXCHANGE COMMISSION: Time Warner Inc Current
Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 filed
May 4, 2005 (period: May 4, 2005).
Time Warner Inc, 2005 Trending Schedules
Letter from Ms. Sheila R. Willard, Senior Vice President, Government Affairs, Comcast
Cable Communications, LLC to Mark McNeill, City of Shakopee Administrator, dated
June 10, 2005 re: Time Warner/Comcast - Change of Control, with Charts of transaction
and draft consent resolution
FCC 394 Application for Franchise Authority Consent to Transfer of Control of Cable
Television Franchise of Shakopee Minnesota from Transferor Time Warner Cable Inc to
Transferee MOC Holdco II, Inc. and Ultimate Franchisee Cable Holdco II, Inc. dated
June 10, 2005 with exhibits 1 through 8.
Debtor's Second Amended Disclosure Statement, In re Adelphia Communications
Corporation, et aI., Pursuant to Section 1125 ofthe Bankruptcy Code, United States
Bankruptcy Court, Southern District of New York, dated: June 24, 2005.
Notice of Motion for Order in Aid of Confirmation, In re Adelphia Communications
Corporation, et at., Pursuant to Sections 105(a) and 105(d) ofthe Bankruptcy Cod,
Establishing Pre-Confirmation Process to Resolve Certain Inter-Creditor Issues, United
States Bankruptcy Court, Southern District of New York, dated June 24, 2005
Adelphia Communications Corporation and Subsidiaries (Debtors-In-Possession)
Consolidated Financial Statements for years 2004, 2003, 2002 and 2001
Time Warner Cable Inc. Consolidated Financial Statements for the years ending
December 31, 2004, 2003 and 2002
Adelphia Communications Corporation Debtors' Liquidations Analysis pursuant to
section 1129(a)(7) of the Bankruptcy Code
Alternate Tolling and Optional Redemption Agreement, dated as of May 31, 2005, by
and among Comcast Cable Communications Holdings Inc, MOC Holdco II, Inc, TWE
Holdings II Trust, Cable Holdco Inc, Time Warner Cable Inc, and the other parties
named therein;
Letter Agreement, dated June 1,2005, between Cable Holdco Inc, Cable Holdco II Inc,
. Cable Holdco III LLC, Comcast Corporation, Comcast Cable Communications Holdings
Inc., Comcast of Georgia, Inc., MOC Holdco I, LLC, MOC Holdco II, Inc, TCI Holdings
Inc, Time Warner Inc, Time Warner Cable Inc, Time Warner NY Cable LLC, Time
Warner Entertainment Company, LP, TWE Holding I LLC, TWE Holding LLC, TWE
Holdings I Trust, TWE Holdings II Trust, and Urban.Cable Works of Philadelphia, LP.
2
List of Documents for Public Record filed with the City Clerk's Office available for
review in connection with Comcast's transfer application.
Debtor's Second Amended Joint Plan of Reorganization under Chapter 11 of the
Bankruptcy Code, In re Adelphia Communications Corporation, et aI., United States
Bankruptcy Court, Southern District of New York, dated: June 24, 2005.
Adelphia Press Release: Adelphia Files Second Amended Plan of Reorganization,
Represents Another Step Toward Bankruptcy Resolution and Completion of Sale to Time
Warner and Comcast (Greenwood Village, Colo., June 25,2005)
Letter from Stephen 1. Guzzetta, Bradley & Guzzetta, LLC, to Ms. Sheila R. Willard,
Senior Vice President, Government Affairs, Comcast Cable Communications, LLC,
dated July 13,2005 re: FCC Form 394 Transfer Application Filed with the City of
Shakopee - Payment of City Costs
Letter from Stephen 1. Guzzetta, Bradley & Guzzetta, LLC, to Ms. Sheila R. Willard,
Senior Vice President, Government Affairs, Comcast Cable Communications, LLC and
Gary R. Matz, Esq., Vice President and Chief Counsel, Regulatory, Time Warner Cable,
dated July 14, 2005 re: Notice ofIncompleteness -- FCC Form 394
Letter from Stephen 1. Guzzetta, Bradley & Guzzetta, LLC, to Ms. Sheila R. Willard,
Senior Vice President, Government Affairs, Comcast Cable Communications, LLC and
Gary R. Matz, Esq., Vice President and Chief Counsel, Regulatory, Time Warner Cable,
dated July 14, 2005 re: Data Request from the City of Shakopee, Minnesota
Letter from Ms. Sheila R. Willard, Senior Vice President, Government Affairs, Comcast
Cable Communications, LLC to Stephen 1. Guzzetta, Bradley & Guzzetta, LLC, dated
July 25, 2005 re: Shakopee, MN - Notice ofIncompleteness
Letter from Ms. Sheila R. Willard, Senior Vice President, Government Affairs, Comcast
Cable Communications, LLC to Stephen 1. Guzzetta, Bradley & Guzzetta, LLC, dated
July 25, 2005 re: Form 394 Application - Confidentiality Agreement for Schedules and
Exhibits
Letter from Todd G. Hartman, Robins, Kaplan, Miller & Ciresi LLP to Stephen J.
Guzzetta, Bradley & Guzzetta, LLC, dated July 25, 2005 re: Time Warner/Comcast
Transfer Form 394 Reviews for the City of Shakopee
Letter from Ms. Sheila R. Willard,. Senior Vice President, Government Affairs, Comcast
Cable Communications, LLC to Stephen 1. Guzzetta, Bradley & Guzzetta, LLC, dated
July 29, 2005 re: Your Letter of July 14,2005 Entitled Data Request from the City of
Shakopee, Minnesota
Letter from StephenJ. Guzzetta, Bradley & Guzzetta, LLC, to Ms. Sheila R. Willard,
Senior Vice President, Government Affairs, Comcast Cable Communications, LLC and
Gary R. Matz, Esq., Vice President and Chief Counsel, Regulatory, Time Warner Cable,
3
List of Documents for Public Record filed with the City Clerk's Office available for
review in connection with Comcast's transfer application.
dated August 26, 2005 re: Shakopee, MN - Completeness of FCC Forms 394 for the
Time Warner Cable/Comcast Corporation Transfer
Letter from Stephen J. Guzzetta, Bradley & Guzzetta, LLC, to Ms. Sheila R. Willard,
Senior Vice President, Government Affairs, Comcast Cable Communications, LLC and
Gary R. Matz, Esq., Vice President and Chief Counsel, Regulatory, Time Warner Cable,
dated August 26,2005 re: Shakdpee, Minnesota - Data Request for the Time Warner
Cable/Comcast Corporation Transfer
Letter from Stephen 1. Guzzetta, Bradley & Guzzetta, LLC, to Ms. Sheila R. Willard,
Senior Vice President, Government Affairs, Comcast Cable Communications, LLC and
Gary R. Matz, Esq., Vice President and Chief Counsel, Regulatory, Time Warner Cable,
dated August 31, 2005 re: Exhibits and Schedules Omitted From Transfer Applications
Submitted to Minneapolis, Minnesota and Shakopee, Minnesota
Initial Report by Front Range Consulting, Inc. to The City of Shakopee, Minnesota, dated
September 2005, Regarding the Franchise Fees Paid by Time Warner Cable Inc
Letter from Ms. Sheila R. Willard, Senior Vice President, Government Affairs, Comcast
Cable Communications, LLC to Stephen 1. Guzzetta, Bradley & Guzzetta, LLC, dated
September 1, 2005 re: Your Letter Dated August, 31, 2005 Entitled Exhibits and
Schedules Omitted From Transfer Applications Submitted to Minneapolis, Minnesota
and Shakopee, Minnesota
Letter from Stephen J. Guzzetta, Bradley & Guzzetta, LLC, to Ms. Sheila R. Willard,
Senior Vice President, Government Affairs, Comcast Cable Communications, LLC,
dated September 2, 2005 re: Exhibits and Schedules Omitted From the Transfer
Applications Submitted to Minneapolis, Minnesota and Shakopee, Minnesota
Letter from Ms. Sheila R. Willard, Senior Vice President, Government Affairs, Comcast
Cable Communications, LLC to Stephen 1. Guzzetta, Bradley & Guzzetta, LLC, dated
September 9, 2005 re: Shakopee, MN - Completeness of FCC Forms 394 for the Time
Warner Cable/Comcast Corporation Transfer
Letter from Ms. Sheila R. Willard, Senior Vice President, Government Affairs, Comcast
Cable Communications, LLC to Stephen 1. Guzzetta, Bradley & Guzzetta, LLC, dated
September 9, 2005 re: Your Letter Dated August, 26, 2005 Entitled Shakopee, Minnesota
- Data Request for the Time Warner Cable/Comcast Corporation Transfer
Final Report by Front Range Consulting, Inc. to The City of Shakopee, Minnesota, dated
September 27,2005, Regarding the Proposed Transfers of the Cable System From Time
Warner Cable, Inc. to a Subsidiary of Comcast Cable Communications, LLC
In the Matter of Applications for Consent to the Assignment and/or Transfer of Control of
Licenses, Applications and Public Interest Statement, FCC MB Docket No. 05-192 (May
18, 2005).
4
List of Documents for Public Record filed with the City Clerk's Office available for
review in connection with Comcast's transfer application.
State of Delaware, Division of Corporations, Cable Holdco IL Inc. Entity Status, (last
visited Sept. 21, 2005) <sos-res.state.de.us/tin/controller>.
State of Delaware, Division of Corporations, MOC Holdco IL Inc. Entity Status, (last
visited Sept. 21, 2005) <sos-res.state.de.us/tin/controller>.
Time Warner Cable, Packages and Pricing (last visited Sept. 28, 2005)
<http://www. timewarnercable.com/minnesota/products/ cable/pricing.html>.
Comcast, Select a Package (last visited on Sept. 28, 2005)
<http://www.comcast.com/Buyflow/default.ashx?LocResult>.
FCC Media Bureau, Public Notice: Adelphia Communications Corporation, Debtor-in-
possession, Time Warner Inc. and Comcast Corporation Seek Approval to Transfer
Control and/or Assign FCC Authorizations and Licenses, MB Docket 05-192 (June 2,
2005).
Letter from Arthur H. Harding, Fleischman & Walsh LLP, to Marlene Dortch, Federal
Communications Commission, re: systems to be exchanged between parties of MB
Docket 05-192 (June 21, 2005).
5
REPORT ON
THE PROPOSED TRANSFER OF THE CITY OF
SHAKOPEE, MINNESOTA CABLE TELEVISION
FRANCHISE AND CABLE TELEVISION SYSTEM
FROM TIME WARNER CABLE, INC. TO
CABLE HOLDCO II, INC.,
AN INDIRECT WHOLLY-OWNED SUBSIDIARY OF
COMCAST CORPORATION
City of Shakopee, Minnesota
129 South Holmes Street
Shakopee, Minnesota 55379
September 28, 2005
TABLE OF CONTENTS
1. INTRODUCTION ............... ............................................. ........... ...... ..................................................... ...... ........1
II. DESCRIPTION OF THE TRANSACTION ............... ............................ ............................ ...... ...... ...................... .......3
III. THE Ev ALUA TION PROCESS ................................................. ............................................................................4
IV. ApPLICABLE FEDERAL, STATE AND LOCAL LEGAL REQUIREMENTS ................................................................6
V. STANDARD OF REVIEW .... ...................... ............................................. .............................................................8
VI. FRANCHISE FEE REVIEW FOR SHAKOPEE ..................................... ....................................................................9
VII. ONGOING TECHNICAL AUDIT FOR SHAKO PEE ............................................................................. ...................11
VIII. LEGAL QUALIFICATIONS ......... ....................... ...... .................. .................................................. ..................... .11
IX. TECHNICAL ABILITY... ;........... ..... ...;.............. ................................. ............................................................. ..12
X. FINANCIAL STABILITY AND OTHER FINANCIAL ISSUES ..................................................................................14
XI. IMPACT OF THE PROPOSED TRANSACTION ON SUBSCRIBER RATES ................................................................16
XII. IMPACT OF THE PROPOSED TRANSACTION ON SUBSCRIBER SERVICES ...........................................................17
XIII. IMPACT OF THE PROPOSED TRANSACTION ON COMPETITION .........................................................................18
XIV. MANAGERIAL QUALIFICA TIONS .................................................................................................... .................19
XV. CHARACTER QUALIFICATIONS ......... ........... ....................... .................................. ........................................ ..20
XVI. OTHER RELEVANT FACTORS ......... ..........................................................................................,.................. .....24
XVII. CONCLUSION ..................................................................................................................................................25
i
I. INTRODUCTION
This Report is prepared on behalf of the City of Shakopee, Minnesota (the "City"). The City
currently has a cable television franchise with Time Warner Cable, Inc. ("TWC"), wherein TWC
agreed to provide cable services to the residents of Shakopee. The existing franchise was
adopted on July 20, 2004, and became effective on August 10, 2004. The term of the City's
franchise is fifteen years from the effective date. The City's local cable television franchise will
be referred to herein as the "Franchise."
Comcast Corporation ("Comcast") has agreed to acquire certain TWC cable franchises in a
transaction in which both parent companies swap certain cable systems across the country. This
transaction involves a transfer of ownership and control of the Franchise which is contingent to
some degree on a complicated buy-out process that is part of the proposed plan of reorganization
for Adelphia Communications Corporation ("Adelphia"). Adelphia, which has declared
bankruptcy, is in an ongoing bankruptcy proceeding before the United States Bankruptcy Court
for the Southern District of New York (the "United States Bankruptcy Court"), and the court has
to approve Adelphia's plan of reorganization, including the sale of cable systems to Comcast and
Time Warner NY Cable, LLC. Comcast will acquire the Franchise and other cable franchises
across the country from a wholly-owned subsidiary of Time Warner Cable, Inc., while Time
Warner Cable, Inc. will acquire a number of cable franchises from Comcast, some of which were
owned by Adelphia, and others which were not.
On April 20, 2005, a Redemption Agreement was entered into by Comcast Corporation, a
Pennsylvania corporation; Comcast Cable Communications Holdings, Inc., a Delaware
corporation; MOC Holdco II, Inc., a Delaware corporation; TWE Holdings I Trust, a Delaware
statutory trust; TWE Holdings II Trust, a Delaware statutory trust; Cable Holdco II, Inc., a
Delaware corporation; Time Warner Cable, Inc., a Delaware corporation; TWE Holding I LLC, a
Delaware limited liability company; and Time Warner, Inc., a Delaware corporation. Pursuant to
this Redemption Agreement, the Shakopee cable system and Franchise will be assigned to Cable
Holdco II, Inc. (the "Franchisee"), a wholly-owned subsidiary of Time Warner Cable, Inc., and
pursuant to the same agreement, all of the stock of Cable Holdco II, Inc. \ will be acquired by
MOC Holdco II, Inc. (the "Transferee"), an indirect wholly-owned subsidiary of Comcast
Corporation (the "Transaction").
The City received an FCC Form 394 from Comcast and TWC, on or about June 15,2005. The
Form 394 laid out the Transaction, but was incomplete for a variety of reasons.1 Since the
1 See the July 14, 2005, and August 26, 2005, letters from B&G to TWC and Comcast concerning the
incompleteness of the Form 394. The July 14,2005, Notice of Incompleteness is appended hereto and incorporated
herein as Attachment A. The August 26, 2005, Notice of Incompleteness is appended hereto and incorporated
herein as Attachment B.
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Transaction would result in a complete change of the franchise holder, the prior approval of the
City must be obtained, in accordance with the terms of the Franchise and applicable state law.
See, e.g., Minn. Stat. ~ 238.083, Subd. 2. Bradley & Guzzetta, LLC ("B&G") was retained for
the purpose of providing the City with an understanding of the Transaction, the applicable
standard of review, and rec.ommendations for addressing the Form 394 transfer request and the
Franchisee's and/or Transferee's qualifications to hold the Franchise and to operate the cable
system in the City.
Comcast represents that the Transaction will have the following characteristics, among others:
. Cable Holdco II, Inc., the proposed Franchisee, will exercise its best efforts to comply with
the Franchise;2
. There are no current plans to consolidate operations;3 and
. There are no current llans for changes to: subscriber rates;4 channel line-ups;5 service or
installation policies; customer service operations/ billing operations;8 maintenance
procedures;9 personnel;lo testing practices;l! or management12 as a result of the Transaction,
although Comcast has reserved the right to make changes to each of the aforementioned areas
of operation. 13
This Report will provide the City with: (i) an understanding of the Transaction and its impact on
subscriber rates and services; (ii) the applicable standard of review; (iii) an analysis of Comcast' s
and the proposed Franchisee's qualifications; and (iv) our recommendations for addressing the
pending transfer application.
2 See Comcast's July 29, 2005, Response to Questions # 6 and # 81 in B&G's July 14, 2005, Data Request
(hereinafter "Data Request #1 Response"); Comcast's September 9, 2005, Response to Question # 81 in B&G's
August 26, 2005, Data Request (hereinafter "Data Request #2 Response"). Data Request #1 Response and Data
Request #2 Response are collectively referred to herein as "Data Request Responses." The Data Request #1
Response is appended hereto and incorporated herein as Attachment C, and the Data Request #2 Response is
appended hereto and incorporated herein as Attachment D.
3 Data Request Responses at Question # 32.
4 Id at Question # 8.
5 ld. at Question # 48.
6 '
See Data Request Responses at Question # 51.
7 Id at Question # 63.
8 Id at Question # 65.
9 Id at Question # 69
10 See Data Request Responses at Question # 71, # 72 and # 77.
11 Id at Question # 70.
12Id at Question # 33.
13
Supra Data Request #1 Response, notes 4 -12.
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II. DESCRIPTION OF THE TRANSACTION
It is necessary to comprehend the structuring of the Transaction to understand the financing that
will be available to the Franchisee for the City's Franchise and the cable system, and also to
determine at what corporate level any necessary performance guarantee should be provided (i.e.,
at what level are cash and other resources adequate to meet existing and future Franchise
obligations). It is also necessary to understand the terms of the Transaction to grasp how
services and rates in the City might be impacted, and how the cable system will be managed,
operated and maintained during the remainder of the Franchise term, which just began in August
2004.
Adelphia, TWC, and Comcast have entered into a complicated buy-out agreement in which
TWC and Comcast will each purchase many of the now-bankrupt Adelphia cable systems across
the country. Comcast and TWC have also entered into a Redemption Agreement, dated April 20,
2005, under which Comcast will redeem its ownership interest in TWC and Time Warner
Entertainment Company, L.P. in exchange for TWC's Shakopee cable franchise and various
other TWC franchises across the country.
The Comcast acquisition of the Franchise will occur in several steps and will be subject to the
receipt of necessary governmental approvals and the satisfaction or (to the extent permissible)
waiver of other conditions specified in the Redemption Agreement.
According to the TWC Redemption Agreement, TWC will assign and transfer to Cable Holdco
II, Inc. all of the cable system assets and franchises, including the City's Franchise, to be
swapped with Comcast. A wholly-owned Comcast subsidiary, MOC Holdco II, Inc., will then
acquire all of the stock of Cable Holdco II, Inc., leaving MOC Holdco II, Inc. as the Transferee
and Cable Holdco II, Inc. as the ultimate Franchisee. Following the Transaction, if it is
consummated, the City's Franchise will be held 14 by the newly formedI5 Cable Holdco II, Inc., a
Delaware corporation, which is 100% owned by the Transferee, MOC Holdco II, Inc.,I6 a
Delaware corporation, which in turn is 100% is owned by Comcast of Georgia, Inc., a Colorado
corporation, which in turn is 100% owned by Comcast MO Group, Inc., a Delaware corporation,
which in turn is 100% owned by Comcast Cable Communications Holdings, Inc., a Delaware
corporation, which in turn is 100% owned by the ultimate corporate parent, Comcast
Corporation, a publicly traded Pennsylvania corporation. 17
This Transaction is contingent, however, on the United States Bankruptcy Court's approval of
14 See Data Request # 1 Response at Question # 80.
I5Id at Question # 5.
16 See Comcast July 25, 2005 Response to B&G's July 14,2005 Notice ofIncompleteness at Response F.
17 See Exhibit 3 to the FCC Form 394.
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Adelphia's proposed Plan of Reorganization. It is possible that the United States Bankruptcy
Court will reject or amend the Plan of Reorganization. Recognizing this possibility, Comcast has
indicated that it might still exchange systems with TWC, even if the Adelphia Plan of
Reorganization is not approved, as currently proposed. It should also be noted that the
Redemption Agreement requires that franchise consents covering 90% of the subscribers
represented by the Transaction must be received, although Comcast has the right to waive that
requirement and go ahead with the system exchange if fewer than 90% of the necessary consents
are received.
III. THE Ev ALVA TION PROCESS
The City received an FCC Form 394 from Comcast and TWC, on or about June 15,2005. The
FOfI!1 394 laid out the Transaction, as described above and in greater detail below.18 Since the
Transaction would result in a complete change of the franchise holder, and the ownership and
control of the Franchise and the cable system, the prior approval of the City must be obtained, in
accordance with the terms of the Franchise and applicable state law.
In the process of evaluating the FCC Form 394, B&G, on behalf of the City, has done the
following:
>- Retained Front Range Consulting, Inc. ("FRC") to examine Comcast's financial
qualifications, and the proposed transfer's impact on services and rates;
>- Informed Comcast by correspondence dated July 13, 2005,19 that the City must be
reimbursed for all costs incurred in reviewing the FCC Form 394, and associated documents,
and in preparing a report, recommendations, resolutions and/or ordinances;20
>- Independently researched information about the Transaction and arguments raised by
Comcast and/or TWC in the course of reviewing the FCC Form 394;
>- Reviewed the FCC Form 394 for completeness and transmitted a notice of incompleteness to
Comcast and TWC on July 14, 2005, which notice, among other things, informed Comcast
and TWC that the federal 120-day review period had not begun due to the incompleteness of
the information received to date;
18 The Fonn 394, however, was incomplete for a number of reasons, which were laid out in the July 14,2005, and
August 26, 2005, letters from B&G to TWC and Comcast.
19 This correspondence is appended hereto and incorporated herein as Attachment E.
20 Comcast's response, Letter from Todd G. Hartman, Robins, Kaplan, Miller & Ciresi,LLP, to Stephen J. Guzzetta,
Bradley & Guzzetta, LLC (July 25, 2005), is appended hereto and incorporated herein as Attachment F.
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~ Prepared written responses to Comcast's correspondence concerning the incompleteness of
the company's transfer application;21
~ Issued an initial data request to Comcast and TWCon July 14,2005, on behalf of the City,
which solicited information regarding the potential franchisee's financial, technical, legal,
character and managerial qualifications ("Data Request # 1 ");
~ Reviewed Comcast's responses to Data Request #1, and prepared a reply to Comcast's
responses to Data Request #1, dated August 26, 2005, which included additional data
requests ("Data Request #2");
~ Evaluated the impact of the Transaction on competition in the delivery of cable service and
services and on rates, based on information provided by Comcast, TWC and FRC, and
information obtained through independent research;
~ Requested in writing22 that Comcast provide a list of the Exhibits and Schedules which were
attached to documents referenced in the Form 394, but were withheld from the City;
~ Requested in writing that Comcast provide and enter into a reasonable confidentiality
agreement so that purportedly confidential data germane to understanding the Transaction
could be reviewed;
~ Analyzed Com cast's response to Data Request #2;
~ Reviewed and considered the "Final Report By Front Range Consulting, Inc. To The City of
Shakopee, Minnesota Regarding the Proposed Transfers of the Cable System From Time
Warner Cable, Inc. To a Subsidiary of Comcast Cable(Communications, LLC" (the "FRC
Report,,);23 and
~ Reviewed and considered the "Initial Report To The City of Shakopee, Minnesota Regarding
the Franchise Fees Paid By Time Warner Cable Inc." drafted by FRC (the "Franchise Fee
Report,,);24 and
~ Assessed Comcast's financial, technical, legal, managerial and character qualifications, using
data furnished by Comcast and FRC, and information obtained through independent research.
21 Comcast's and TWC's July 25, 2005, and September 9, 2005, replies to B&G's notices of incompleteness are
afpended hereto and incorporated herein as Attachments G and H, respectively.
2 This request is appended hereto and incorporated herein as Attachment I.
23 The FRC Report is appended hereto and incorporated herein as Attachment J.
24 The Franchise Fee Report is appended hereto and incorporated herein as Attachment K.
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All of the documents referenced above are incorporated herein as if a part hereof. Copies of the
referenced documents are available for review from B&G and at the Office of the City Clerk?5
B&G's conclusions concernmg Comcast's financial, legal, managerial and technical
qualifications, and the impact of the Transaction on competition, subscriber rates and services,
are set forth in detail below.
IV. ApPLICABLE FEDERAL. STATE AND LOCAL LEGAL REQUIREMENTS
The applicable legal requirements for examining Comcast's and TWC's transfer application may
be found at the federal, state and local level.
A. Federal Law.
The Cable Communications Policy Act of 1984, as amended, 47 U.S.C. ~ 521, et seq. (the
"Federal Cable Act"), and the Federal Communications Commission's regulations do not
establish substantive standards for approving or rejecting a transfer application. Section 617 of
the Federal Cable Act, 47 U.S.C. ~ 537, and 47 C.F.R. ~ 76.502, however, contain certain
mandatory procedures that the City must follow. In this regard, ~ 537 requires a local
franchising authority to act within 120 days of receipt of a completed FCC Form 394 that
includes all information required by the franchising authority's franchise and state and local law.
A local franchising authority and a transfer applicant may agree to extend the 120-day deadline
provided for in federal law and Federal Communications Commission regulations. Absent an
extension of time, if a local franchising authority does not act within 120 days, an applicant's
transfer request will be deemed approved.
Although federal law is primarily procedural with regard to transfers of ownership and control, ,
the Federal Cable Act does delineate certain grounds on which a franchising authority may deny
a transfer request. See, e.g., 47 U.S.C. S 533(d). First, a transfer application may be denied if
the proposed transferee owns or controls another cable system in the franchise area; Second, a
local franchising authority may reject a transfer if the proposed transaction would eliminate or
reduce competition. in the delivery of cable service. Further, if a transfer applicant is lacking the
financial, legal or technical qualifications necessary to comply with and operate the franchise the
transfer application may be denied. See 47 U.S.C. ~ 541 (authorizing a local franchise authority
to require adequate assurances that the applicant has the financial, legal and technical
qualifications to operate the franchise before granting a franchise).
25 The list of documents available to the City and B&G in connection with Comcast's transfer application, which
documents are on file at the City Clerk's office, is appended hereto as Attachment N.
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B. State and Local Law.
State and local law typically establish the substantive legal bases for granting or denying a
transfer request, and often set forth the applicable standard of review. In many cases, a local
franchising authority's cable franchise may delineate specific grounds that may be used, and
specific factors that must be considered. In addition, state statutes and court decisions may set
out criteria that must be considered or may establish standards that must be followed. In some
cases, state law may also prescribe additional procedures that must be followed by a local
franchising authority.
Minnesota Statutes and the City's Local Franchise Ordinance
Pursuant to Minn. Stat. ~238.083, Subd. 4, local franchising authorities ("LF As") must not
unreasonably withhold their consent to a proposed sale or transfer of a franchise, including a sale
or transfer by means of a fundamental corporation change.26 Stated differently, state law
establishes a standard of review which requires that LF As must have a reasonable basis to
withhold approval of a proposed sale or transfer of a franchise. It should be noted that ~ 238.083
does not limit the issues or qualifications that may be investigated in the context of such an
analysis, or otherwise delineate the grounds on which a denial can be based. Thus, unless
restricted by the terms of a cable franchise, the City has broad discretion in reviewing this
Transaction.
As with state law, the City's Franchise contains no limitation on the subjects that may be
reviewed in connection with an analysis of this Transaction, nor does the Franchise contain
limitations on permissible bases for the approval or denial of this Transaction. That said, the
Shakopee Franchise reiterates the state standard of review, which provides that approval of the
transfer application at issue in this review cannot be unreasonably withheld.27
Aside from the standard of review discussed above, Minn. Stat. ~ 238.083 contains certain
procedural requirements pertaining to the sale or transfer of cable television franchises. More
specifically, ~ 238.083 states:
Subd. 2. Written approval of franchising authority. A sale or transfer of a franchise,
including a sale or transfer by means of a fundamental corporate change, requires the
written approval of the franchising authority. The parties to the sale or transfer of a
franchise shall make a written request to the franchising authority for its approval of the
sale or transfer.
26 Minn. Stat. S 238.083, Subd. 1 defines a "fundamental corporate change" as "the sale or transfer of a majority of
a corporation's assets; merger, including a parent and its subsidiary corporation; consolidation; or creation of a
subsidiary corporation."
27 See Shakopee, Minnesota, Ordinance 709, S 18(B) (August 10,2004).
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Subd. 4. Approval or denial of transfer request. The franchising authority shall approve or
deny in writing the sale or transfer request. The approval must not be unreasonably
withheld.
The franchise ordinance adopted by the City reiterates the same procedural requirements with
regard to requiring a written approval or denial of a transfer request.28
C. Procedural Issues.
The City received Comcast's and TWC's transfer application on or about June 15,2005. If the
application was complete, the 120-day review period provided for in federal law would end on
October 13, 2005. As indicated in Section II of this Report, B&G has notified Comcast on
multiple occasions that its Form 394 is incomplete. Arguably, therefore, the 120-day review
period never started. Comcast has disputed this fact. To ensure that the City's rights are
preserved, B&G recommends that the City act on Comcast's transfer application within the
federal 120-day review period, using best available information.
V. STANDARD OF REVIEW
At the time of awarding the original . cable franchise, the City considered and approved the
technical ability, financial capacity, legal qualifications and character of the original owners of
the cable system, as well as other appropriate factors. The same co~siderations apply to the
current review of the Transaction, since the Franchise will be held by a new entity, if the
Transaction is approved. The sources of information used In evaluating the
Transferee's/Franchisee's qualifications and the impact of the Transaction on services and rates
included the FCC Form 394, its exhibits, the current Franchise, various FCC rules and
regulations regarding cable communications systems, state and federal law, the Internet and
various written responses by Comcast toB&G requests for documents on the City's behalf.
The City's task in this process is to review the information provided regarding the Transaction
and to approve, approve with conditions or deny Comcast's transfer application. The City has
the express right to approve, approve with conditions or disapprove the pending transfer request.
The standard of review is that the City's consent shall not be unreasonably withheld. For the
purpose of determining whether it will consent to the Transaction, the City should inquire into
the proposed Franchisee's/Transferee's legal, technical, managerial, character and financial
qualifications and other appropriate factors regarding the Transaction, including (but not limited
to) the impact the Transaction may have on competition, services and rates in the City. Cable
operators, however, frequently argue that local franchising authorities may only investigate a
transferee's financial, technical and legal qualifications. Despite Comcast's protestations to the
contrary, there is nothing. in federal, state or local law which limits the City's transfer review to
28Id
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such qualifications. In fact, case law suggests that local franchising authorities have broad
authority under federal law to grant or deny a transfer request. Charter Communications, Inc. v.
County of Santa Cruz, 304 F.3d 927 (9th Cir. 2002). Indeed, the Charter Communications court
upheld a local franchising authority's wide-ranging investigation of a franchise transfer applicant
and stated that a proposed transfer's effects on financial health, the stability of rates, and the
quality of service, among other things, are legitimate areas of inquiry. Id. at 934.
In analyzing the Transaction, the City must consider whether Cable Holdco II, Inc., the proposed
Franchisee, meets all of the criteria originally considered in the granting of the Franchise. Note,
however, that this analysis is not a comparison between Time Warner Cable, Inc. and Cable
Holdco II, Inc. It is also not an analysis of the many corporate parents of Cable Holdco II, Inc.
Rather, this analysis is an application of factors to determine whether Cable Holdco II, Inc.
satisfies the applicable standards to the reasonable satisfaction ofthe City.
The City should focus on the following factors in determining what action to take on Comcast' s
transfer application:
1. the legal qualifications of Cable Holdco II, Inc.;
2. the technical ability of Cable Hold co II, Inc. and its operational staff;
3. the financial stability and qualifications of Cable Hold co II, Inc., and the impact of
the Transaction on services and rates;
4. the impact of the Transaction on cable service competition;
5. the managerial qualifications of Cable Holdco II, Inc.;
6. the character qualifications of Cable Holdco II, Inc.; and
7. otherappropriate factors, including those required by local law.
B&G has conducted an extensive review of all relevant materials on behalf of the City. This
Report is a "shorthand" synthesis of that review in an attempt to fully inform the City without
overwhelming the decision-making bodies (i.e., the Shakopee City Council and the Shakopee
Telecommunications Advisory Commission) with detail and minutia. Obviously, this review
extended far beyond the summary of this Report, and B&G is available to further expand on this
summary should the City have any questions.
VI. FRANCHISE FEE REVIEW FOR SHAKOPEE
Front Range Consulting, Inc. ("FRC") conducted a franchise fee review for the years 2002
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through 2004 (the "review period"), analyzing whether TWC submitted the correct amount of
franchise fees owed to the City under the Franchise. The results ofFRC's review are set forth in
a report entitled "Initial Report to the City of Shakopee Regarding the Franchise Fees Paid By
Time Warner Cable Inc." (the "Franchise Fee Report,,),z9 Under the Franchise, TWC is required
to submit a franchise fee equal to 5% of its gross annual revenues to the City. "Gross revenues"
are defined as:
all revenues received directly or indirectly by the Grantee, arising from orin connection
with the provision of Cable Service in the City including subscriber revenues (including
pay TV), franchise fees, advertising income, home shopping program revenues and
rentals of subscriber equipment, accounted for as earned in accordance with generally
accepted accounting principles. Grantee is not required to include revenues recorded as
earned but which are deemed uncollectible, but it must include recoveries previously
deemed uncollectible. This definition of gross revenues also does not include sales,
excise or other taxes collected by Grantee on behalf of federal, state, county, city or other
governmental unit. Funds collected by Grantee to support public, educational and
governmental access programming are also excluded from the definition of gross
revenues.3D
FRC analyzed whether TWC had actually paid franchise fees on various revenue categories that
are or should be included in "gross revenues" for purposes of franchise fee calculations. The
Franchise Fee Report concluded that TWC had, indeed, underpaid franchise fees to the City
during the review period in an amount totaling between $30,000 and $32,000.31 These
underpayments for the review period may constitute violations of the City's current Franchise
and the prior franchise, and/or a breach of contract, and the City may wish to enforce its rights
under the Franchise and to seek recovery of the fees owed during the period the prior franchise
was in effect. For a detailed discussion of the identified franchise fee underpayments, please
refer to the Franchise Fee Report.
According to Comcast, liability for any potential franchise fee adjustments will remain with
TWC.32 Given this fact, it would be reasonable to deny approval of Com cast's transfer
application, because if the Transaction is allowed to proceed, the City will no longer be in a
contractual relationship with TWC, and may be unable to avail itself of the enforcement
mechanisms in the Franchise with respect to TWC. This particular issue could be remedied if
Comcast or an appropriate subsidiary agreed to be responsible for TWC's franchise fee liability.
In any event, the City should be certain to reserve all of its rights with respect to the franchise fee
underpayments discussed in the Franchise Fee Report, and any other underpayments which may
29 The Franchise Fee Report is appended hereto as Attachment K and is incorporated herein.
3D Shakopee Franchise, Sec. 10.I(A).
31 See Franchise Fee Report at 1, 3, 4 and 5. This amount recognizes the portion of the identified underpayment that
has already been paid to the City.
32 See Data Request #1 Response at Question # 55.
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exist, but were not identified as part ofFRC's franchise fee review.
VII. ONGOING TECHNICAL AUDIT FOR SHAKOPEE
At the present time, a technical audit of TWC's cable system in the City is being performed by
CBG Communications, Inc., but has yet to be completed. It is possible that the audit may
uncover problems with the cable system and TWC's maintenance practices. Such problems
could constitute violations of the Franchise and applicable laws, codes, and regulations.
Accordingly, the City should be sure to reserve all of its rights with regard to any violations
which are discovered as a result of the technical audit. The City should also be certain to reserve
its rights with regard to any violations which may not have been discovered during the course of
the technical audit, but which may still exist. Because the City will no longer be in a contractual
relationship with TWC if the Transaction is approved, the City may wish to require Comcast to
assume responsibility and liability for any Franchise violations discovered as a result of the
technical audit and other known or unknown violations of applicable technical and performance
requirements which may exist.
VIII. LEGAL QUALIFICATIONS
The legal qualifications standard relates primarily to the analysis of whether Comcast and its
affiliates and subsidiaries are duly organized and authorized to own the cable system and the
Franchise via the Transaction. As stated above, the ultimate franchise holder for the City will be
Cable Holdco II, Inc.,33 although ownership of the Franchise will indirectly rest in Comcast as
the ultimate parent of the Franchisee. We have reviewed this corporate structuring and the
necessary transactions related thereto. According to Comcast, all necessary corporate entities are
or will be duly organized. In this regard, Comcast itself is already established and duly
incorporated in Pennsylvania.34 Comcast has also indicated that, as part of the Transaction, all of
the entities that will need to be qualified to transact business in Minnesota are or will be so
qualified.35
The legal analysis of the transfer application also involves an analysis of whether the overall
Transaction itself complies with federal, state and local law. We have reviewed the relevant
agreements between TWC and Comcast. Based upon our review, we believe that the
Transaction, as described in the FCC Form 394 and related documents, does not at this time
violate federal, state or local law.
33 See Data Request #1 Response at Question # 80.
34 See FCC Form 394, Exhibit 3.
35 This conclusion is based upon Exhibit 4 to the FCC Form 394, which indicates that all required entities will be
authorized to do business by the closing of the Transaction. The Transaction is anticipated to close in the first half
of 2006. In re: Adelphia Communications Corporation, et al., Debtor's Second Amended Joint Disclosure
Statement at 20, No. 02-41729(REG) (Bankr. S.D.N.Y.).
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In light of the foregoing, B&G believes the City would not have a reasonable basis to withhold
approval of the Transaction based on the Transferee's and/or the Franchisee's legal
qualifications.
IX. TECHNICAL ABILITY
In a sense, this Transaction is a typical transfer, in which one cable operator sells the entire
franchise and cable system, and all rights therein, to another cable operator, but it is also part of
an extremely complex transaction involving multiple corporate layers of three of the largest
cable operators in the country, one of which is in bankruptcy. Under the proposed transfer of
ownership and control, TWC will be assigning certain franchise rights and cable systems to
Cable Holdco II, Inc., a TWC subsidiary that was created simply for the purpose of obtaining
and holding several cable franchises that will be transferred as a result of the system exchange
and Redemption Agreement. Following the proposed transfer, Cable Holdco II, Inc. will be the
ultimate franchise holder and will be completely owned by MOC Holdco II, Inc. - an indirect
wholly~owned subsidiary of Comcast Corporation. Comcast considers MOC Holdco II, Inc. to
be the actual "transferee" in the Transaction because it will acquire 100% ownership of Cable
Holdco II, Inc. - the Franchisee.
The technical abilities, experience and expertise of Cable Holdco II, Inc. should have been
extensively set forth in the FCC Form 394, as well as in Comcast's replies to Data Requests #1
and #2 and the City's Notice of Incompleteness. B&G has not, however, received any
documentation addressing Cable Holdco II, Inc.'s technical qualifications, experience or
expertise. As part of Comcast's transfer application and responses to B&G's data requests, very
general and superficial information was offered as support for Comcast's technical
qualifications.36 Although Comcast has provided some limited information concerning its
technical qualifications, ex.perience or expertise, it has not agreed to guarantee the new
Franchisee's performance.3 To date, all data provided concerning technical ability has
concerned only Comcast, not Cable Holdco II, Inc., even though Cable Holdco II, Inc. will be the
entity that holds the Franchise, and presumably will be responsible for the operation and
maintenance of the cable system in the City. Comcast would have the City, contrary to the intent
of federal, state and local law, rely on its own qualifications in analyzing whether or not the
pending transfer application should be approved, rather than the qualifications of Cable Holdco
II, Inc. However, Comcast will not hold the Franchise and will not operate and maintain the
cable system on a day-to-day basis. Cable Holdco II, Inc. will be the actual Franchisee. It is
therefore appropriate for the City to consider Cable Holdco II, Inc.'s technical qualifications,
experience and expertise when analyzing whether or not the proposed transfer should be
approved, absent a performance guarantee from Com cast.
36 '
See Data Request #1 Response at Question # 5.
37 Data Request Responses at Question # 84.
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In regards to Cable Holdco II, Inc.'s technical qualifications, experience and expertise, there
simply is no available information, as Comcast has not provided any specific data concerning the
Franchisee's local technical personnel and the proposed Franchisee is a new entity created in
connection with the Transaction. All Comcast has stated is that there are no current plans to
make any changes to technical personnel or positions. Comcast, however, did not state that no
changes would be made after the Transaction is completed or at some future time, and did not
provide any information on existing technical personnel. Consequently, Cable Holdco II, Inc.
the actual Franchisee, has no proven technical experience and expertise operating or maintaining
a cable system or holding a local cable franchise.38 Indeed, Cable Holdco II, Inc. has yet to
operate a cable system or to hold a cable franchise in any community. As a result of this lack of
demonstrated technical experience and expertise, there is no evidentiary foundation to
demonstrate Cable Holdco II Inc.'s qualifications to properly and effectively operate and
maintain the cable system in the City. Because Cable Holdco II, Inc. has no technical
qualifications, experience or expertise, the City would have a reasonable basis to withhold its
consent to the Transaction, as currently described in the Form 394.
Comcast has continuously insisted that the City must rely upon its own technical qualifications
when approving or denying the proposed transfer. Comcast, however, will not hold the
Franchise and will not be directly responsible for operating and maintaining the system in the
City on a datto-day basis. In fact. Comcast has made clear that it would not be the Franchisee
for the Citl and is five companies removed from the Franchisee.4o This, in and of itself, might
not be an insurmountable issue if Comcast would guarantee the Franchisee's performance. But
when pointedly asked whether Comcast would provide a performance guarantee, Comcast stated
that it was "not necessary" for Comcast to provide such a guarantee.41 Comcast, therefore,
expects the City to rely upon the technical experience and expertise of a company other than the
proposed Franchisee, while it is, at the same time, unwilling to guarantee that it will be
responsible for any of the actions of the Franchisee and for ensuring that the system complies
with the Franchise and applicable technical standards and rules. As Comcast, the parent
company, will not guarantee the new Franchisee's performance, the proposition that the City
must rely on the technical abilities of the ultimate parent entity in assessing technical
qualifications simply would not be prudent, and is inconsistent with the intent of federal, state
and local law.
As indicated above, there is insufficient information to evaluate Cable HoIdco II, Inc.' s technical
qualifications, experience and expertise, because no information has been provided and because
the Franchisee is a new entity. B&G therefore cannot to recommend approval of Comcast's
transfer application on the basis of Cable Holdco II, Inc.'s technical qualifications.
38 See Data Request #1 Response at Question # 5.
39 Id at Response to Question # 82.
40 See FCC Form 394, Exhibit 3
41 See Data Request Responses at Question # 84.
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If, however, Comcast Corporation were to provide the City with a guarantee of performance for
Cable Holdco II, Inc., the City would then need to analyze Comcast's technical qualifications,
experience and expertise. Currently, Comcast Corporation has 21.5 million subscribers,42 and
could potentially have 23.3 million subscribers after the proposed transfer,43 if all transfer
applications are approved as filed. Comcast Corporation currently offers high-speed Internet
service, digital cable service, high definition channels, digital video recorder service, On
Demand service, premium movie channels and digital telephone service, in addition to basic
cable service.44 Comcast Corporation has been in business since 1963,45 and consequently has a
long history of providing cable and other services to subscribers. Comcast and its predecessors
have invested approximately $39 billion in upgrading cable plant by installing fiber optics, and
99% of Comcast Corporation's customers now have two-way network capabilities.46 Based on
this technical history, Comcast Corporation would appear to have the technical experience and
expertise necessary to operate and maintain the cable system in the City and to hold the
Franchise. If Comcast Corporation was to provide an appropriate performance guarantee, the
City would have a reasonable basis to approve the transfer application based upon the technical
qualifications of Cable Holdco II, Inc. B&G requested such a guarantee, but Comcast did not
agree to provide one claiming that it has shown that Cable Holdco II, Inc. is technically
qualified. The facts show otherwise.
X. FINANCIAL STABILITY AND OTHER FINANCIAL ISSUES
B&G retained FRC to conduct a review and draft a report on Cable Holdco II Inc.'s financial
qualifications and the impact the Transaction would have on subscriber rates and services (the
"FRC Report"). FRC conducted a thorough investigation into the proposed Franchisee's
qualifications based upon publicly available data and information obtained by B&G through the
FCC Form 394 and Data Requests #1 and #2. The FRC Report is appended hereto. and
incorporated herein as Attachment 1.
The FRC Report navigated through the various agreements and parties involved in this proposed
Transaction. FRC analyzed all financial data provided to it by Comcast (through B&G), and had
a difficult time providing any in-depth analysis of Cable Holdco II Inc.' s financial qualifications.
This was the result of an utter lack of financial information provided for Cable Holdco II, Inc.47
FRC reviewed the Data Request Responses, along with the Omitted Exhibit List,48 and
42 See FCC Form 394, Exhibit 8.
43 See Data Request #1 Response at Question # 23.
44 See FCC Form 394, Exhibit 8.
45 Id.
46 See Data Request #1 Response at Question # 5.
47
See FRC Report at 8-11.
48 See Comcast's letter from Sheila Willard, Senior Vice President, Government Affairs, to Stephen Guzzetta
(September 1, 2005) (hereinafter "Omitted Exhibit List"). The Omitted Exhibit List is appended hereto and
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concluded that there were several key documents that should have been included with the Data
Request Responses.49 In particular, B&Ghad requested projected financial information for
Cable Holdco II, Inc., but was not provided with any data. Comcast stated that it "does not yet
have unrestricted access to historical financial information for each system being acquired."so
Although Com cast might not have "unrestricted" access to historical financial information at this
point in time, Comcast has been provided with the operating and capital budgets for each system
it is acquiring for 2005,51 which would have provided Comcast with the data needed to prepare
projections and FRC with some historical financial information necessary to conduct a detailed
analysis. These budget documents were never provided to the City, despite repeated requests
and explanations as to why they were relevant to the City's review of Comcast's transfer
application.
The FRC Report determined that Cable Holdco II, Inc. has not demonstrated that it will have the
necessary management or financial structure or resources to properly operate or control the
City's Franchise. Cable Holdco II, Inc. will hold franchises in Arkansas, Florida, Minnesota,
Mississippi and Tennessee.52 Based on years of experience, FRC concluded that this cross-
country compilation of Cable Holdco II, Inc. franchises does not form a normal operating
structure, and as such, the Franchisee would be lacking the financial and management structure
necessary to operate and control franchise operations. Further, FRC noted that Cable Holdco II
Inc.'s address and contact information are currently stated as being: Mr. Gary Matz, Time
Warner Cable's Vice President, Chief Counsel, Regulatory, who is located in Stamford,
Connecticut.53 This demonstrates that Cable Holdco II, Inc. has "limited or no operating and
financial structure," as TWC's chief counsel is the contact individual for this newly formed
company.54
FRC analyzed the extremely limited information that is available concerning Cable Holdco II,
Inc., and stated that it was effectively prevented from preparing any substantial financial analysis
because it had not been provided with the requisite financial data for such an analysis. 55 In
addition, the FRC Report concluded that Comcast is requesting that the City rely upon its
(Comcast's) own financial qualifications, not those of Cable Holdco II, Inc., when analyzing the
Transaction. This response is similar to Comcast's approach to the City's review of Cable
Holdco II, Inc.'s technical, managerial and character qualifications. The FRC Report noted
Comcast's financial qualifications should not be relied upon without a guarantee of performance
incorporated herein as Attachment L. B&G's September 2, 2005, reply to Ms. Willard's letter concerning omitted
exhibits and schedules is appended hereto and incorporated herein as Attachment M.
49
See FRC Report at 11.
50 See Data Request #1 Responseat Question # 19.
51 See Omitted Exhibit List, TWC Redemption Agreement, Schedules 7.l(i)(A)-(B).
52
See FRC Report at 10.
53 Id. at 11.
54 Id.
55Id. at 11-12.
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from Corncast, which Comcast refuses to provide. Without such a guarantee, FRC concludes
that there could be a significant financial risk to the City based solely on Cable Holdco II Inc.'s
financial qualifications (or lack thereof). This is due, in part, to the fact that Cable Holdco II,
Inc. is newly formed, and simply does not have. a sufficient operational structure or financial
history in place, as noted above. FRC's negative view of Cable Holdco II, Inc.'s financial
qualifications is also attributable to the fact that available data has not been provided, despite the
fact that it has been requested on numerous occasions. Thus, it is difficult, if not impossible, to
develop an accurate financial picture of Cable Holdco II, Inc. after the Transaction.
The FRC Report recommends two alternatives to the City. The first alternative is to approve the
transfer, but make it conditional upon receiving a performance guarantee from Comcast ensuring
compliance with all prior, current and future financial Franchise requirements.56 The second
alternative set forth in the FRC Report is for the City to obtain an extension of the 120-day
review period57 in order to allow Comcast to fully respond to the Data Request #1 and Data
Request #2 and to provide the requested documents and financial data. 58 This approach would
also provide the City with additional time to properly analyze the financial documents that are
furnished and to evaluate Cable Holdco II Inc.'s financial qualifications. Either recommendation
has a sufficient legal basis. However, an extension of the 120-day review period would require
an agreement with Comcast and TWC.
XI. IMPACT OF THE PROPOSED TRANSACTION ON SUBSCRIBER RATES
As with any franchise transfer or assignment, it is essential to consider whether subscriber rates
will increase as a result of the transfer or assignment. If a rate increase will occur, it is
appropriate to determine whether the proposed transfer or assignment is in the public interest.
Comcast has asserted that there is nothing that "requires" changes in subscriber rates as a result
of the Transaction.59 Comcast has also reserved its rights to change rates after the Transaction
has been finalized, and that any changes will continue to conform to FCC regulations.6o These
stock answers provide little insight into Comcast's future plans with respect to rates, and do not
answer the question of whether the Transaction will cause an increase in subscriber rates.
Moreover, Comcast and TWC have provided such limited financial information concerning the
Transferee, the Franchisee and the Transaction itself, that FRC is not able to determine whether
subscriber rates would increase if Corncast's transfer application is approved.61 That said, FRC
has set forth several conditions under which regulated rates could increase as a result of the
56
See FRC Report at 13.
57 B&G has informed Comeast and Time Warner on several occasions that it does not believe time period has begun
to run, due to the incompleteness of the FCC Forms 394. This statement is not a waiver of that assertion.
58
See FRC Report at 13.
59 See Data Request #1 Response at Question # 8.
60 Id.
61
See FRC Report at 12.
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Transaction.62
Further, after reviewing both TWC and Comcast's listed rates on their respective web pages, it is
clear to B&G that there is a difference in the pricing schemes of the two cable operators, and that
Comcast's rates are generally higher than TWC's for similar programming services and/or tiers.
It therefore appears that Com cast will likely raise rates after the Transaction is consummated, as
it is unreasonable to believe that Comcast would indefinitely serve the Twin Cities metro area
with two separate pricing schemes. Indeed, it is very likely that Comcast will adopt its own
channel line-up and pricing scheme across all of the Twin Cities area because it will increase the
efficiency of customer service representatives. B&G and FRC, however, received no data
addressing when or how much a rate increase would be in the City.
Generally, there is a concern that the financing of a particular transaction will cause subscriber
rates to increase, as the debt load is increasing. In this case, however, TWC is essentially
purchasing Comcast's ownership interest in TWC and Time Warner Entertainment Company,
L.P. with the swap of cable franchises, in addition to $1.9 billion in cash. Comcast has provided
no information with respect to any additional debt needed over a reasonable planning horizon
that could be related to this Transaction. Therefore, Comcast has provided no current financing
plans to consider in examining the likelihood of rate increases. Rate increases can also occur as
a result of the valuation of the assets acquired by Comcast irrespective of an increase in debt.63
In light of the foregoing, Comcast has failed to demonstrate that subscriber rates in the City will
not be adversely affected by the Transaction.
XII. IMPACT OF THE PROPOSED TRANSACTION ON SUBSCRIBER
SERVICES
Another essential factor that should be considered by the City is whether subscriber services will
be affected, either negatively or positively, as a result of the Transaction. Comcast has asserted
there are no changes that are "required" as a result of the Transaction. This answer does not,
however, inform the City of what Cable Holdco II, Inc. will do independently after the
Transaction. B&G was provided with little or no information about Cable Holdco II, Inc.' s plans
for technical or managerial changes,64 channel line-up changes,65 installation changes66 or any
other subscriber service changes. Essentially, B&G was provided with no future plans regarding
subscriber services in the City.
62
See FRC Report at 12-13.
63Id.
64 See Data Request Responses at Question # 48.
65 Id.
66 Id. at Question # 51.
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B&G specifically requested information about potential changes in the number of call centers
after the Transaction, but was provided with the same stock answer stating that no changes are
"required" as a result of the Transaction.67 Further, B&G received no substantive information
indicating whether there will be a reduction or increase in customer service representatives if the
Transaction is approved.68 Customer service representatives play an important role in Franchise
compliance and the provision of quality service. A reduction in the number of representatives
could therefore reduce the Franchisee's ability to comply with applicable customer service
standards and to provide high-quality service in the City.
B&G informed Comcast that the City has received complaints regarding customer service, and
requested information on plans to improve the quality of customer service in the City. Once
again, Comcast merely stated that no changes are "required" as a direct result of the
Transaction,69 thereby insinuating that it has no plans to improve the quality of customer service
after the Transaction is consummated.
Based upon Comcast's terse and ambiguous responses, it is difficult to determine what changes,
if any, will be made to subscriber services if Comcast's transfer application is approved. As
there is no information available to determine whether adverse changes in subscriber services
will occur if Comcast's transfer application is approved, the City would be reasonable in
withholding its approval of the Transaction. It would be reasonable to consent to the Transaction
if Comcast provides an appropriate performance guarantee for Cable Holdco II, Inc., ensuring
full compliance with all customer services standards and requirements set forth in the Franchise.
XIII. IMPACT OF THE PROPOSED TRANSACTION ON COMPETITION
According to 47 U.S.C. ~ 533(d), a local franchising authority has the power to withhold
approval of a transfer application if the transfer at issue would eliminate or reduce competition in
the delivery of cable service within the franchise area. This Transaction will not, however,
directly affect competition in the City. Presently, neither TWC nor Comcast are competing with
each other for subscribers, as neither company has a franchise for an area served by the other.
Both companies have served the Twin Cities market for a number of years, and have elected not
to compete head to head. This means it is unlikely that Comcast would have ever decided to
overbuild TWC's cable system in the City.
It should also be noted that, after the Transaction, Comcast would only have an attributable
interest in fifteen national and regional vide070 programming networks, out of 390 national cable
67 See Data Request Responses at Question # 57.
68 Id at Question # 63.
69 Id at Question # 64.
70 See In the Matter of Applications for Consent to. the Assignment and/or Transfer of Control of Licenses,
Applications and Public Interest Statement, FCC MB Docket No. 05-192 (May 18, 2005).
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networks.7! While this means the Transaction should not appreciably contribute to content
discrimination against competitive overbuilders and other cable service providers, it would be
wise for the City to obtain a guarantee from Comcast that there will be no exclusive terrestrial or
satellite-delivered programming contracts for affiliated and nonaffiliated networks which would
impact the City, its citizens, and any entity wishing to compete with the Franchisee in providing
cable services in the City. Exclusive programming contracts could significantly impact potential
competition. Essentially, an exclusive programming contract would give Comcast (or whomever
the contracting party. might be) exclusive rights to air a particular network. This would prohibit
any potential competitors from offering a competitive channel line-up, thereby reducing the
likelihood of any vigorous or truly effective competition against Comcast.
Based on the foregoing, we do not believe that 47 U.S.C. ~ 533(d) provides a rational basis for
withholding approval of the Transaction, although the City should obtain an agreement from
Comcast, Cable Holdco II, Inc. and/or MOC Holdco II, Inc. which prohibits exclusive terrestrial
and satellite-delivered programming contracts for affiliated and nonaffiliated programming
networks.
XIV. MANAGERIAL QUALIFICATIONS
As with its financial and technical qualifications, Cable Holdco II, Inc. has no history which can
be examined to evaluate its managerial quaIifications.72 A cable operator must be able to
properly manage a cable franchise in an efficient and effective manner, and must do so in a way
that will not cause any harm to subscribers. With no managerial history, there is no evidence
presented to the City that Cable Holdco II, Inc. would be capable of responsibly managing the
cable system in the City. In this regard, the FRC Report addresses the fact that Cable Holdco II,
Inc. will own cable systems in a number of states and in geographically diverse areas of the
countr1, and that it is unlikely that there will ever be an operating unit comprising a management
team.7 Therefore, considering Cable Holdco II, Inc.'s managerial qualifications alone, it would
be reasonable for the City to withhold its consent to the proposed Transaction.
Comcast is asking the City to rely on its managerial qualifications in reviewing the Transaction.
Comcast, however, is neither the Transferee nor the ultimate Franchisee. That said, Comcast and
its subsidiaries do have significant experience managing cable systems around the country. It is
unclear, however, what types of management expertise and management resources Comcast will
make available to the Franchisee. Moreover, Comcast has provided very little data as to how it
would manage the Franchise and the system in the City after the Transaction is consummated.
7! NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION, 2005 MID-YEAR INDUSTRY OVERVIEW, (last visited
Sept. 25, 2005) <www.ncta.com>.
72 See Data Request #1 Response at Question # 5.
73
See FRC Report at 10-11.
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Corncast has indicated that the Transaction will not immediately result in any operational or
managerial changes at the local franchise level. At the same time, however, Comcast has
reserved the right to consider and make any managerial changes necessary after the Transaction
has taken place.74 Assuming changes in management are made, the impact of such changes is
unknown at this time, since Comcast has not indicated what types of changes will or might be
made (in terms of personnel, decision-making authority and policies) and has not stated what
types of decisions, if any, would be made at the local level after the Transaction is completed.
We should also note that TWC and Comcast never furnished any information describing the new
management structure for the City, including what agreements local management may enter into
with the City, even though such information was requested by B&G.75 The only information
provided by Comcast regarding its management system is that, in general, "Comcast's practice is
to have a decentralized management system with locally accountable decision makers.,,76 Thus,
it is unclear how Cable Holdco II, Inc. will function, from a decision-making and managerial
standpoint, after the Transaction.
Given the uncertainties surrounding who will be making decisions about the City's system, and
precisely what decisions will be made at local, regional, direct parent and indirect parent levels
after the Transaction is completed, it would be reasonable and appropriate to require Comcast to
affirmatively guarantee that it: (i) will not interfere, directly or indirectly, with the Franchisee'
ability to comply with its franchise obligations, and applicable laws and regulations; and (ii) will
cause the Franchisee to comply with its franchise commitments and applicable laws and
regulations at all times. It would also be advisable and reasonable to have the local franchise
holder re-affirm its understanding of and obligation to comply with franchise requirements.
Absent such a guarantee and reaffirmation, we believe Cable Holdco II, Inc.'s unknown
management and governance scheme provides a reasonable basis for withholding approval of the
Transaction.
XV. CHARACTER QUALIFICATIONS
As part of our review, we evaluated whether Cable Holdco II, Inc. and its management, have the
requisite character to own and control the Franchise and the cable system in the City. The
primary purposes of evaluating a transfer applicant's character are to ascertain whether it is
likely that the applicant, through its officers and directors, will defraud a local franchising
authority or subscribers. or renege on its franchise obligations. As stated before. Cable Holdco
II, Inc. is a newly formed company, and has never owned a cable franchise or operated a cable
system. B&G requested information on Cable Holdco II, Inc.'s officers and directors in its July
14,2005, Notice ofIncompleteness, to which Comcast replied that Cable Holdco II, Inc. had "no
74 Data Request Responses at Question # 79.
75Id
76 Data Request # 1 Response at Question # 79.
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directors" and subsequently listed the company's officers.77 Comcast, however, also listed Mr.
David E. O'Hayre as a Director of Cable Holdco II, Inc., immediately after a statement that
Cable Holdco II, Inc. had "no directors." This corporate governance information is quite
confusing and contradictory, and makes it unclear what individuals are appointed to what
positions. No character information was provided for any individual listed as either an officer or
a director. Further, it appears that Cable Holdco II, Inc.'s only contact person is Mr. Gary Matz,
a corporate attorney for TWC. No character data has been provided for Mr. Matz. It is unclear
why the officers and directors of Cable Holdco II, Inc. were not listed as contact individuals for
the Franchisee.
In light of the foregoing, Cable Holdco II, Inc. currently possesses no character qualifications to
analyze in connection with Comcast's transfer application. Consequently, the City has no
evidence that Cable Holdco II, Inc., through its officers and directors, would have sufficient
character qualifications to operate the cable system in the City and to hold the Franchise.
Further, Cable Holdco II, Inc. has no history of franchise compliance to indicate it is committed
to complying with franchise obligations. Therefore, it would be reasonable for the City to
withhold its consent to the Transaction, as it has no assurances that Cable Holdco II, Inc. or its
officers and directors, would not defraud the City or subscribers or violate the Franchise. If a
performance guarantee was provided by Comcast, the City would then, as before, have to
analyze Comcast's character qualifications.
To the best of our knowledge, neither Comcast, nor any subsidiary or affiliate thereof, nor any
officers or directors have engaged in any activities that would lead B&G to believe that Comcast
or any of its affiliates, subsidiaries, officers or directors would defraud the City or subscribers.
This conclusion is based on the fact that for the last ten years, none of the officers or directors of
Comcast, or any officers or directors of Comcast subsidiaries or affiliates who may become
directors or officers of Comcast, have been charged or convicted in a criminal proceeding of
fraud, embezzlement, tax evasion, bribery, extortion, obstruction of justice, false/misleading
advertising, perjury, antitrust violations, violations of FCC regulations or the Communications
Act of 1934, or conspiracy to commit any of the foregoing offenses.78
Comcast, however, failed to provide B&G with any information relating to any alleged franchise
violations committed by Comcast or any of its affiliates or subsidiaries, despite B&G's explicit
data requests regarding such violations. Comcast did explain that it, or its affiliates or
subsidiaries, had "occasionally received notices of alleged non-compliance" with regard to some
of its cable franchises, but that "such matters [would not] be considered relevant or material to
the proposed transaction.,,79 B&G also requested information on whether Comcast or any of its
affiliates or subsidiaries had ever been fined or otherwise sanctioned by a local franchising
77 See Comcast's July 25, 2005, Response to Sec. (f) in B&G's July 14,2005, Notice ofIncompleteness.
78 See Data Request #1 Response at Question # 38.
79 Data Request #1 Response at Question # 40; Data Request #2 Response at Question # 37 and # 40.
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authority, the FCC or a state agency, but the same answer was provided.80 Additionally, B&G
inquired about instances in which Comcast, or its affiliates or subsidiaries, failed to comply with
FCC technical standards. Again, the same answer was provided, stating that there have been
"occasional" violations of FCC technical standards, but that these issues have been resolved and
are not relevant to this transaction.8! B&G also solicited information on any revocations,
suspensions or non-renewals of any franchise held by Comcast or any of its affiliates or
subsidiaries, but only a brief description of pending denials was provided.82 A list of pending
denials provides limited information regarding denials, nonrenewals, or suspensions, and does
not provide a full perspective on Comcast's commitment to fully complying with local cable
franchises, as it does not demonstrate how many denials, nonrenewals or suspensions have
occurred in total for the past five years. The higher the number of franchise denials,
nonrenewals, suspensions and violations is for the past five years, the more likely it is that
Comcast, or its affiliates and/or or subsidiaries will renege on fully complying with Franchise
obligations.
As Comcast has failed to provide any detailed substantive information regarding its franchise
compliance history, B&G does not have much evidence to evaluate the likelihood that the
Franchisee will. at all times comply with the Franchise or that Comcast will cause the Franchisee
to comply with the City's Franchise at all times. There are no specifics provided for the
franchise violations noted in Comcast's Data Request Responses, so it is unclear how recently,
how many or how frequently the violations occurred. It is also unclear how significant and
material the violations were. A cable operator's history of franchise. compliance reflects upon
the operator's character. If an operator is unwilling to comply with franchise obligations it
knowingly and intelligently entered into, that indicates a disregard for contractual obligations, as
well as a disregard for local, state and federal law. Based upon the limited information provided,
B&G has been unable to form any definitive conclusions concerning Comcast's character, other
r than to note that Comcast has stated it has apparently com,mitted franchise violations and failed
to comply with FCC rules at times.
When asked to commit to compliance with the City's Franchise, Comcast failed to unequivocally
state that it would comply with all terms of the Franchise. Neither Comcast Corporation nor
Time Warner Cable, Inc. has provided direct assurances that Cable Holdco II, Inc. (the actual
proposed holder of the Franchise) will comply with the City's Franchise. Instead of indicating
that it would agree to accept the Franchise, Comcast Corporation sidestepped any direct
responsibility by stating that MOC Holdco II, Inc., the direct owner of Cable Holdco II, Inc.,
certifies that Cable Holdco II, Inc. will use its "best efforts" to comply with the Franchise.83
Certification of "best efforts" to comply with the Franchise is required upon signing the FCC
80 Data Request #1 Response at Question # 41; Data Request #2 Response at Question # 37 and # 41.
8! Data Request #1 Response at Question # 46; Data Request #2 Response at Question # 37 and # 46.
82 Data Request #1 Response at Question # 42; Data Request # 2 Response at Question # 42 and # 37; and FCC
Form 394, Exhibit 5.
83 See Data Request Responses at Question # 81.
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Form 394. The "best efforts" standard, however, is extremely subjective and ambiguous and is
almost impossible to enforce because it is open to many interpretations. From an evidentiary
standpoint, it would be very difficult to distinguish between when a party is actually engaging in
"best efforts" to comply, but is simply unable to fulfill an obligation, and when a party is
exerting only 'a "minimal effort" at compliance and/or completely disregarding a franchise
obligation all together.
Similarly, Comcast Corporation sidesteps any unequivocal assurance of Franchise compliance by
specifying only that "best efforts" are sufficient when asked to: comply with all existing
franchise requirements regarding the provision of cable television service to current
subscribers;84 ensure qualified resources are available to complete required s~stem upgrades or
extensions; 85 comply with applicable technical and performance standards; 6 cure breaches;87
and/or assume obligations, while at the same time distancing itself from assuming any liabilities
of the existing franchise holder.88 As stated previously, the "best efforts" standard is nearly
impossible to enforce. Consequently, Comcast Corporation needs to affirmatively guarantee that
it will not interfere, directly or indirectly, with Franchisee's ability to comply with its Franchise
obligations, and applicable laws and regulations, and that it will cause the Franchisee to comply
with the Franchise and applicable laws and regulations at all times.
Although Comcast articulates that its policy is to require subsidiaries to comply with
franchises,89 no written policy or assurance is provided to ensure that Cable Holdco II, Inc. will
be aware of and follow the policy, especially since it is so far down the corporate chain.9o
Comcast also claims a guarantee of performance is unnecessary91 for this newly formed92
company which at the conclusion of the proposed Transaction will hold franchises in several
states. serving a total of approximately 540,000 customers.93 More specifically, Comcast asserts
that the City has pre-set Franchise remedies to ensure Cable Holdco II, Inc.' s compliance with
the Franchise, such as performance bonds, letters of credit, and insurance requirements. Based on
the existence of these Franchise remedies, Comcast claims that it is unnecessary for the City to
obtain a performance guarantee from Cable Holdco II, Inc.'s parent company. The City,
however, cannot rely upon Cable Holdco II, Inc. to keep adequate insurance, letters of credit and
bonds in place during the term of the Franchise, because it is unclear whether the Franchisee will
84Id. at Question # 49.
85Id. at Question # 73.
86Id. at Question # 74.
87 Id. at Question # 82.
88 See Data Request Responses at Question # 83.
89 Data Request #1 Response at Question # 6.
90Id. at Question # 80.
91 Data Request Responses at Question # 84.
92 Data Request # 1 Response at Question # 5.
93 Data Request #1 Response at Question # 84.
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have the financial wherewithal to do so. Moreover, because Cable HoldQo II, Inc. has no
franchise compliance history, it is unclear whether it will abide by Franchise requirements
pertaining to insurance, letters of credit and performance bonds. In other words, the City cannot
be assured that Cable Holdco II, Inc. has the requisite character to fully comply with all of its
contractual duties, as required under the Franchise.
Essentially, every time B&G requested information on Comcast's, or its affiliates' or
subsidiaries' compliance with cable franchises, FCC regulations or state law, no substantive
information was provided. Without such substantive information to analyze Comcast's and its
affiliates' or subsidiaries' history of compliance, it is nearly impossible to determine whether
Comcast or its affiliates and subsidiaries would be likely to comply with or likely to renege on
Franchise obligations. Further, although no specifics were provided in the Data Request
Responses, Comcast did state that some Comcast subsidiaries have occasionally received
violation notices or been penalized for failing to comply with certain standards,94 which leads
B&G to question (i) whether Cable Holdco II, Inc. or MOC Holdco II, Inc. will fully comply
with the City's Franchise, and (ii) whether Comcast will ensure that its affiliates and subsidiaries,
such as Cable Holdco II, Inc., comply with their binding Franchise obligations.
Based on our findings and the representations contained in Comcast's application materials,
B&G does not believe that there is a reasonable basis to deny the transfer based upon any
criminal convictions or concern that Comcast, its affiliates or subsidiaries, or any officer or
director of such companies, will defraud the City or its subscribers. B&G does believe, however,
that Comcast has failed to present sufficient evidence to assure the City that Cable Holdco II,
Inc. itself will fully comply with all obligations imposed under the current Franchise or that
Comcast will ensure Cable Holdco II, Inc. will at all times complies with the Franchise. As a
result, it would be reasonable for the City to withhold approval of Comcast's transfer application
based on Comcast's inability to prove that the Franchisee possesses the requisite character
qualifications to operate the cable system in the City and to hold the Franchise. If Comcast
Corporation provides an unqualified commitment to fully comply with franchise obligations, or
to cause the Franchise to comply fully with the Franchise, the City would not have a reasonable
basis to withhold approval of the transfer application based upon the character qualifications of
Cable Holdco II, Inc.
XVI. OTHER RELEVANT FACTORS
Other relevant factors which have been reviewed and considered for the purpose of determining
whether to approve or deny the proposed Transaction are:
94 Data Request Responses at Questions # 40, # 41, # 44, # 45 and # 46.
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~ MOC Holdco II certifies that Cable Holdco II would continue to be bound by the
Franchise after the Transaction is consummated;95
~ The Transaction would not affect any licenses or authorizations necessary for the
Franchisee to operate and maintain the cable system in the City;96
~ The Transaction would not violate any restrictions on cable system ownership;97 and
~ After the Transaction, the Franchisee will remain obligated to comply with all federal,
state and local laws pertaining to discrimination, equal opportunity employment and
affirmative action.98
It is B&G's opinion that none of the foregoing factors provide a reasonable basis for withholding
consent to Comcast's transfer application.
Finally, on behalf of the City, B&G has demanded that Comcast or one of its subsidiaries pay all
of the legal and consulting fees and expenses the City has incurred as a result of reviewing and
acting on the transfer application. As a thorough review of the transfer application is required in
order to protect the public interest before a decision regarding the required consent of the City
can be made, mandatory reimbursement of all fees and expenses incurred by the City is
appropriate as Comcast and the Transferee/Franchisee have effectively requested that the City
expend significant funds to fulfill its fiduciary duty to analyze the impact of the proposed
Transaction. The City did not request the change in ownership and control, and it has not
budgeted any funds to conduct a review of the proposed Transaction. Moreover, since Comcast
Corporation and its subsidiaries are not in a direct contractual or franchise relationship with the
City at this time, the City is under no legal obligation to expend franchise fees or tax dollars in
performing a review of the requested change of ownership and control. For. the foregoing
reasons, any resolution regarding Comcast's transfer application adopted by the City should
include the requirement of reimbursement of all fees and expenses incurred by the City. These
fees should not be passed through to subscribers.
XVII. CONCLUSION
After reviewing the preceding information, the City has to make a determination as to whether it
wishes to approve, approve with conditions or deny Comcast's/TWC's transfer request. In this
regard, the City has three options.
95 Id at Question # 81.
96 Data Request #1 Response at Question # 4.
97 Id at Question # 1.
98Id at Question # 75.
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First, the City can approve the Transaction, without conditions, as set forth by TWC and
Comcast in the FCC Form 394 and the transfer resolution provided by the companies, which is
attached. The consequences of this course of action are that the City: (i) would have to accept
the Transaction, and its ramifications, as set forth in the FCC Form 394; (ii) would have no
performance guarantees vis a vis Comcast, the Transferee or the Franchisee; and (iii) would not
be able to condition or change any part of the Transaction or address the Transaction's
ramifications. If the City is dissatisfied with any of the qualifications of the Franchisee, the City
would not be able to address those concerns. This approach is not recommended.
The City's second option is simply to withhold approval of the proposed Transaction (i.e., deny
Comcast's/TWC's transfer application outright). There are also consequences to this action. If
the City withholds approval of the Transaction, there is a high likelihood that Comcast and/or
TWC would appeal the decision to the Minnesota Court of Appeals or another court of
competent jurisdiction.99 This would cause the City to incur additional legal expenses in
defending its decision. Some of these costs might be covered under the League of Minnesota
Cities Insurance Trust, but that is not guaranteed. Also, even if the City's legal expenses were
paid by the League of Minnesota Cities Insurance Trust, the entire spectrum of expenses would
likely not be covered. Although the City has a reasonable basis to deny Comcast's/TWC's.
transfer request at the current time, as described in this Report, we of course cannot guarantee
that the City would prevail.
A third. option is to issue a conditional approval. This would entail approving the transaction as
long as Cable Holdco II, Inc. and/or Comcast, or an appropriate subsidiary, agrees to cert~in
conditions. This is a beneficial option for the City, as it would allow the City to determine what
deficiencies exist in the transfer applicant's qualifications and the Transaction itself, and to make
approval of the transfer application contingent upon remedying the identified deficiencies.
Comcast could challenge a conditional approval, so the City might incur legal expenses if this
option is adopted.
As a result of the analyses set forth in this Report, B&G has concluded that the City does have a
reasonable basis to deny Comcast's/TWC's transfer application. In this regard, no credible
evidence of the proposed Franchisee's financial, technical, character or managerial qualifications
has been furnished to the City, and Comcast (or an appropriate subsidiary) is unwilling to
provide any performance guarantee. Moreover, Comcast, the proposed Transferee and the
proposed Franchisee have failed to show that the Transaction, in its current form, would not have
an adverse impact on subscriber rates and services in the City.
Based on the information available, B&G recommends that the City issue a conditional approval
of Comcast's/TWC's transfer application consistent with this Report. Therefore, the City should
99 Minn. Stat. Ann. S 606.06 (2005) (an appeal from an administrative decision is a matter of right).
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approve the proposed Transaction, subject to the following conditions: 100
a. The City does not waive any of its rights with regard to known and unknown
underpayments of franchise fees. Comcast Corporation, or a subsidiary acceptable to the
City, shall agree that it will be responsible and liable for any known and unknown
franchise fee underpayments, and shall provide a written guarantee acceptable to the City
within thirty (30) days of the effective date of a transfer resolution;
b. The City does not waive any Franchise violations, whether known or unknown, which
may be identified as part of a technical audit completed prior to or after the
consummation of the proposed Transaction. Comcast Corporation, or a subsidiary
acceptable to the City, shall agree that it will be responsible and liable for such Franchise
violations, and shall provide a written guarantee acceptable to the City within thirty (30)
days of the effective date of a transfer resolution;
c. The City does not waive any unknown yet existing Franchise non-compliance issues.
Comcast Corporation, or a subsidiary acceptable to the City, shall agree that it will be
responsible and liable for any unknown yet existing non-compliance issues under the
Franchise and applicable laws, regulations, standards, codes and decisions, and shall
provide a written guarantee acceptable to the City within thirty (30) days of the effective
date of a transfer resolution;
d. Comcast Corporation must, within thirty (30) days of the effective date of a transfer
resolution, provide a written performance guarantee for the Franchisee, which guarantee
shall be acceptable to the City, specifying that the Franchisee will at all times comply
with applicable technical and performance requirements set forth in the Franchise and in
applicable regulations, codes, standards and decisions;
e. Comcast Corporation must, within thirty (30) days of the effective date of a transfer
resolution, provide a written performance guarantee for the Franchisee, which guarantee
shall be acceptable to the City, specifying that Comcast Corporation will be fully liable
and/or responsible for (i) any violations, losses and obligations beyond the ability of the
Franchisee and/or the Transferee to address in connection with the management,
operation and/or maintenance of the System and eii) any and all past, present and future
financial obligations under the Franchise in the same capacity as the Franchisee;
f. Comcast Corporation, or one or more appropriate subsidiaries acceptable to the City,
shall provide a written guarantee acceptable to the City within thirty (30) days of the
effective date of a transfer resolution specifying it and its subsidiaries will not enter into
exclusive agreements for affiliated or unaffiliated terrestrial and satellite-delivered
100 W e have~ttached a transfer resolution embodying these conditions, and other appropriate requirements, as
Attachment 1.
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programmmg, including sports programming, which would impact the City or
subscribers;
g. Comcast Corporation, or a subsidiary. acceptable to the City, shall provide a written
guarantee acceptable to the City within thirty (30) days of the effective date of a transfer
resolution specifying that subscriber rates and charges in the City will not increase as a
result of the proposed Transaction;
h. Comcast Corporation shall affirmatively guarantee in writing, within thirty (30) days of
the effective date of a transfer resolution, that it will not interfere, directly or indirectly,
with the Franchisee's ability to comply with its Franchise obligations, and applicable
laws, codes, standards, decisions and regulations;
1. Comcast Corporation shall provide a written guarantee acceptable to the City, within
thirty (30) days of the effective date of a transfer resolution, specifying that it will cause
the Franchisee to comply with the Franchise and applicable laws, regulations, standards,
codes and decisions at all times;
J. The Franchisee shall, within thirty (30) days of the effective date of a transfer resolution,
affirm in writing, in a form acceptable to the City, its understanding of and obligation to
comply with all Franchise requirements;
k. The Franchisee and Comcast Corporation shall, within thirty (30) days of the effective
date of a transfer resolution, provide an unqualified written commitment, acceptable to
the City, to abide by all terms of the Franchise and applicable laws, regulations, codes,
standards and decisions after the Transaction, and to assume all existing obligations,
liabilities and responsibility for all acts and omissions under the Franchise and applicable
law, known and unknown, including (but not limited to) all acts and omissions of TWC
and its parent entities, affiliates and subsidiaries;
I. Comcast Corporation or the New Franchisee shall reimburse the City for all fees and
expenses it incurred in reviewing and acting on the transfer application. This
reimbursement shall not be passed through to subscribers;
m. Neither the Franchise, nor any control thereof, nor the cable system, nor any part of the
system located in the City's public rights-of-way or on the City's property, shall be
assigned or transferred, in whole or in part, without filing a written application with the
City and obtaining the City's prior written approval of such transfer or assignment, but
only to the extent required by applicable law;
n. The City's approval of the transfer application is made without prejudice to, or waiver of,
any right of the City to consider or raise claims based on the Franchisee's or TWC's
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defaults, any failure to provide reasonable service in light of the community's needs, or
any failure to comply with the terms and conditions of the Franchise, or with applicable
laws, regulations, codes, standards and decisions;
o. The City waives none of its rights with respect to TWC's compliance with the terms,
conditions, requirements and obligations set forth in the Franchise and in applicable laws,
regulations, codes, standards and decisions. The City's approval of the transfer
application shall in no way be deemed to be a representation by City that TWC is in
compliance with all of its obligations under the Franchise and applicable laws,
regulations, codes, standards and decisions;
p. After the proposed transaction, the Franchisee will be bound by all the commitments,
duties, and obligations, past, present and continuing, embodied in the Franchise and
applicable laws, regulations, codes, standards and decisions. The proposed Transaction
will have no effect on these obligations, commitments and duties;
q. After the proposed Transaction is consummated, the Franchisee will be responsible for all
past acts and omissions, known and unknown, of TWC under the Franchise and
applicable laws, codes, standards, decisions and regulations for all purposes, including
(but not limited to) Franchise renewal and Franchise enforcement to the same extent and
in the same manner as TWC and its parents, subsidiaries and affiliates were responsible
before the proposed Transaction;
r. The conditioned approval of the transfer application does not amend or alter the
Franchise or any requirements therein in any way, and all provisions of the Franchise
remain in full force and effect and are enforceable in accordance with their terms and
with applicable law;
s. The proposed Transaction shall not permit TWC, its parent entities or affiliates, the
Franchisee and Comcast Corporation or any of its affiliates or subsidiaries to take any
position or exercise any right with respect to the Franchise and the relationship thereby
established with the City that could not have been exercised prior to the proposed
Transaction;
t. The City reserves all of its rights with respect to the Franchisee's future compliance with
the terms, conditions, requirements and obligations set forth in the Franchise;
u. The City is not waiving any rights it may have to require franchise fee payments on
present and future services delivered by the Franchisee or its subsidiaries via the cable
system;
v. The City is not waiving any right it may have related to any open access issue and
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information services;
w. The conditioned approval of the proposed Transaction and transfer application shall not
constitute a waiver or release of any of the rights of the City under the Franchise and
applicable laws, codes, standards, decisions and regulations, whether arising before or
after the date of consummation of the proposed Transaction.
x. Receipt of any and all state and federal approvals and authorizations;
y. Actual closing of the proposed Transaction consistent with the transfer application; and
z. The City does not waive its rights to require payment of identified franchise fee
underpayments, either from TWC and its parent entities and/or subsidiaries or the
Franchisee and its parent entities, affiliates and subsidiaries.
If the City opts to deny Comcast's transfer application, we have attached an appropriate transfer
resolution.1O As indicated above, withholding consent to the Transaction would be reasonable
and appropriate under the circumstances discussed in this Report. If the City wishes to approve
the Transaction, without conditions, we have attached Comcast's proposed transfer resolution for
the City's convenience.102
Respectfully submitted,
BRADLEY & GUZZETTA, LLC
101 The denial resolution is appended hereto as Attachment 2.
102 Comcast's proposed approval resolution is appended hereto as Attachment 3.
Ell Com cast Transfer Application Report
Bradley & Guzzetta, LLC
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