City of Culver City, California
City Council Agenda Item Report
99904-0059\862227v2.doc
RECOMMENDATION:
That the City Council adopt the resolution denying without prejudice the assignment
and ultimate transfer of control of the cable television franchise from Comcast
Corporation to a wholly-owned subsidiary of Time Warner Cable Inc.
BACKGROUND:
Comcast of Los Angeles, Inc., a subsidiary of Comcast Corporation, is the holder of
the current Culver City cable television franchise. On June 14, 2005, the City
received an FCC Form 394 entitled “Application for Franchise Authority Consent to
Assignment or Transfer of Control of Cable Television Franchise” (“Form 394”). The
Form 394 requests the City’s consent to the transfer of the City’s cable television
franchise from Comcast Corporation to a subsidiary of Time Warner Cable Inc. As
detailed below, if consented to by the City Council, the proposed transfer will involve
various corporate transactions which will ultimately result in the Culver City cable
television franchise being held by a subsidiary of Time Warner Cable Inc.
On April 20, 2005, Time Warner NY Cable LLC (“TWNY”), a wholly-owned
subsidiary of Time Warner Cable Inc., and Comcast Corporation (“Comcast”), the
ultimate parent company of the City’s franchised cable operator, each entered into
separate definitive agreements to acquire, collectively, substantially all of the assets
of Adelphia Communications Corporation (“Adelphia”) for a total of $12.7 billion in
cash (of which TWNY will pay $9.2 billion and Comcast will pay the remaining $3.5
billion) and 16% of the common stock of Time Warner Cable Inc. It should be noted
Meeting Date: November 28, 2005 Item Number: A-6
AGENDA ITEM: Consideration of a Resolution Denying Without Prejudice the
Assignment and Ultimate Transfer of Control of a Cable Television Franchise by
Comcast Corporation to C-Native Exchange I, LLC, a Wholly-Owned Subsidiary of
Time Warner NY Cable LLC.
Contact Person/Dept.: Bill Rudell/Richards
Watson & Gershon; Roland Miranda/City
Attorney’s Office
Phone Number: (213) 626-8484; (310)
253-5660
Fiscal Impact: Yes [] No [x] General Fund: Yes [] No [x]
Public Hearing: [] Action Item: [x] Attachments: [x]
Public Notification:
Master Notification List on 11/23/05; Comcast of Los Angeles, Inc.; Time Warner Cable
Department Approval: Jerry Fulwood,
CAO
CAO Approval:
Martin Cole for Jerry Fulwood 11/23/05
City Controller Approval: N/ACity of Culver City, California
City Council Agenda Item Report
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that Adelphia filed for protection under Chapter 11 of the U.S. Bankruptcy Code on
June 25, 2002. At the same time that Comcast and TWNY entered into the
agreements to purchase Adelphia’s assets, Time Warner Cable Inc., Comcast, and
their respective subsidiaries also agreed to swap certain cable systems to enhance
their respective geographic clusters of subscribers (“Cable Swaps”). The cable
system now owned and operated by Comcast of Los Angeles, Inc., the franchisee in
the City of Culver City, is one of many cable systems in Southern California involved
in the Cable Swaps.
Under federal law, a franchising authority (in this case, the City Council) has 120
days from the date of submission of a Form 394 to act upon such an application for
transfer of a franchise. If a franchising authority does not act upon a transfer
application within 120 days, and no extension has been granted, the transfer
application will be deemed to have been unconditionally approved. At the City
Council meeting held on September 26, 2005, Comcast’s representative agreed to
an extension of the 120-day review period through November 29, 2005. This
extension was confirmed in writing by the City Attorney’s office.
DISCUSSION:
Section 35B-3(j) of Ordinance No. 87-201, which remains applicable to the cable
franchise, provides that the City has the right to review and to approve the financial,
technical, and legal qualifications of the proposed transferee in connection with the
requested assignment and ultimate transfer of control of the franchise.
City staff, the City’s cable consultant, and the City’s special counsel have reviewed
the documentation that accompanied the Form 394. Based upon the
representations set forth in that documentation, staff has concluded that the
proposed transferee has failed to submit sufficient information to support a
determination by the Franchise Authority that the proposed transferee has the
requisite financial, technical, and legal qualifications to adequately perform, or to
ensure the performance of, all obligations required of the franchisee under the
franchise. This conclusion is based upon the following:
A. The proposed transferee, C-Native Exchange I, LLC, is a Delaware
limited liability company that was formed on May 11, 2005, after the Exchange
Agreement was entered into on April 20, 2005, by Comcast Corporation, Time
Warner Cable Inc., Time Warner NY Cable LLC, and other parties. As of this date,
neither the franchisee nor the proposed transferee has complied with the Franchise
Authority’s request for a copy of a certificate of registration issued to the limited
liability company by the California Secretary of State that authorizes C-Native
Exchange I, LLC to transact business in this state. Nor has the franchisee or the
transferee complied with the Franchise Authority’s request for copies of the articles City of Culver City, California
City Council Agenda Item Report
99904-0059\862227v2.doc
of organization and the operating agreement of this newly-formed limited liability
company. Consequently, the conclusion is warranted that insufficient information
has been provided to enable the Franchise Authority to fully evaluate the legal
structure and legal qualifications of the proposed transferee.
B. The proposed transferee, C-Native Exchange I, LLC, has no
documented history of business operations involving the ownership and operation of
cable television systems in California or in any other state. It is therefore impossible
for the Franchise Authority to evaluate the technical qualifications of the proposed
transferee to conduct business in accordance with sound business principles and
practices customary in the cable television industry. Consequently, the conclusion is
warranted that the proposed transferee lacks the technical qualifications to own and
operate the franchise previously granted by the Franchise Authority.
C. The franchisee and the transferee have failed or refused to provide
all necessary and material documents and information requested by the City in order
to conduct a “due diligence” evaluation of the transferee’s financial qualifications to
acquire control of and to operate the franchise and the cable system. In the
absence of pro forma financial statements, specific information concerning the
credit-worthiness of the proposed transferee, its access to funding sources, its entry
into binding contractual commitments to obtain financing, or the amount of debt to be
assumed and then refinanced, the Franchise Authority is unable to undertake a
thorough evaluation of the financial capabilities of the proposed transferee.
Consequently, the conclusion is warranted that the proposed transferee lacks the
financial qualifications to own and operate the franchise previously granted by the
Franchise Authority.
FISCAL ANALYSIS:
The denial of consent to the cable television transfer transaction described in the
FCC Form 394 is not expected to have any fiscal impact, positive or negative, on the
City.
ATTACHMENTS:
Resolution.
MOTION:
That the City Council:City of Culver City, California
City Council Agenda Item Report
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Adopt the resolution denying without prejudice the assignment and ultimate transfer
of control of the cable television franchise by Comcast Corporation to C-Native
Exchange I, LLC, a wholly-owned subsidiary of Time Warner NY Cable LLC.
A - 1
10220-0001\862229v1.doc 11/22/05
CITY OF CULVER CITY
LOS ANGELES COUNTY, CALIFORNIA
RESOLUTION NO. _______
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CULVER CITY DENYING WITHOUT PREJUDICE THE
ASSIGNMENT AND ULTIMATE TRANSFER OF CONTROL OF A
CABLE TELEVISION FRANCHISE BY COMCAST CORPORATION
TO C-NATIVE EXCHANGE I, LLC, A WHOLLY-OWNED
SUBSIDIARY OF TIME WARNER NY CABLE LLC
RECITALS:
A. Comcast of Los Angeles, Inc. ("Franchisee") is the authorized holder of a
franchise ("Franchise") that authorizes the construction, operation, and maintenance of a cable
television system within the City of Culver City ("Franchise Authority").
B. On April 20, 2005, Time Warner NY Cable, LLC (“TWNY”), an indirect
subsidiary of Time Warner Cable Inc., and Comcast Corporation (“Comcast”), the ultimate
parent company of Franchisee, each entered into separate definitive agreements to acquire,
collectively, substantially all of the assets of Adelphia Communications Corporation
(“Adelphia”) for a total of $12.7 billion in cash (of which TWNY will pay $9.2 billion and
Comcast will pay the remaining $3.5 billion) and 16% of the common stock of Time Warner
Cable Inc. At the same time that Comcast and TWNY entered into the agreements to purchase
Adelphia’s assets, Time Warner Cable Inc., Comcast, and their respective subsidiaries also
agreed to swap certain cable systems to enhance their respective geographic clusters of
subscribers (“Cable Swaps”). The cable system now owned and operated by Franchisee in the
City of Culver City is one of many cable systems in Southern California involved in the Cable
Swaps.
C. On June 14, 2005, the Franchise Authority received from Comcast of
Georgia, Inc. (“Transferor”), an intermediate subsidiary wholly-owned by Comcast Corporation,
and from Time Warner Cable Inc. ("Transferee"), an application for the assignment and ultimate
transfer of control of the existing Franchise. This application included FCC Form 394 titled
"Application for Franchise Authority Consent to Assignment or Transfer of Control of Cable
Television Franchise." Certain supplemental information was provided to the Franchise
Authority by the Transferee on July 25, 2005.
D. In accordance with Section 35B-3(j) of Ordinance No. 87-201, the
Franchise Authority has the right to review and to approve, among other factors, the financial,
technical, and legal qualifications of the Transferee in connection with the proposed assignment
and ultimate transfer of control of the Franchise. A - 2
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E. The staff of the Franchise Authority has reviewed the documentation that
accompanied FCC Form 394. Based upon the representations set forth in that documentation,
staff has concluded that the proposed Transferee has failed to submit sufficient information to
support a determination by the Franchise Authority that the proposed Transferee has the requisite
financial, technical, and legal qualifications to adequately perform, or to ensure the performance
of, all obligations required of the Franchisee under the Franchise previously granted by the
Franchise Authority
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF CULVER
CITY RESOLVES AS FOLLOWS:
Section 1. In accordance with Section 35B-3(j) of Ordinance No. 87-021, the
Franchise Authority denies without prejudice its consent to and approval of the proposed
assignment of the Franchise from Franchisee to C-Native Exchange I, LLC, a wholly-owned
subsidiary of Comcast of Georgia, Inc., and the subsequent transfer of control of C-Native
Exchange I, LLC to Time Warner Cable Inc.
Section 2. The Franchise Authority finds and determines that the public interest
would not be served by authorizing and consenting to the proposed assignment and transfer at
this time because the information submitted in the FCC Form 394 filed on June 14, 2005, and in
the supplemental documents received on July 25, 2005, does not demonstrate that the proposed
Transferee possesses the legal, technical, and financial qualifications to acquire and to operate
the Franchise or the regional cable system of which the Franchise will be an integral component.
This finding and determination of the Franchise Authority is based upon and supported by the
following facts:
A. The proposed Transferee, C-Native Exchange I, LLC, is a Delaware
limited liability company that was formed on May 11, 2005, shortly after the Exchange
Agreement was entered into on April 20, 2005, by Comcast Corporation, Time Warner Cable
Inc., Time Warner NY Cable LLC, and other parties. As of the date of this resolution, neither
the Franchisee nor the Transferee has complied with the Franchise Authority’s request for a copy
of a certificate of registration issued to the limited liability company by the California Secretary
of State that authorizes C-Native Exchange I, LLC to transact business in this state. Nor has the
franchisee or the transferee complied with the Franchise Authority’s request for copies of the
articles of organization and the operating agreement of this newly formed limited liability
company. Consequently, the Franchise Authority finds and determines that insufficient
information has been provided to enable the Franchise Authority to fully evaluate the legal
structure and legal qualifications of the proposed Transferee.
B. The proposed Transferee, C-Native Exchange I, LLC, has no
documented history of business operations involving the ownership and operation of cable
television systems in California or in any other state. It is therefore impossible for the Franchise
Authority to evaluate the technical qualifications of the proposed Transferee to conduct business
in accordance with sound business principles and practices customary in the cable television
industry. Consequently, the Franchise Authority finds and determines that the proposed A - 3
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Transferee lacks the technical qualifications to own and operate the Franchise previously granted
by the Franchise Authority.
C. The Franchisee and the Transferee have failed or refused to provide all
necessary and material documents and information requested by the City in order to conduct a
“due diligence” evaluation of the Transferee’s financial qualifications to acquire control of and
to operate the Franchise and the cable system. In the absence of pro forma financial statements,
specific information concerning the credit-worthiness of the proposed Transferee, its access to
funding sources, its entry into binding contractual commitments to obtain financing, or the
amount of debt to be assumed and then refinanced, the Franchise Authority is unable to conduct
a thorough evaluation of the financial capabilities of the proposed Transferee. Consequently, the
Franchise Authority finds and determines that the proposed Transferee lacks the financial
qualifications to own and operate the Franchise previously granted by the Franchise Authority.
Section 3. The action taken by the Franchise Authority in denying its consent to
the assignment and transfer requested by the Franchisee and the Transferee, as set forth in this
resolution, is without prejudice to the right of these applicants to submit to the Franchise
Authority a new FCC Form 394 that contains more specific and detailed information concerning
the legal, technical, and financial qualifications of the proposed Transferee.
Section 4. The City Clerk is directed to transmit a certified copy of this
resolution to the following persons:
Mr. Roger Keating, President
Los Angeles Division
Time Warner Cable Inc.
959 South Coast Drive
Suite 300
Costa Mesa, CA 92626
Ms. Sheila R. Willard
Senior Vice President, Government Affairs
Comcast of Georgia, Inc.
1500 Market Street
Philadelphia, PA 19102-2148
Section 5. The City Clerk is directed to certify to the passage and
adoption of this resolution.
PASSED, APPROVED, AND ADOPTED this 28th day of November, 2005.
______________________________
MAYOR
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ATTEST:
___________________________________
CITY CLERK
APPROVED AS TO FORM:
___________________________________
CITY ATTORNEY