Time Warner Inc. is promising to be the benevolent giant.
Its pending purchase of Adelphia Communications Corp. brings with it the commitment of improved customer service and broader programming choices for 500,000 additional subscribers in the city of Los Angeles and 1.6 million throughout Southern California. But along with those improvements comes a lobbying juggernaut that could become a formidable presence in regulatory matters involving rates and fees.
The $17.6 billion purchase, expected to win approval early next year, would raise Time Warner’s profile from a bit player in the western San Fernando Valley to a dominant cable company regionwide. The New York-based media giant will gain both the subscribers of Adelphia and Comcast Corp., which is in partnership with Time Warner on the purchase and has agreed to swap its Los Angeles assets as part of the deal.
All told, Time Warner gets the entire cable market in the city of Los Angeles, with the exception of Cox Communications Inc.’s 9,000 subscribers in Pacific Palisades.
“There’s no doubt that providing a high standard of customer service will be a high priority,” said Roger Keating, the top Time Warner cable executive in Los Angeles. “Where there are gaps today we’re going to be maniacal about fixing those gaps.”
But lawyers and analysts who represent cities where Time Warner does business say that the company can be a tough adversary by pushing governments to lift or lighten local regulations.
“They attempt to minimize regulation as much as possible,” said William Marticorena, a partner at Rutan and Tucker LLP, which represents municipalities with Time Warner franchises in the South Bay, the Coachella Valley and Orange and San Diego counties. “I certainly have found Time Warner to be more entrenched and more hard-nosed on many franchise agreements than other cable operators.”
That includes pushing for less stringent federal standards on customer service and lessening obligations for public, educational and government programming. In general, the industry has argued that increased competition from unregulated satellite television providers and even broadband and emerging cellular phone technologies bolsters their case for less regulation.
‘Each city is different’
Some cable companies, though not Time Warner, have petitioned the Federal Communications Commission to be removed from local regulations on the basis that fees and regulations put them at an unfair disadvantage against satellite competitors.
Time Warner executives said they do not strong-arm municipalities into lifting regulations but try to work with each community on reasonable rules. “Each community has different needs,” said Deane Leavenworth, its local vice president of corporate relations. “Cable companies are local businesses, so we’re locally focused.”
Keating said Time Warner is committed to upgrading networks and maintaining its high customer-service ratings as it absorbs the two systems. In Los Angeles, Time Warner has the lowest complaint-per-subscriber ratio of the cable companies.
Also included in the promises are a host of technological advancements such as digital telephone service over cable lines, broader video-on-demand offerings and data circuits for small businesses.
“I’ve found them to be very cooperative,” said Los Angeles City Councilman Dennis Zine, whose West Valley district is partly covered by Time Warner.
Even before the Adelphia deal was announced, Time Warner was building clout in Los Angeles disproportionate to its market share. Leavenworth heads a consortium of Southern California cable operators and previously served as a government relations co-chair for the United Chambers of Commerce of the San Fernando Valley.
Before coming to Time Warner, Leavenworth worked for former Los Angeles Mayor Richard Riordan, as well as for Zine’s predecessor Laura Chick, now the city controller.
Time Warner employees have given $4,500 to city politicians, including Chick, Mayor-elect Antonio Villaraigosa, outgoing Mayor James Hahn and City Attorney Rocky Delgadillo, whose office advises city officials on cable regulation.
Federal law governs much of the industry, but cities negotiate with cable companies over basic rates, franchise fees, customer-service standards and public-access programming. L.A.’s franchise agreement with Time Warner dates to 1987 and expired in 2002; Time Warner has operated in Los Angeles under two extensions of the original agreement.
The latest renewal expires Aug. 8 and negotiations toward a new contract have not begun. Leavenworth declined comment on how Time Warner’s newfound market position might affect the tenor of negotiations.
‘A 100-pound gorilla’
Time Warner’s franchise agreement with the city, like those of other cable providers, assesses a 5 percent local fee on gross operating revenues, the maximum allowed by federal law. Los Angeles receives $21 million in annual cable franchise fees, and Time Warner’s share is $4 million.
Earlier this month, Chick issued an audit faulting city officials for failing to renegotiate franchise agreements with cable companies. She noted that the city might be able to realize more franchise revenues by reaching new agreements that recognize changes in technology, such as the advent of the Internet and voice-over-Internet protocols that mimic telephone service.
The audit did not mention the pending Adelphia deal, and Chick would not discuss whether the transaction should cause city officials to hold Time Warner to a different standard.
Dean Hansell, president of the city’s Board of Information Technology Commissioners, an appointed body that oversees municipal cable regulation, said L.A. needs to pay special attention to Time Warner.
“It’s time to get cracking (on renegotiating franchise agreements),” Hansell said. “But I would think that sitting down with Time Warner quickly on the one area they control is very important.”
Hansell said negotiations will deal with providing government-access programming and technological upgrades at city facilities. “For Time Warner is boils down to how much certain things the city will demand are going to cost,” he said.
While most cable regulation is set by state and federal governments, local governments have an important role in a changing technological landscape in which cable, Internet and phone companies are beginning to duplicate services. For example, governments will have to determine whether cable revenues from voice-over-Internet protocols are considered part of the standard cable package and assessed the same fees.
“Any company, not just Time Warner, that gets big and controls more of the territory usually gets more difficult to regulate,” said Carl Pilnick, president of Telecommunications Management Corp., a Los Angeles company that advises local government on the cable industry. “You’re negotiating now with an 800-pound gorilla instead of a 100-pound gorilla.”
