Mediacom, Springfield at uneasy crossroads on fees

Mediacom's clock is ticking.

Springfield's probe of whether the cable provider is worthy of the lucrative city franchise could be complete Nov. 6. City Council is expected to extend the eighth-anniversary review deadline from Oct. 6 to Nov. 6 at a Sept. 23 public hearing to resolve sub-par customer service and unpaid franchise fee issues.

The latter has been a sore subject with the city since March, when Mediacom withdrew its cable modem revenue payments about $10,000 a month from the franchise fees it pays to the city.

The withdrawal was in response to a Federal Communications Commission declaratory ruling. The March 14 ruling classified cable modem service as an information service, differentiating it from a cable service and making it exempt from local franchise fees.

That leaves cable companies stuck in the middle.

"It's a situation where we're caught between the FCC ruling and our city franchise (agreement)," said Stan Melton, Mediacom's government and community relations manager.

On the customer service side, Mediacom has failed to comply with the FCC's mandate that 90 percent of customer calls be answered within 30 seconds under normal operating circumstances. Mediacom officials confirmed that the company has averaged about 73 percent in recent months.

The agreement

The local agreement, written in 1994 with Telecable of Springfield, requires that the cable provider pay franchise fees of 5 percent of gross revenues to the city. Mediacom purchased the local franchise from AT&T Broadband in June 2001.

Mediacom has continued to pay the city approximately $100,000 a month based on its cable service revenues, but failure to pay complete franchise fees amid its review may hurt the cable provider's chances of remaining in this market.

"We definitely want to work out a solution and are confident one will be worked out," Melton said.

If not, City Council could begin the process to terminate the franchise and look at other options to supply cable service. In the six months following commencement of termination proceedings, Mediacom could continue payments and settle the customer service issue. The issue would return to City Council for a decision to terminate the contract or extend it.

If an agreement cannot be reached, Springfield officials say a few options exist.

"The options include another private provider, a public provider or a public/ private partnership," said Marilyn Day, contract administrator in the city attorney's office.

"There are other providers who would love to be in Springfield. Springfield is a very good system," which is verified by the handful of providers over the last few years: Telecable, TCI, AT&T and Mediacom. "They all want us."

Arnold Cool, Media-com's regional vice president, said the Springfield market of 56,000 customers has appeal to competitors. It is Mediacom's second largest system, next to Des Moines, Iowa.

"Springfield is one of the most sought systems that we have in our whole company," Cool said. "We are not wanting to go anywhere."

Day said service would not be lost through any changes.

Negotiating power

Mediacom is one of many cable companies that are following the FCC's ruling by removing information service revenues from the fee equation.

"We're trying to be in compliance with that federal mandate that we feel supercedes what the franchise (agreement) says about gross revenues," said Cool.

City officials disagree.

"It does not on its face overrule it as far as the city's concerned because it doesn't change the language of our written agreement," said Day.

City and corporate attorneys are in negotiations to work that out, and they aren't getting much legal help from the FCC.

According to FCC spokesperson Michelle Russo, the FCC cannot step into talks between cities and cable providers. "A local franchise agreement is really a private business contract between a city or a county and a cable company," she said. "We are not involved in that."

But Russo said the new ruling implies that if cities already collect the maximum 5 percent of cable service revenue as Springfield does there would be no room for information service revenues.

"When you're calculating the maximum amount, you can't count the cable modem revenue," Russo said.

Russo said the FCC simply sets industry guidelines, such as the 5 percent franchise fee collection ceiling and customer service regulations.

Under appeal

A coalition of governmental bodies, named the Alliance of Local Organzations Against Preemption, has appealed the FCC ruling to the U.S. District Court of Appeals in Washington, D.C. to fight the ruling. According to a news release from the U.S. Conference of Mayors, a member of the appealing party, city and county governments could lose up to $300 million in revenue this year.

Springfield is out about $60,000 thus far.

"Obviously, the cities are upset because they see themselves losing revenues," said Joe Young, Mediacom's senior vice president and general counsel, who has been in talks with city attorneys. "The FCC says that we don't have to, and in fact can't, pay franchise fees."

Day said the appeal places the ruling on shaky ground and adds to the city/ Mediacom dilemma.

"What (the FCC) has done is advise what kind of service it is. What we have a franchise fee on is gross revenue regardless of what kind of service it is," she said. "Even if it were said and done, does it change the freely negotiated contract agreement between Mediacom and the city?"

Day said no. "(Mediacom) understood what we were talking about when ... they came into town."

Russo said the FCC needs a couple more months to review petitions and comments before reaching a final determination.

Market size matters

Other southwest Missouri cable providers are not butting heads with the cities they serve simply because the markets are not as lucrative.

For instance, Branson's cable provider, Cox Communications, also has refrained from paying on Internet-related services since March. However, since there are only 200 customers on cable modems, it is a non-issue with the city of Branson, said system manager Terrill Bradley.

Mediacom, however, has about 6,500 Internet subscribers in Springfield.

Cable America, which provides Internet service to Waynesville and St. Robert, and television service to Republic, is another company holding cable modem fees. Cable America area manager Debra Mefford said its contracts have clauses that position FCC guidelines over the franchise agreement.

"The franchise and the FCC regulations have to work together," Mefford said.