City of Angels and MSO Debts - Multichannel

City of Angels and MSO Debts

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Los Angeles officials are mulling their options to collect what city auditors
believe is a $3 million shortfall in the amount of franchise fees that should
have been paid by three of the city's major operators.

The alleged underpayments date back to 1997 and now amount to just over $5
million, including interest, according to Patrick Collins, a senior analyst for
the city.

Collins conducted a routine audit of Adelphia Communications Corp.'s filings
from 1998 through 2001; AT&T Broadband's (now Comcast Corp.) back to July
1998; and Cox Communications Inc.'s back to April 1999.

Adelphia owes the largest amount, according to the city. The company
miscalculated its payments by $2.2 million, according to the audit.

The local franchise did not dispute the findings, so, under city regulation,
the audit results are final. However, the company declared bankruptcy before the
city could compel it to pay the shortage, so Los Angeles joins the list of
creditors awaiting rulings by the U.S. Bankruptcy Court in New York.

Meanwhile, interest, at a rate of 2 percent plus prime, is accruing. The debt
stands at $3.8 million now, according to the city.

AT&T Broadband also underreported income from sources such as fiber-lease
contracts, launch fees and income from advertising on leased channels, the city
auditor said. That shortfall was $839,000, but it has grown to $1.2 million,
with interest.

AT&T Broadband agreed with some of the city findings and paid part of the
amount, but the dispute over the rest will send the parties to arbitration.

Assistant city attorney Ed Perez noted that terms of the franchise transfer
to Comcast set a July date to rectify the dispute, but he added that the parties
may mutually agree to run past that date.

The company owing the least shortfall is causing the city the most
aggravation.

Cox concurred with part of the audit findings and paid about $14,000 in fees
and interest to Los Angeles. However, it disputed another $30,000 in fees due
from its operation in the San Pedro area. Collins told the city's cable
regulators Cox suggested that the funds be placed in escrow while the parties
debated the city's findings.

Since that communication several weeks ago, Collins said, Cox has not
responded to the city, nor indicated that it has banked the money.

The Board of Information Technology Commissioners has scheduled a hearing
later this month seeking answers from Cox. If the operator does not respond to
the city, regulators could declare the company in material breach of its
franchise.

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