When AT&T Broadband and Comcast Corp. approached local franchisors about their merger, most communities accepted the arrangement. But DeKalb County, Ga., and Moreno Valley, Calif., both sued to challenge the franchise transfer, citing perceived service shortfalls by the prior operator and concerns over how the company would fund local operations.
Comcast has resolved the Georgia suit amicably, but it and its operating partners in California have been set back by a federal court judge, who remanded the franchising dispute to a state court.
U.S. District Court Judge Virginia Phillips of the Central District of California said the dispute between Century-TCI California L.P. and its partners, AT&T Corp. and Comcast Corp., is based on an interpretation of state law and belongs in state court.
Century-TCI, an affiliate of Adelphia Communications Corp. and the managing partner of the 142,000-subscriber system, wanted the dispute moved to bankruptcy court in New York. Coudersport, Pa.-based Adelphia filed for Chapter 11 bankruptcy last year.
Regulators can't join
The dispute has been closely watched by city regulators, who have been rebuffed in their attempts to actively participate in the Adelphia bankruptcy proceedings. Local officials asked the court to participate as debtors in order to protect the rights of local subscribers, but were told the law limits participation to persons, and not government entities.
Moreno Valley officials were also wary of the expense of fighting their case in a distant venue, according to outside counsel Jeff Melching, who said "we're real pleased" with the decision to return the case to Riverside County Superior Court.
The dispute with the then-Adelphia franchise was actually triggered by the merger of Comcast-AT&T Broadband, which activated the city's transfer authority. Adelphia owns 75 percent of the system.
The cable partners balked at the city's demands, including requests for information about Adelphia's national operations, fees in excess of the 5 percent cap on franchise fees, up-front cash and infrastructure demands.
Moreno Valley's City Council denied the transfer request on Sept. 24, 2002. But four days after the merger closed in November, the city filed suit in Riverside County Superior Court. Century-TCI countered with its request for a transfer of venue.
Attorneys for the city argued that civil actions made by governments to enforce their police powers are not subject to removal by the local court. The operators' attorneys countered that the state action was not taken to enforce police powers.
In her March 24 ruling, Phillips decided the franchise dispute is not a "core proceeding" within the bankruptcy. The relief sought by the city includes a request for the local system's revenues to be placed in a court-administered trust fund, and an injunction barring Adelphia from making local operational changes.
Any award in favor of the city by the court would be subject to review by the bankruptcy court, Phillips wrote.
Also Moreno Valley's case would be "greatly prejudiced" if it were moved to New York, she added.
Moreno Valley's challenge was designed to protect the public's interest in the stability, cost, range and quality of the community's cable service and not for the city's monetary advantage, the judge added.
In DeKalb County, Ga., commissioners accepted the new owner in February, but only after Comcast agreed to settle the lawsuit.
The county filed the suit a year ago, alleging service was so bad in franchises that serve 100,000 homes that consumers couldn't reach AT&T Broadband by phone. The operator also missed its upgrade schedule and failed to build out a required institutional network, according to the suit.
The county asked the court to require AT&T Broadband to deposit $15 million in a court-supervised account to cover damages.
During a transfer proceeding last July, the MSO argued that regulators must stick to legal, financial and technical criteria when reviewing transfer to a new owner. The commission disagreed and filed suit, rejecting the transfer.
But the parties remained at the negotiating table. In a statement, county chief executive Vernon Jones commended Comcast for its "willingness to recognize and address" the customer-service problems experienced by county residents.
According to settlement details released by the county, Comcast will provide high-speed connections to schools throughout the county and staff a local office. The county's public access studio in Chamblee, Ga., will get updated equipment, while Comcast also will provide a computer data networking system to several county sites.
Comcast also will pay the county an unspecified sum to be used in conjunction with a community grant program.