Cox Tacks on Decade in San Diego

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San Diego officials have extended Cox Communications Inc.'s franchise with the city — set to expire in 2009 — by another 10 years.

The extension will cost the fifth-largest U.S. cable system another $24 million, mostly from an agreement to hike the franchise fee to 5 percent of revenue from 3 percent.

Cox's current franchise was awarded in 1979 for a term of 30 years, with an option for a 20-year renewal.

At the time of the grant, the Federal Communications Commission set the top franchise fee at 3 percent, so that's what the company has paid. But the city recently acted on a contract reopener clause and put the franchise fee hike on the table, said city cable administrator Marc Jaffee.

The extra 2 percent — levied on cable revenue generated by approximately 160,000 subscribers — will generate about $21 million for the city, according to Cox Cable San Diego vice president of government and community relations Mary Ball. That's based on the extra 2 percent customers will pay beginning July 1, she said.

The increase applies only to customers within the San Diego city limits. The Cox cluster serves 530,000 total customers in 17 franchises.

MODEM FEE NO FACTOR

The loss of cable-modem revenues was not a factor in the negotiations, Jaffee said. Earlier this year, following a U.S. Supreme Court decision, the nation's major cable operators told local governments that they'd no longer pay franchise fees on cable-modem revenues. That's because the Supreme Court deemed data delivery to be an interstate information service, and cable operators believe they can only pay franchise fees on cable products.

Cox stopped making such payments in 2000, after the U.S. Court of Appeals for the Ninth Circuit — ruling in a challenge to a municipal open-access provision — said high-speed data delivery is not a cable service.

In addition to hiking the franchise-fee payment, Cox agreed to a $3 million technology grant to the city, which San Diego will use to develop a private digital network linking police and fire stations, Jaffee said. The city diginet will be used for training purposes.

Cox, which had already wired the stations, will now provide free digital boxes in those facilities, according to Jaffee.

There was no prospect that the well-regarded operator would be denied renewal in 2009, Ball said. Cox has always felt it is a strong partner with the city, "so we came together to work out an agreement," she added.

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