Independences 3% Solution: Drop Franchise Fee

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Independence, Ohio, a village of 6,800 located south of
Cleveland, wanted to do something unique for its residents when it went looking for a
second cable provider.

The city finally settled on the idea of awarding a contract
that eschews the franchise fee that cities routinely collect, but that operators pass on
in the form of higher monthly bills.

"We wanted to be the first to do this,"
Independence city councilman Jim Riley said. "In a way, the franchise fee is just a
hidden tax. We'd rather save our residents some money. This will be one less fee
they'll have to pay."

The result: The city recently voted unanimously to grant
such a deal to Ameritech New Media, a Chicago-based MSO that will compete with Cablevision
Systems Corp., the town's incumbent operator.

"The no-franchise-fee idea is certainly unique in my
experience," said ANM vice president of public affairs Donna Garofano, an industry
veteran who's been involved in 109 franchise negotiations since 1995. "It's
been brought up before in other locations in Ohio and Michigan, but nobody has ever pushed
it."

Meanwhile, the city is negotiating a new franchise with
Cablevision that would likely drop the 3 percent (of gross revenue) fee that operator
pays.

Eliminating ANM's franchise fee will mean little
initially, since the MSO has no customers in Independence. However, scrapping
Cablevision's obligation would mean a loss of $2,000 per month to the city's
coffers, based on 1,900 subscribers paying an average of $35 per month.

The MSO's customers would see cable bills drop by
about $1 per month -- welcome news to consumers who have been complaining about local
cable rates, Riley said.

But it's doubtful that a trend is in the making.

Few communities are blessed with Independence's
economic base. Sitting at the juncture of every major highway in Cuyahoga County,
it's home to more corporate headquarters than nearby Cleveland.

The community of 6,800 has 28,000 people working inside its
borders each day, which allows it to maintain a tax rate of 4.77 percent per $100 of
assessed valuation, compared with Cleveland's rate of 8.06 percent.

Surprisingly, Cablevision executives were initially leery
about the city's idea, worrying that franchise fees generate funds that are earmarked
for administering its franchise.

"My initial reaction was, 'Think about
it,'" Cablevision vice president Carol Caruso said. "Franchise fees are
used for cable-related issues. And even though we have a great relationship with the city,
what if we find ourselves at odds over some issue and they have to spend money on lawyers?
They won't have the money, and we're not going to pay for it."

Nevertheless, Caruso expects the two sides to reach an
agreement eliminating Cablevision's franchise fee within the next few weeks.

"If Ameritech doesn't pay it, we're
certainly not going to pay," she said, "and I think the city understands
that."

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