L.A. Ops May Have Underpaid City

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Los Angeles -- The city may have collected less than it
deserves in franchise fees from 13 local cable franchises because its Information
Technology Agency has failed to audit any operators for more than six years, according to
a report by the city controller's office.

The city has never compelled operators to alter their
formulas to conform with updated policies -- such as a federal court decision that was
favorable to the city, which required that franchise fees themselves be considered gross
revenue on which fees must be paid -- according to deputy city controller Tim Lynch.

The last full audit -- covering seven franchises and their
activities from 1987 through 1993 -- discovered an underpayment of $569,000.

"We don't expect that anyone will give us a check
until we give notice [of an underpayment]," Lynch said.

The audit did not break out how much each operator
underpaid. But Lynch said the controller's office believes that each of the
city's franchisees -- AT&T Broadband & Internet Services (formerly
Tele-Communications Inc.), MediaOne Group Inc., Time Warner Cable, Century Communications
Corp. and a tiny Falcon Cable TV Corp. franchise -- owes additional funds.

The ITA has been attempting to audit one operator, TCI --
related to the transfer of its properties to AT&T Corp. -- and it went so far as to
send a municipal auditor to TCI's state office in Northern California.

However, the city has met with resistance from TCI
officials, who argued that opening its books to the city would subject its records to the
state's open-records law, meaning that competitors could get a free peak.

The city controller has been auditing many of the
ITA's functions in the wake of reports that it is not tracking municipal distribution
of cellular phones and that it has paid $800,000 in penalties for paying telephone bills
late.

No audits have been conducted since the city converted its
telecommunications department into the more wide-ranging ITA in 1995. The reorganized
department's chief task, the controller's office noted, is to prepare Los
Angeles for year-2000 compliance.

However, audits have shown that the department has not been
diligent on other contractual arrangements that it manages, Lynch said.

Cable operators expressed confidence that they are paying
the appropriate amount of fees.

"It looks like the city controller is doing his job,
questioning bills ... We are certain that we are in full compliance," said Bill
Rosendahl, senior vice president for Century.

Audits sometimes go unnoticed and without civic action.
This report, however, was picked up by the local media.

As a result, Lynch predicted two scenarios: Either Mayor
Richard Riordan will find money in the budget to fund a position that will audit cable, or
the city will pursue a contract with sort of an auditing "bounty hunter," who
will do the audit for a percentage of the increased franchise fees that operators are
compelled to pay.

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