State regulators have concluded that Tele-Communications
Inc. owes the city of Buffalo, N.Y., $449,531 in unpaid franchise fees due to $9 million
in unreported revenues.
In an Oct. 9 finding, the New York Department of Public
Service said its audit of TCI of New York's books revealed that the MSO failed to
include the revenues in calculating franchise fees at its 81,000-subscriber system in
Buffalo during 1996 and 1997.
Meanwhile, city officials said TCI's old franchise
provides for a penalty on any unpaid fees amounting to the prime rate plus 3 percent, or
TCI is liable for the unpaid fees even though it
contributed the Buffalo system to a joint venture controlled by Adelphia Communications
Corp. last August.
The DPS report also found that $197,303 of the unpaid fees
can be attributed to legitimate franchise-fee pass-throughs, which TCI could collect from
local customers if the city demands full payment.
"A decision is going to have to be made as to whether
we want to push for that particular money," said Thomas Tarapacki, director of the
Buffalo Office of Telecommunications. "We're looking at it to see what impact it
would have on local subscribers' bills."
TCI spokesman David Capo said the $197,303 amounts to
payments that the company was not required to make under a 1995 Federal Communications
Commission order that allowed cable operators to deduct franchise fees from gross-revenue
An appeals court has since overturned that order, but it
does allow operators to recoup any additional payments to the cities from subscribers.
Capo said the DPS audit included money that should not have
been included in gross revenues: miscellaneous equipment adjustments and unrecovered
converter fees; pay television license credits; and advertising-sales revenues resulting
from an interconnection agreement with various other systems.
"[The DPS] took a grossed-up figure, and we took a
lower figure that more accurately reflected the Buffalo system," Capo said. "We
plan on talking to the state to try to make them understand our point of view."
Meanwhile, Buffalo officials were adamant last week about
negotiating a settlement with TCI that will allow the city to collect the full amount,
while sparing local subscribers.
"It's our intention to collect the $449,531 that
is due, period," said James W. Pitts, president of the Buffalo Common Council.
"We want them to send us a check. But subscribers should not be penalized for TCI
Capo said the company will listen to the city's
request that subscribers not have to pick up the $197,303, but he added that the courts
have ruled that it is a legal pass-through item.
"I suppose anything is negotiable," he said,
"but I suspect that policy will remain consistent to be fair to other areas of the
country where we have done it."
Pitts said the city will ask the DPS to look into possible
underreporting by TCI for the first six months of this year -- prior to the time when the
system was transferred to the joint venture with Adelphia -- as well as for 1994 and 1995.
"It's beyond a doubt that [the unreported
revenue] was deliberate," Pitts said, adding that the period in question coincides
with a time when TCI was experiencing financial difficulties.
Capo called the allegation "beyond comment."
Buffalo officials have been feuding with TCI for almost two
years. The problems began when the MSO announced that it was closing a local
telecommunications center -- a move that Pitts immediately labeled as a blatant violation
of the MSO's new 10-year franchise.