Santa Cruz May Sue TCI Over Rates

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Officials for the city and county of Santa Cruz, Calif.,
announced their intent last week to sue Tele-Communications Inc. for allegedly
manipulating federal policy and a local court ruling and effectively charging higher basic
rates.

But a TCI spokesman called the announcement a
"shameless public-relations tactic" to divert attention from the fact that the
government lost a lawsuit to TCI earlier this year, and that it has yet to pay the $2
million judgment to area consumers.

The sides have been at odds for more than one year, but
authorities began to move after receiving a high volume of complaints in the central
California beach town and the surrounding county, said Bill Marticorena, special counsel
for cable television for the area.

TCI has launched digital service in the area, and consumers
are upset that they will have to pay $10 per month for a digital tier to get channels that
were previously available on an a la carte, analog basis at 85 cents per channel, per
month.

Normally, a community has no control over basic packaging
and pricing, and it is similarly powerless over the migration of channels from analog to
digital. But an extra layer of oversight exists to protect consumers in Santa Cruz.

In the 1980s, the area won a federal consent decree from
then-owner United Cable, which set up a complex pricing scheme. The two sides are now
battling over interpretation of that plan, which, regulators said, has resulted in higher
charges.

Andrew Johnson, spokesman for TCI in California, said the
operator is very confident that it is in compliance with the consent decree. The company
sent a letter to the county Board of Supervisors in January, suggesting that the two
parties go back to the federal court judge, in effect requesting mediation on the dispute.

The regulators did not respond, Johnson said.

The county has also not responded to TCI's lawsuit
judgment, in which a state Court of Appeals upheld TCI's challenge to a
possessory-interest tax (an assessment imposed against businesses for the use of public
property for profit-making purposes). Operators successfully argued that they already pay
-- through franchise fees and property taxes -- for the use of rights-of-way.

Under the ruling, 55,000 customers would receive a total of
$2 million in refunds from the tax, Johnson said, adding that the threatened lawsuit may
be an attempt by authorities to force a compromise on the judgment.

"We've not made a public issue of the refunds due
to our customers," Johnson said. "We're not compromising. We want to get
the checks to our customers."

The dispute falls at a sensitive time. Santa Cruz is one of
the 25 percent of TCI's communities with which it believes it must file requests for
transfer to merger partner AT&T Corp. Also, it is one year away from a system review.

Marticorena said he may file a lawsuit as early as this
week in the U.S. District Court that issued the original consent decree.

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