from: MultiChannel news [1]

Calif. City: TWC’s Illegal
Carlsbad Files Suit Over Lapsed Cable Franchise

By Linda Haugsted -- Multichannel News, 9/17/2007

A San Diego County, Calif., municipality is suing Time Warner Cable, alleging the operator is illegally occupying city rights of way without a franchise.

The dispute with Carlsbad, Calif., grew out of a complicated time in the history of the franchise there. Within a period of three years, regulators had to deal with the transfer of the local system from bankrupt Adelphia Communications to Time Warner Cable, the expiration of the original franchise term, and interpreting the applicability of California’s year-old state franchising law.

Carlsbad now asserts that Time Warner Cable’s operation is illegal because the Adelphia franchise it inherited has expired, and the law prevents the company from obtaining operating authority from the state until next January.

“While we do not normally comment on pending litigation, we believe the city’s position here is frivolous in that we have ample authority to operate under both federal and local law,” Mark Harrad, Time Warner Cable’s vice president of corporate communications, said in a statement. “Federal law would require that the city complete the formal renewal process and deny our renewal before they could require that we terminate service. The city has not done so.

“Moreover, the intent of the [California Public Utilities Commission] is that operators with expired franchises have those franchises automatically extended to preserve the status quo until we can receive a state-issued franchise in 2008.”

According to the suit, filed Aug. 20 in U.S. District Court for the Southern District of California, Time Warner Cable applied for a franchise transfer in June of 2005 as part of its acquisition of Adelphia assets.

At the time, Carlsbad had already entered franchise renewal negotiations with Adelphia representatives in expectation of the franchise’s expiration in November 2006.

The city approved the transfer to Time Warner Cable in March 2006, but only after Time Warner agreed to perform under terms of the franchise it inherited from Adelphia, according to the city suit.

But on Aug. 30, 2006, the state legislature approved AB 2987, which transferred franchising authority to the state. Under that law, cable operators can drop their local agreements in favor of state regulation, but only after Jan. 1, 2008.

Because Time Warner can’t yet shed its local agreement, Carlsbad officials, in October 2006, proposed a franchise extension through January 2008 that would increase support for public, educational and government channels to 2% from 1% of gross revenue.

Time Warner counters that state law directs cities to allow operators to extend current franchises or to let them expire but keeping the incumbent operator in place.

The city counters that state law allows for a local franchise extension but doesn’t mandate it. City officials notified Time Warner in December 2006 that it was operating without city consent, but local regulators assert in their suit that the cable operator did not respond.

The city suit asserts that, because Time Warner is operating illegally on the city rights-of-way, Carlsbad is entitled to 100% of the operator’s gross cable revenues earned while it was without a valid local or state franchise through the date of a trial. The city also seeks court costs and attorney fees.