A District government negotiating team and District Cablevision Inc. yesterday unveiled a proposed franchise agreement that would allow the cable television company to delay fulfilling some of its promises until half of the city's potential 250,000 cable customers have subscribed to the system.
If the City Council awards the franchise next month, construction of the $130 million, 79-channel residential system would begin late next year and some homes in each of the city's eight wards would be wired for cable by early 1986, according to Robert L. Johnson, president of District Cablevision. The entire system would have to be completed within four years after construction begins.
"This city is getting what we promised to provide based on the viability of the system," Johnson said.
A "trigger" in the proposed agreement says that the cable company would be required to provide all of the equipment, facilities and public benefits in its original proposal after the system has 125,000 subscribers, a 50 percent penetration of the market.
Mayor Marion Barry called the proposed agreement "fair and beneficial" for the city and sent it to the City Council. The council's cable committee has scheduled a hearing on the agreement for next week, and the full council may decide as early as December whether to award a 15-year cable franchise to District Cablevision. The mayor would then have to approve the agreement.
During negotiations, District Cablevision won delays that could save the company $4 million to $5 million in start-up costs. The city succeeded in adding several conditions, including a provision that would require the cable company to put up a $2 million security fund while the system is under construction.
Absent from the proposal is an agreement between District Cablevision and the Chesapeake & Potomac Telephone Co., which would build and own the cable transmission lines for the system. The telephone company's involvement has drawn criticism from council members and others who believe that the arrangement might create a monopoly.
Also, C&P must get approval from the Federal Communications Commission to build a cable transmission system in an area for which it also provides telephone service.
Carl Pilnick, a California-based cable consultant and a member of the city negotiating team, said there was a lot of "hard bargaining" and that "both sides are not completely happy."
Under the proposed agreement, the system would include a 79-channel residential network that would provide three levels of service ranging from an installation fee of $29.95 and a monthly rate of $1.95 for 35 channels to an installation fee of $19.95 and a monthly rate of $12.95 for 79 channels.
The system would offer 19 satellite services, such as Music Television and Home Box Office. Subscribers would have to pay an additional monthly fee for some of the services.
The cable system would include a separate institutional network to be used for such services as data transmission. As a result of negotiations, the cable company would not have to activate the network for commercial use until the entire cable system is built or until 30 percent of the commercial capacity is leased for a two-year period. The agreement would require District Cablevision to hire and pay someone $50,000 a year plus commissions to sell space on the institutional network.
Dropped entirely from District Cablevision's original proposal is a second residential (shadow) cable service that was to be activated when there was a demand. Johnson said his company would add the service if it is needed, although the city would not be able to require the company to do so.
The city's negotiating team was given six months to complete an agreement but did so in three months because it wanted to make certain that the city's franchise agreement is covered by a new federal law allowing cities to collect an annual 5 percent franchise fee plus public benefits, said Richard Maulsby, executive director of the city's cable television office.
If the city's agreement was not covered by the law, which could happen if there is a delay in signing an agreement, the public benefits, which could be worth millions of dollars to the District, could be deducted from the franchise fee, Maulsby said.
"We would have sat on this agreement until we got the agreement between District Cablevision and C&P," said Maulsby. "But considering the federal legislation and based on advice from Carl Pilnick and others, it would have been irresponsible."
Maulsby said he does not believe that the mayor or the City Council would approve a franchise award without the C&P agreement, which he said should be ready next week.
Unless the City Council makes changes in the proposed agreement, a franchise awarded to District Cablevision would be terminated automatically if the company failed to secure FCC approval for C&P's involvement by June 15, did not begin construction within 18 months or has not secured adequate financing in one year.
Johnson said that the system would be financed with $3.2 million in equity from the shareholders, $50 million in bank financing and $33 million from limited partnerships, a method by which investors would buy shares in the system, reap tax benefits and sell the shares back to the general partner.