Santa Ana Officials Believe Cable Pact Will Protect Consumer

Now that the dispute over Group W Cable’s request to cut back services in Santa Ana has been settled, city officials believe they have approved an agreement that will force the company to honor its promises and protect consumer interests.

However, some council members fear Santa Ana went too far in agreeing to Group W’s demands and should not have allowed the company to scale back services it had agreed to provide for the 70,000 homes within its franchise area.

Under the agreement approved Monday night by the council--the first major renegotiation of a cable contract in Orange County--Santa Ana allowed Group W to scale back $23 million in services and to reduce the number of available channels from 120 to 56.

More important for consumers, Group W will raise its monthly $6.95 rate in July.

In return, Group W agreed to give the city $8.9 million for new cable services, including funds to produce community television shows, hire broadcasting personnel and build a city-owned television studio.

“I think both sides won substantial concessions,” Los Angeles-based consultant Carl Pilnick told the council Monday, shortly before its 6-1 vote to change Santa Ana’s cable contract.

“You (council members) can feel satisfied with this proposal. I have seen other communities renegotiate their agreements with cable firms across the nation and I think Santa Ana wound up with the best deal yet.”

However, Councilwoman Patricia McGuigan, who cast the lone vote against the new contract, said: “We (Santa Ana) are now just one more city that has given in to a cable company, to industry pressure on these issues.

“We have left consumers with much less of the cable system than we were originally promised. In the long run, that might be a real problem for Santa Ana.”

Group W officials could not be reached for comment on Tuesday.

The dispute surfaced last year when Group W, like cable companies in other cities across the nation, told Santa Ana that it could not afford to provide many services it had promised to win the franchise.

Company officials have said Group W’s construction costs had soared from $16 million to $32 million and that subscriber levels were lower than expected. They said the firm could not make a profit in Santa Ana without major concessions from the city.

After nearly a year of acrimonious negotiations, the council agreed Monday to let Group W scale back the cost and size of its cable system.

City Manager Robert C. Bobb said Group W had experienced cost overruns and that the city would face a lengthy court battle if it refused to negotiate. Santa Ana decided to negotiate a new agreement that would “protect the integrity” of its cable system, he added.

Throughout the discussions, the most politically sensitive issue for council members was Group W’s request for an immediate 60% rate hike.

Under the new agreement, Bobb said, Group W agreed to freeze the rate until July 1. At that time, the company can impose a limited fee hike under state law. Technically, the company has the power to raise rates now, under federal legislation.

In view of these laws, the city “isn’t giving up anything at all . . . eventually we will lose the power to control rates, like other local governments,” said Bobb.

As for its other concessions, Santa Ana fared better than many cities that renegotiated cable contracts, according to Pilnick.

The city received “legally binding” promises of funds for local programming from Group W, unlike Portland, Dallas and Milwaukee, where city officials simply agreed to let cable companies scale back services without getting anything in return, he explained.

“Looking at this agreement, it may seem like Santa Ana gave up more financially than it got,” said Pilnick, who has evaluated similar renegotiation proposals in Portland, Miami and New Orleans.

“But some of the promises made to Santa Ana were dubious to begin with. I doubt whether Group W or any cable firm ever intended to honor many of the commitments they made to win cable awards.”

Pilnick pointed out, for example, that Santa Ana would have had difficulty trying to make Group W keep its promise to provide $16 million for local television programming.

Cable companies are reluctant to produce such programming because they think it is too expensive and does not attract customers, he said. If Santa Ana tried to enforce that commitment, “the company might have tried to back away from it further down the road.”

Instead, Group W has agreed to provide $8.9 million to Santa Ana, so the city can produce its own local programming. Santa Ana “has a much more compelling interest” in producing such shows, he explained.

Similarly, Group W has given Santa Ana the power to manage and operate a separate television network linking schools, hospitals, businesses and public offices.

The company had been reluctant to operate the network because of the time and expense required to attract new customers and produce special programming, Pilnick said. Santa Ana would do a better job of utilizing this new service, he added.

Finally, the consultant said Santa Ana has the power to ask Group W to reinstitute the 120-channel system it originally promised, if market studies ever demonstrate that there is sufficient programming to fill that many channels.