Facing fierce opposition from subscribers and some City Council members, Cox Cable on Monday abruptly pulled out of a controversial deal with the city of San Diego that would have extended its franchise to 2029.
Citing the possibility of a huge increase in an arcane tax assessed by the county, Bob McRann, Cox's vice president and general manager, preempted council discussion of the new pact by announcing that his company could not live with the terms of a new agreement that took 15 months to devise.
"I cannot in good conscience submit my company to the absorption of those costs," McRann told the council.
No Objections Last Week
But an aide to Councilman Bruce Henderson, who last month criticized the proposed pact as a poor agreement for the city, said that McRann was voicing new concern about the "possessory interest tax" as a way out of the deal now that Henderson had exposed its shortcomings.
Councilman Bob Filner agreed, saying that only last week Cox officials had told him that they would have no objections to absorbing the tax, and that an official in the county assessor's office appeared to cast doubt on the possibility of a major increase.
McRann's announcement scuttles, for now, an agreement that would have extended Cox's franchise from 2009 to 2029, lengthening to 50 years a 30-year contract signed in 1979.
Under the new amendments, Cox would have continued paying an annual franchise fee of 3% of its annual revenues. That fee generates about $1.3 million for the city each year.
According to Henderson and members of a Cox subscriber group, which Monday castigated the company for high rates and limited service, every other cable company serving the nation's top 11 cities pays franchise fees of 5% in return for franchises generally lasting 15 to 20 years.
At the same time, subscribers said Monday, the $17.95 monthly fee paid by the city's 137,000 Cox customers is second in the nation to the $19.65 charge assessed by one Los Angeles company.
'An Absolute Fiasco'
"This negotiation is an absolute fiasco. The proposal is a travesty. It is absolutely insane," said Howard Jaffe, one of the subscribers who urged rejection of the new pact.
In a July 18 letter to Mayor Maureen O'Connor, Martin Altbaum, president of Ultronics, a Cox competitor in Chula Vista, described San Diego as "the laughingstock of the cable television industry" for its current deal with Cox.
"But the real joke is on the citizens paying $17.95 for a poor-quality, limited channel system," Altbaum wrote.
Henderson attempted to block an end to the negotiations, saying that Cox's agreement with the city obligates the company to continue to negotiate other issues. The agreement calls for renegotiation sessions every five years, which, if successful, would extend the franchise agreement by five years.
"I don't think Cox has a right, respectfully or not, to decline to participate in the negotiating process," Henderson said. He said he is interested in seeing talks on a "whole variety of changes, one of which is that we've lost control over setting rates."
Henderson also proposed that the city hire an independent consultant to help renegotiate the deal with Cox.
Referred to City Attorney
Despite doubts from some council members that the city could force Cox to continue negotiations, the council referred that issue to City Atty. John Witt's office for guidance. The issue will come back to the council in 120 days.
In an interview after the council session, McRann said Cox will continue discussions with the city but added that a proposal for the company to absorb the $22,000 possessory interest tax now paid by the city is dead.
The tax is assessed by the county on land under which Cox runs cable. Because the city failed to include provisions in its 1979 agreement requiring Cox to pay the tax, the city is responsible for the payments.
Although the city litigated the issue several years ago, a court sided with Cox, said City Manager John Lockwood.
McRann told the council that the county last month raised the tax from 46 cents to $23.84 per customer when Cox purchased a small cable company in Alpine and said he was not willing to risk a similar increase in rates for the San Diego franchise. He said assessors had raised the tax rate eight times when franchise agreements were renewed in National City, Chula Vista and unincorporated sections of the county.
"We have no idea what the county is going to do," McRann said.
However, Bob Frazier, chief deputy county assessor for valuation, said reappraisals generally are conducted only when a cable company changes owners or negotiates a new franchise agreement.
Frazier and Assessor Greg Smith said, however, that they could not make a final determination on reappraisal without reviewing the agreement between the city and Cox.
McRann said he is willing to negotiate an increase in Cox's franchise fee from 3% to 5%, but would have to pass on the increase, estimated at 80 cents to $1 monthly, to subscribers.
Jaffe and others questioned how other cable companies could charge lower rates than Cox while paying the 5% fee.