Article Source: City of San Bruno CA
DATE: November 27, 2018
TO: Honorable Mayor and Members of the City Council
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FROM: Jovan D. Grogan, City Manager
PREPARED BY: Sandeep Krishnamurthy, Cable TV Director
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SUBJECT: Waive Second Reading and Introduce Ordinance Amending Section 10.24.030 (Adoption of Rates)
BACKGROUND:
At its meeting on November 13, 2018, the City Council received a Staff Report regarding the amendment to Section 10.24.030 with the request to waive the first reading. This amendment would allow the City Manager to set Cable TV rates. The City Council waived the first reading of the report with the proviso that the Council be apprised on a regular basis about rate changes with a frequency to be determined by the City Manager and Cable TV Staff. Additionally the City Council directed rate changes be posted upon implementation to the City’s Master Fee schedule.
The text of the Staff Report prepared for the waiving of the First Reading and introduction of the Ordinance Amending Section 10.24.030 follows in its entirety.
Pursuant to its authority in Municipal Code section 10.24.030, the City Council reviews, considers, and adopts amendments to the Cable Television rates and services as proposed by the Cable Television Department. The last rate adjustment was approved by the City Council on June 13, 2017 with an effective date of August 1, 2017. The San Bruno Cable Enterprise has typically adjusted rates on a bi-annual basis to account for competitive market conditions and increases in operating costs. Currently, there is a significant shift occurring in the internet service provider and cable television markets, with a range of disparate service and product options available to customers, has resulted in the need for frequent and multiple rate adjustments to enable the Cable Television Department to be competitive and effective in offering attractive products to acquire and retain subscribers. Through this report and attached resolution, staff is proposing that the City Council amend section 10.24.030 to delegate to the City Manager the discretion to timely adjust rates for services offered by the Cable TV Department.
DISCUSSION:
In the past, bi-annual rate changes worked well to attract and retain subscribers as the market was served by a small group of competitors and customers had to undertake term bound service contracts to receive services from any provider. Within the past 5 years, customer service contracts have made way to an environment that is driven by fierce competition for customer engagement by an ever-growing list of service providers who cater to all or part of the same products and services as the San Bruno Cable Enterprise. A few examples of such providers who are already present physically or over the internet or will soon be unveiling new product offerings available in San Bruno include the following: AT&T, Verizon, Sprint, T-Mobile, Sonic and all streaming video providers.
The market environment for internet and TV services in San Bruno has undergone a complete change mirroring the rest of the United States. At this time, customers have the option to “cut the cord” of traditional cable TV or satellite service and opt for lower cost video services delivered over the internet. The result has been a significant decline in pay TV viewership across traditional media distribution companies and a surge in internet based data consumption. This has led media companies to shift their emphasis to broadband internet service connectivity and provisioning accompanied by the imminent launch of several “skinny” TV bundles. These “skinny” TV bundles include fewer numbers of channels than traditional cable or satellite TV packages and are therefore cheaper to the customer as well as the licensor.
To account for this shift and position the enterprise’s product offerings for optimal customer service, San Bruno Cable proposes the introduction of a series of rate changes which will be rapidly introduced to the market. These rate changes will include but not be limited to, any or all of the following and may be changed further upon review of subscriber performance within a relatively short time frame of 3 to 6 months:
• Internet and TV packages which combine high speed fiber/non-fiber internet with an abbreviated selection of TV channels offered at a low, market leading price point (these rates will be lower than San Bruno’s current price points for similar but unbundled services);
• Hispanic focused TV channels and internet tiers combined with the possible addition of a Hispanic sports focused streaming video product offered by a third party, but integrated with San Bruno Cable;
• A low cost residential and business telephone product that will favorably compete with the landline telephone product offered as part of an internet, wired line and wireless bundle by AT&T and soon, other wireless carriers;
• Bulk service proposals to specific apartment and condominium building projects across San Bruno, customized for each development and with significant focus on revenue-free months to secure exclusive access to all the units in the development; and
• Products targeted to businesses which will seek to offer, at highly competitive price points, internet and telephone service combinations which optimize the
Cable Enterprise’s newly enhanced internet service capacity and the potential to provide 1 Gigabit internet speed in areas that have already been installed with fiber.
The current ordinance, Section 10.24.030 of the San Bruno Municipal Code, requires prior City Council approval for any change in service rates. This process does not allow the Cable Enterprise to react in real time to its private-industry competitors, resulting in an inability to effectively compete in a fast-changing marketplace. Staff therefore recommends that the City Council authorize the City Manager to set service rates. This change is reflected in the ordinance in Attachment 2. All Cable Enterprise rates will continue to appear in the master fee schedule that is placed before the City Council for review and approval during the annual budgeting process.
Staff is proposing that the City Council amend section 10.24.030 to delegate to the City Manager the discretion to timely adjust rates for services offered by the Cable TV Department. A study session about the long-term future of the City’s Cable Enterprise and the potential fiber-to-the-home project is scheduled for the November 27, 2018 Council meeting. The ability to expeditiously adjust rates and programming packages to respond to market conditions and customer needs is beneficial to the Cable Enterprise and its customers irrespective of the long-range plan for the enterprise.
FISCAL IMPACT:
Direct and positive subscription revenue impact is expected from these rate changes which seek to lower costs to the customer to market leading levels. Indirect and positive fiscal impact is also expected through reduction of TV channel licensing costs incurred by the Cable Enterprise as well as maintenance of appropriate service margins to cover the Enterprise’s operating costs.
RECOMMENDATION:
Waive Second Reading and Adopt Ordinance Repealing and Amending Section 10.24.030 (Adoption of Rates)
Photo Credit: San Bruno CA Patch Archives
Source Credit: City of San Bruno CA
Web Site: https://sanbruno.ca.gov/
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