By Emily Le Coz | NEMS Daily Journal
SALTILLO – After a months-long dispute between Comcast and this suburban city, it’s the cable customers who will pay the price.
Comcast subscribers in Saltillo will see their monthly bills increase 1.09 percent to cover a shortfall in franchise fee payments the cable company allegedly withheld.
Mayor Bill Williams said he was angered by Comcast’s conduct during the ordeal and feels it unfair that customers will be charged for the cable company’s shortfall.
“I was extremely frustrated with the arrogant, condescending way they treated the people of Saltillo,” he said of Comcast. “We were not asking them to do anything they were not contractually bound to do.”
Comcast has a right to investigate claims of underpayment and tried to work with the city on the matter, said Patricia Collins, Comast’s senior director of governmental affairs.
Collins called the matter settled and hopes everyone can move on, but Williams said the experience should serve as a warning to cities everywhere.
A franchise fee is what a city charges to use its public utility poles and rights of way, like Comcast does to provide cable service. In its contract with Comcast, Saltillo is supposed to get 4 percent of the cable company’s gross revenues earned from the area.
The fees have produced about $4,850 per year, which the city puts into its general fund. It’s generally a pass-through for the cable company, meaning they recoup those costs by charging it to their customers.
But a recent audit revealed Comcast allegedly shorted the city $2,244.81 from 2008 through 2010. It had withheld revenues from advertising, home shopping commissions, late fees and a category named “other revenue allocation.”
Saltillo asked for that money, plus $198.56 in interest, in an Oct. 7 letter to Comcast. After no response, nearly two weeks later, the city sent another letter asking Comcast to attend a public hearing on its contract renewal. It was set for Nov. 15.
The company responded in late October, saying it would review the audit and reply by Nov. 7. But without a follow-up from Comcast by Nov. 14, Saltillo wrote another letter threatening to investigate the default if it didn’t receive payment.
Comcast replied three days later, arguing it didn’t owe the money because advertising, home shopping commissions and “other” didn’t fit within the context of gross revenues. It agreed to pay $284.22 from late fees, however.
The city rejected that offer in a letter dated Nov. 22, saying that gross revenues means gross revenues – no exceptions unless otherwise stated.
The only exceptions to gross revenues cited in the contract were bad debt or pass-through taxes imposed by other authorities.
That differs from the cable company’s contract with Tupelo, which clearly states gross revenues include not only cable services, but also advertising and home shopping, along with several other categories. It specifically excludes items like bad debt and late fees.
Collins said the company has different agreements with different cities depending on the negotiation process.
“We have a local franchise with each municipality, and we will work within the confines of those agreements,” Collins said. “It will be a case-by-case situation, depending on the definition of gross revenues with the franchise.”
But those agreements apparently leave much room for interpretation by both the cable company and the municipalities. Greg Fender of Atlanta-based Local Government Services audits franchise payments for cities, including Saltillo. Most audits, he said, reveal underpayments.
“We review a large number of them, and I would say 80-85 percent of the time we find these cases,” Fender said. “In fairness to the cable industry, some of these agreements are not as crystal clear as what I think Saltillo’s is.”
Because he said Saltillo’s agreement was so plain, he’s surprised Comcast initially refused to pay the amount requested. The company did offer in a Dec. 2 letter to pay $2,140.78, but it wanted to put a note on Saltillo subscribers’ bills explaining the resulting rate hike: “The Franchise Fee Adjustment on your bill reflects additional charges requested by the city of Saltillo. Comcast remits this fee to the city.”
Saltillo balked, saying the note blamed the city for requesting what was rightfully owed. It took another round of letters and a public hearing in which the Board of Aldermen found Comcast in default of its contract, before the company said it had pay without the note on subscriber bills.
But it still will pass those costs along to Saltillo subscribers.
“The franchise fee will increase to cover the items that the city wants to be paid on …,” Collins said. “Comcast was not collecting and paying on this.”
A similar case happened earlier this year in Corinth when an audit revealed Comcast underpaid the city $51,632.71 between 2007 and 2009. It took nearly three months and the threat of legal action before Comcast paid the city, according to minutes from the Board of Mayor and Aldermen.
Fender also performed Corinth’s audit and recommended all franchising authorities get one.
“There are so many cities that have never done audits – never – and I shudder to think what’s there,” he said. “The amounts owed can really range all over the place – $100,000, $50,000, $10,000, and in small towns like this, a couple thousand.”
Saltillo’s contract with Comcast expires next year. It’s not clear the city will re-sign and, if so, whether it expects to clarify the definition of gross revenues.
Tupelo also soon will renegotiate with Comcast. Its five-year contract ends in 2014. Tupelo gets 2 percent of the cable company’s gross revenues from the provision of services in its city limits. The fees generated $161,697 for Tupelo in the previous fiscal year.
The city didn’t audit Comcast before signing its current agreement, and it’s unknown whether it will do so before entering another one.