06/16/1980 Board of Public Works Minutes

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�1 . REGULAR MEETING JUNE 16, 1980 pay programming and basic programming. He stated that Cable T.V. must pay a per subscriber fee for such service. He assured Mr. Kernan that approximately 80% of the costs involved in that line item were for pay programming costs and not basic cable television. Mr. Kernan stated that, as he understood it, pay television included Home Box Office, Spectrum and Showtime, and Mr. Hren stated that he was correct. He informed Mr. Kernan that the pay television income was broken down if he wanted to check it. He stated that this overcomes the actual cost substantially, and that the company was making more than an operating profit on pay television. Mr. Kernan stated that there were additional costs involved in technical and promotional items. The increases in those items were substantial, and he asked about that. Mr. Hren answered by stating that those increases were primarily for an upgrade of the technical supports in terms of people, wages and maintenance. Mr. Kernan stated that the expenses for customer service have actually gove down, with the technical expenses being increased substantially. He felt this appeared to coincide with the introduction of Home Box Office, etc. Mr. Hren stated that this was not the case. He stated that there has been a great improvement of service and quality of the cable signal. Mr. Noell stated that some major improvements have been made in the area of capital improvements to effect this. Mr. Hren informed the Board that the company had just recently installed a computer which automates a great deal of paperwork which allows Cable T.V. to provide better service to its customers. He stated that this was a large investment on the part of Cable T.V. Mr. Kernan asked about the line item entitled, "other expenses ". Mr. Hren stated that approximately 95% of that item was depreciation (straight -line) and interest. Mr. Windhorst asked if capitalization was included as part of the rates, and Mr. Kernan stated that depreciation has to be considered as an expense of doing business. Mr.. Windhorst asked if the money Cable T.V. has tied up was part of the rate base. Mr. Kernan stated that that would help determine its costs. Mr. Windhorst referred to a letter which he had received from Mr. Hren sometime ago which stated that the services were a choice of the customer and charges were not based on total capitalization. Mr. Hill explained to Mr. Windhorst that a purchaser of the service must determine whether or not he feels the service'is worth what he pays for it. He stated that the Board must set the rate for the community and must look into the inquiries raised by Mr. Kernan. He indicated that these things have been discussed with Mr. Hren, and the Board must now determine whether or not the increase is needed to maintain the service in this community. Mr. McMahon stated that the federal government has taken the position that the activity in which the Board is presently involved in is optional. He indicated that the federal government has changed its position on cablevision which reflects the opposite of Mr. Hren's statement. For that reason, it has given the cities the option to approve the rate adjustments. He reminded Mr. Windhorst that the Board would not look at the rate increase from the same standpoint as the customer, and he stated that the Board would retain the option and would either approve or disapprove the rate increase. He stated that Cable T.V. could not be compared to other utilities such as telephone, electric, or gas,.simply because it was not a sole source utility. Mr. Page stated that, as a customer, he felt there was a lack of service to the customer and he had experienced this with the problem he had recently brought to the attention of the Board. Mr. Noell stated that there had been a great deal of re- regulation on the part of the federal.government. He felt there was no question that these types of companies must operate on a viable, business -like basis. Because Cable T.V. had over 24,000 customers and over 1,000 miles of cable, the expenses incurred would naturally increase. He stated that the company was faced with a deficit and has brought in pay television to help bring that deficit in line. Mr. Crone asked about the percentage of depreciation which would be attributable to air station. Mr. Hren answered by stating that approximately 5% would be attributable. Mr. Kernan asked Mr. Hren to furnish him specific information regarding the company's