City intensifies fight with cable TV industry; Bradley wants regulation.

The City of Los Angeles is battling the cable television industry on several fronts, and the one consistent theme is that the city wants more control -- over rates, service and which company operates where.

When it comes to competition, however, the water gets muddy.

On the one hand, the city is continuing its court battle with a cable company that claims the city's franchise system restricts competition, limiting cable to one operator per area.

Preferred Communications Inc., the company suing to overturn the Los Angeles cable franchise system, has recently, on appeal, filed a brief outlining an alleged web of corruption, with city elected officials and staff personally benefiting from the granting of franchises and the division of the city into cable operator areas.

The allegations aren't new, but the company claims to have new evidence and is asking the U.S. Circuit Court of Appeals to reinstate racketeering charges against the city, brought in the original suit by PCI.

The Preferred case dates back eight years. Last spring, U.S. District Court Judge Consuelo Marshall issued a decision upholding some city franchise rules and disallowing others. Both sides have appealed the parts of the decision that went against them.

Meanwhile, Los Angeles Mayor Tom Bradley has taken on cable television companies by rallying support for a congressional resolution that would give local governments more control over cable rates and by calling for public hearings on the issue.

The mayor also says he favors cable competition, which would be encouraged under the bill, while the city continues to fight in federal court to hold onto its one area/one operator franchise system, which opponents say is unconstitutional.

"Cable TV happens to be a natural monopoly," said Deputy City Attorney Ed Perez. "The mayor is acknowledging that there's no competition, and because there isn't, we need regulation."

The mayor's spokesman, Bill Chandler, said it was unfair to label the city's appeal of the Preferred case as a battle against competition because "the people at Preferred are making outrageous allegations against the mayor and the city." He added that the mayor's main reason for supporting House Resolution 3560 (the Cable Consumer Protection Act of 1991) is that the mayor wants local governments to have more control over cable rates.

Susan Herman, general manager of the city's Department of Telecommunications, said HR 3560 would allow local governments to regulate cable rates and set minimum service standards, make it easier for franchise renewals to be denied, and encourage competition by giving local governments protection from litigation if they award franchises to multiple operators in the same area.

However, the city has maintained throughout the Preferred case that its franchises are non-exclusive and that it would allow multiple operators if they emerged and met city standards.

The mayor last week had a news conference, launched a letter-writing campaign and sent out press releases accusing the local cable companies of hypocrisy. His case was based on the fact that the industry lobbied against the mayor's proposal for a 10 percent cable tax, claiming the hike would lead to mass cancellations of service and serious financial woes in the industry, and then Century Cable raised its rates 14 percent (on the "basic" price).

However, of the eight multi-system operators serving Los Angeles, Century was the only one not involved in the gloom-and-doom campaign against the tax.

The Los Angeles Cable Operators Association bought newspaper ads to condemn the tax proposal and claimed customers would drop in droves. Century's Bill Rosendahl, vice president of operations, also opposed the tax, but based solely on the argument that it was discriminatory.

"They (Century) were clearly opposed to the plan," said Chandler.

But Rosendahl said his reasons for fighting the tax negate the mayor's position. He said his rate increase was justified because his company has had enormous capital expenses recently.

"Of course we're opposed to the tax, because it's unfair. I never agreed with (the cable association) and never supported that strategy," said Rosendahl. "Cable pricing is based on the cost of the system. We've spent a tremendous amount of money rebuilding our system. . . . My customers will pay the additional $2.95 because they get a good picture and good service."

Rosendahl had his own news conference to explain his company's rising costs and its contributions to the community. Last week, Century began a holiday toy drive, offering free installation to new subscribers who donate a toy worth $15 or more to a local charity. The campaign will last for six weeks.

Century Cable serves Sherman Oaks, Eagle Rock and portions of the Westside. The rate hike goes into effect Dec. 1.

"The citizens of Los Angeles should no longer be held hostage by an industry which operates virtually unchecked by competition or by government," Bradley said last week. "During public hearings that will be held by our city's Department of Telecommunications and by waging a 'bills for bill' campaign, where cable bills are sent (by customers) to Washington, D.C., in support of the pending federal legislation, I am confident we can gain more input over the rates and service records of these cable companies that appear to be out of control."

Preferred Communications claims that it is city officials who are benefiting from the non-competitive cable situation. Although Preferred is basically a dummy corporation formed for the purposes of filing suit, the case is expected to have a major impact on the cable industry once it reaches the U.S. Supreme Court. An attorney for the city last spring called it "the most closely watched cable case in the industry."

The main issue concerns the city's rules for granting cable franchises. Basically, companies compete against each other for a franchise to serve a defined area. They must meet rules set by the city and pay a percentage of their revenue for franchise fees.

Preferred claims that in addition to being non-competitive, the franchise process in Los Angeles has been corrupted by political interests.

The City Council agreed to redraw the South Central-Harbor cable area in 1979 at the request of potential franchisee Community Telecommunications Inc., which was incorporated that same year. Then Councilman Robert Farrell helped obtain approval for the division of the area. CTI later teamed with another company to win the franchise, never used it and sold out in 1986 to a third company for $2.5 million.

At issue in the Preferred case is when Channing Johnson, Farrell's "deputy" on cable matters, became a major partner in CTI. Johnson has maintained that he had no interest in CTI until mid-1980, after he had resigned from his council aide position.

However, in a sworn deposition in 1988, Johnson was asked, "Was the corporation (CTI) carrying on any business prior to the time you became a shareholder?" and he answered, "No. We incorporated it." CTI was incorporated in the fall of 1979, several months prior to Johnson's resignation.

In another deposition, Johnson said he and two others were the "motivating force behind incorporating in the first place."

Court exhibits include a 1983 memo, written by Johnson, stating that ownership of 20 percent of the new cable partnership would be divided by Farrell and another council member "based on districts," including 3 percent to be divided based on "political discretion to undetermined others."

"It (the memo) makes it clear that politics was the issue from day one," said attorney Robert Bramson, who represents Preferred.

Perez insists there is "no foundation to any of these allegations."

He said the reason for the council members' involvement in the division of the company and all the "political maneuvering" was the council's desire that the operator serving the South Central area be owned chiefly by black people.

"We've been rehashing this for eight years," said Perez.