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Proposal Letter City of Santa Ana 1 -Yr. AT &T and 3- Yr.Time Warner Review Communications Support Group, Inc. SECTION B BACKGROUND AND PROJECT SUMMARY For the first six months of this year, under a separate purchase order, CSG performed a cursory review of reported revenues and survey responses requested from AT &T and a preliminary review of Time Warner related to PEG fees and subscriber revenues which enabled the City to raise several legitimate questions for the accuracy of Time Warner's PEG grant amortization, Franchise fee payments, and PEG fee payments. From our previous report dated June 23, 2011, we determined the likelihood that significant additional PEG fees and franchise fees may be due to the City. This project intends to drill down deeper into the books of AT &T and Time Warner to determine what those fees may amount to, to collect any fees owed to the City for the three year period ending December 31, 2010, and require AT &T and Time Warner to more accurately account for and pay of these fees in the future. We will address each of the issues addressed in the findings section of our cursory report, which are enumerated below: AT &T- California (AT &T) 1. A &TT confirmed categories of revenues included in franchise fee payments but did not provide us with detailed billing support to back -up their allocations. We recommend additional review of billing system reports to confirm AT &T's calculations. 2. AT &T indicated that it currently does not claim any bad debts associated with U- verse TV. However, we recommend that this assertion be further analyzed. 3. AT &T currently only generates national advertising revenue. That revenue is allocated down to a jurisdiction level and the franchise fee liability is calculated on that amount and added to the franchise fee remittance. Further analysis of this accounting is recommended. 4. In a similar manner as above, home shopping commissions are allocated down to a jurisdiction level and tax is calculated and remitted accordingly. Further analysis of this accounting is recommended. 5. When questioned about PEG fees, AT &T indicated that: the company "currently does not collect PEG fees in Santa Ana because the company has been unable to determine whether the incumbent provider, Time Warner, has unsatisfied cash obligations under its franchise agreement with the City that would trigger payments by AT &T under Public Utilities Code § 5870 (k) and (1)." We will recalculate AT &T PEG fee liability based on a determined date of Time Warner's amortization. ©2011 Communications Support Group, Inc. Page 3 of 9 25F -8