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