COMMUNICATIONS SUPPORT GROUP INC. (JOHN RISK) 1a

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Proposal Letter City of Santa Ana 1 -Yr. AT&T and 3-Yr.Time Warner Review Communications Support Group, Inc. Time Warner Cable (TWC): 1. Time Warner uses five accounting agents (an agent is a stand-alone accounting entity having its own billing system report and subscriber accounting). Two of these agents are very large, and three are relatively small. None -the -less, prorations of non -subscriber revenues and computation of PEG fees are performed as a function of subscriber counts. This will require further study in the next phase of the review. 2. Some of the agents were found to contain bulk subscriptions that the company appears to have not collected franchise fees and PEG fees. We recommend that this be analyzed in greater detail during the comprehensive review. 3. Significant PEG fees may be recoverable should the City determine that more subscribers were assessable than the company reported. For example, the billing system reports that we have reviewed for 2008, 2009, and some months of 2010, that more than 200 customers were provided free or complimentary service. This may include apartment house managers, employees of the company (or other cable companies on a reciprocal basis), and gratis accounts for managers of commercial accounts (hotels, restaurants, etc.). Additionally, many of these accounts could be public agencies like the school district, community college, and city offices. The City should determine whether these gratis accounts should be assessed the PEG fee, even though no other charges appear on the bills. This matter will take further study to determine the universe and magnitude of potential PEG fees at stake. 4. Time Warner calculates the fees owed on subscriber revenues using data obtained from third -party billing system reports known as CPSM 318 reports. Time Warner provided us copies of billing system reports to support the franchise fee payments. The amount of time budgeted in this cursory review did not allow sufficient time to perform a line -by-line analysis of subscriber revenues. However, we did take time to perform high-level comparisons between total video revenues and Time Warner's franchise fee worksheets. • Time Warner did not pay franchise fees on FCC regulatory fees during the entire audit period, which we recommend. Since FCC Regulatory fees are cost of doing business, and given that Time Warner, has elected to pass -these costs onto the cable subscriber as a pass-through, we conclude that the revenues associated with these are eligible for franchise fee assessment. We will perform additional review of regulatory fees, quantify these fees for all months of the review and add them as under -reported revenues. ©2011 Communications Support Group, Inc. Page 4 of 9