Bells, Seeking Ban on Exclusive Video Deals, Cite Broadband Competition

To show exclusives’ anticompetitive nature, USTelecom and several phone companies declared that cable operators seem to be striking more such pacts to blunt threats to their business from Bells’ expanded video sales. Cable operators often seek exclusives in an area when they learn a phone company is poised to sell video there, said the filings. “Cable incumbents’ exclusive access arrangements, especially those negotiated as a last-ditch response to a telecom provider finally gaining entry, are clearly intended to be anticompetitive,” said USTelecom. “Prospective telecom entry has changed the incentives for cable incumbents, and this has now become a growing problem for new entrants in what represents a very large segment of U.S. households.” There are 24.6 million households in buildings of more than one unit, and the number of apartments is growing far faster than the number of houses, according to AT&T. About 1/4 of Americans live in multi-unit buildings.

Broadband and video competition are linked in section 706 of the Telecommunications Act, said filings by AT&T, Verizon and other telecom companies. That section authorized the FCC to ban exclusive contracts for video service in multiple dwelling units (MDUs) when they could stifle broadband deployment, said AT&T: “Congressional policy reflected in Section 706 thus underscores that the Commission has not only the authority but the duty to regulate cable operators’ exclusive MDU access contracting practices, to promote not only video competition but broadband deployment generally.” Regulatory intervention is needed because telecom companies often cannot afford to sell video and phone service without also providing broadband, said Verizon. “The anticompetitive effect of exclusive access contracts is not limited to video,” the company’s Monday filing said. “The economic case for deployment of those broadband facilities frequently depends on the ability to offer a full range of services to customers.”

Video sales revenue lets Bells expand broadband access, said Qwest and several other companies. Exclusives give cable operators an unfair edge in selling broadband and phone service plus video, said Qwest. Cable operators easily can add Web, phone and other services in buildings where they have locks on sales, but phone companies cannot do the same without such deals. “The local exchange carrier, however, would not have the same opportunity to package multichannel video with its other services,” said Qwest, “and thus would be limited to a less competitive service bundle that will generate less revenue and thus less support for broadband deployment.” Broadband deployment does not suffer from preferential marketing agreements, which Qwest said help it to snare new customers. The company said such deals give apartment dwellers more information on video services while offering the property owner a way to tout services available to residents, calling them “'win-win’ transactions that encourage competitive entry into MDUs.”

Exclusives are not always bad, Verizon said, saying deals between phone companies and office buildings push competition and cut costs. Such arrangements for Internet service help telecom companies finance network upgrades while giving better service, said the Bell. The residential video market differs because there are fewer service providers, it said: “Given the unique danger presented by such agreements at the present stage of video competition, it is appropriate for the Commission to adopt a limited, narrowly tailored remedy.” Verizon wants a ban on new exclusive deals for 5 years. Then the prohibition would expire unless the FCC found “an extension was necessary,” said Verizon’s proposal. The company said the plan resembles FCC program access rules, which expire later this year and which Verizon wants renewed. It said a ban on video exclusives should apply only to video providers and not to building owners and property managers.

AT&T asked the FCC to take a harsher line on exclusives than Verizon, saying the regulator should ban existing and future arrangements to “promote delivery of broadband services to residents of MDUs.” Sections 201(b), 303(r) and 628 of the Act let the FCC intervene, said AT&T. Qwest, in contrast, is not asking the agency to invalidate current deals or take a “'fresh look'” at them, it said: “Qwest believes that a more moderate, prospective approach will promote multichannel video competition in MDUs without ensnaring the Commission in difficult legal and policy issues that arise from invalidating existing MDU contracts.” The American Cable Association said voiding ongoing deals “could wipe out significant investments” made by its members and “endanger these operators’ financial well-being.” The group said the FCC should not regulate deals in rural markets, where many of its members have cable systems, because higher costs there require exclusives to pay for network upgrades. The group said competition is high to serve apartments among satellite companies, private cable operators and cable/satellite master antenna TV providers.

Exclusivity can promote competition by letting video providers more efficiently serve apartment dwellers, said the National Cable & Telecommunications Association (NCTA). Nothing in the Act authorizes the commission to restrict contracts, said NCTA. “Even if the Commission had such roving authority to promote competition by barring exclusive contracts, it would still have no authority, or any public policy reason, to abrogate existing contracts,” said NCTA. An FCC invocation of Section 628, dealing with exclusive programming deals, in tentatively concluding earlier this year that it can intervene in anticompetitive apartment video deals, is flawed, said NCTA: “Section 628 is not a mini- Sherman Act that gives the FCC broad authority to restrict or proscribe any acts or practices it may deem unfair, deceptive, or anticompetitive.” - Jonathan Make