FCC Bans Exclusive Deals between Cable Operators, Landlords
Exclusive service contracts between cable operators and multiple dwelling unit owners will be outlawed by an order adopted Wednesday by the FCC. The ban, on current exclusivity clauses as well as future ones, applies to most wire-based pay-TV services. The commission opened a new rulemaking that would extend the ban to DBS and private cable operators. About 30 percent of Americans live in apartment buildings or other MDUs, the commission said. Wednesday’s action will make sure those consumers can choose which pay-TV provider to do business with and help keep cable prices down by removing hurdles for phone companies that want to sell video services, Chairman Kevin Martin said. “Trying to remove any barriers to those cable overbuilders is really critical,” he said. The FCC also adopted a cable franchise order originally slated for the commission’s Sept. 11 meeting.
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The MDU order probably will draw lawsuits, said Commissioner Robert McDowell, who concurred in it. Just four years ago, the FCC invited cable operators to sign exclusive deals with owners of older buildings in an effort to get them wired for cable and other advanced services. “Many buildings have been upgraded or brought online for the first time as a result of this policy,” he said. “To flash cut to a new regulatory regime without a sensible transition period only begs for an appeal that could result in a court throwing out all of our order, the good with the bad.”
The order also may infringe states’ authority, McDowell said. “The record indicates that 20 states have enacted such legislation and no state has abrogated existing contracts as we have done here,” he said. Deference should be paid to states, and in this case it has, said Commissioner Deborah Tate. “As we have recognized in our earlier orders on exclusivity clauses, today’s action should not conflict with states that have already imposed a ban,” she said. “Rather, it extends this prohibition to states that have not yet acted.”
The FCC may have overstepped its authority in adopting the order, Free State President Randolph May said. “The agency’s statutory authority to take this action, especially abrogating existing contracts, is questionable,” he said. “The FCC should have acted more modestly.” NCTA also called into question FCC authority to declare exclusivity clauses unenforceable. That was an “unprecedented, legally suspect step that could harm consumers and jeopardize the delivery of advanced services to low-income neighborhoods where other video providers have chosen not to offer service,” said Dan Brenner, NCTA senior vice president for law and regulatory policy. Blocking contracts will “likely guarantee years of litigation and uncertainty for consumers,” said a Comcast spokeswoman.
Verizon, AT&T, Qwest, USTelecom and CEA hailed the FCC action. It will provide “access to new competitive options for residents of these properties and encourage further deployment of broadband networks,” said Susan Guyer, Verizon senior vice president of federal regulatory affairs. The order doesn’t grant automatic access to MDUs to new pay-TV providers, Media Bureau officials said after the meeting. Depending on state and local laws, property owners may decline to let them in. “In some states, a building owner has to let them in; in others, they may deny access,” said Video Division Chief Barbara Kreisman.
In the new rulemaking, the FCC will look at expanding the exclusivity ban to private cable operators and DBS providers. Private cable operators -- which don’t cross public rights of way or do business under franchise agreements -- have about a million customers, the FCC estimates. The commission should have dealt with all pay-TV operators at the same time, NCTA said. “If eliminating exclusive contracts for some video providers is good for consumers, then it should have been applied to all providers,” Brenner said. Satellite services deserve to be dealt with separately, an EchoStar spokeswoman said. “DBS service to MDUs involves a host of technical issues that are not applicable to cable. We are pleased the FCC has decided to examine those issues further before proceeding.”
The rulemaking also will look at barring exclusive marketing and billing arrangements between property owners and pay-TV operators. Exclusive marketing and billing deals can have an anticompetitive effect in the market, said Commissioner Jonathan Adelstein. Martin has agreed to nail down those rules within six months, Adelstein said.
Video Franchise Order
The commission also adopted an order extending the loosening of local franchising, which it has provided for competitive pay-TV providers, to incumbent cable operators. Commission Democrats, who did not approve of the commission’s earlier franchise revamp, dissented again Wednesday. “I find today’s order to be even more intrusive into traditional prerogatives of local franchising authorities than our prior Order, while simultaneously less persuasive about the policy or legal grounds for taking such a step,” Commissioner Michael Copps said. “If our previous decision was a body blow to the principle of federalism, today’s decision is the coup de grace.”
In the order, the commission said it finds that costs and fees required by local franchising authorities are applicable toward cable operators’ statutory 5 percent cap on franchise fees. The commission also gave cable operators the same breaks the last order gave to phone companies on public, educational and governmental channels and institutional networks. The new rules take effect 30 days after they appear in the Federal Register.
The order is a “rotten apple” for local governments,” said Libby Beaty, National Association of Telecommunications Officers and Advisors executive director. “Preliminary assessment indicates that the cost of replacing the service the FCC will eliminate will be a minimum of $3.2 billion in local tax payer dollars,” Beaty said. “No wonder the FCC delayed this action to Halloween instead of its original 9/11 meeting date.” The Media Access Project also panned the franchise order.