Apartment Exclusivity Deals with Cable Providers Banned by FCC

An apartment landlord cannot enter into an arrangement with a cable TV or broadband service making it the exclusive provider for an apartment complex or duplex, as a result of a ban on such arrangements yesterday by the US Federal Communications Commission, by a 5-0 vote.

But the extent of the ban may not have a measurable impact on apartment dwellers' options, as it merely invalidates exclusivity clauses. It does not mean that landlords must enable tenants access to the service provider of their choice - just that landlords can't be given price breaks for choosing one provider over another.

"I believe that people that live in apartment buildings deserve to have the same choices as people that live in the suburbs," stated FCC Chairman Kevin Martin late yesterday. "In today's item, the Commission found that people who live in apartment buildings often have no choice of companies when it comes to their video service provider. This is because building owners often strike exclusive deals with one cable operator to serve the entire building, eliminating competition. There is no reason that consumers living in apartment buildings should be locked into one service provider."

Landlords and apartment managers may have a different view: Even with exclusivity clauses now unenforceable, buildings cannot always be equipped for multiple wiring. While a landlord cannot now use exclusivity as an excuse to refuse a tenant's request to install someone else's cable service - and perhaps the phone service bundled with it - architectural, engineering, and other restrictions leave the landlord with plenty of remaining excuses in his arsenal.

Still, if the FCC can provide the lowly apartment dweller with anything, it's hope. "Today the FCC helps give many consumers who live in apartment buildings and other multiple dwelling units (MDUs) the hope of having more choices among video service providers," stated Commissioner Robert McDowell yesterday. "If you live in a building where the property owner limits your freedom to choose among video service providers through an exclusive arrangement with just one company, today's Order liberates you."

But always one to call an empty glass half-empty, Commissioner McDowell cautioned that even though he supported the measure in principle, it may not withstand judicial review. The reason: The FCC itself, in January 2003, invited cable companies to make exclusive deals with apartment landlords as a way of increasing the uptake of broadband service to tenants.

When it did so, the National Apartment Association and the National Multi-Housing Council applauded the move. "After eight years of NAA/NMHC's education efforts on this issue, the FCC has decided not to ban or cap the length of exclusive contracts between apartment providers and video providers," wrote NAA Executive Vice President Douglas Culkin at the time. "The FCC agreed with NAA/NMHC, saying there is no proof that exclusive contracts (which run for a specified time) or perpetual contracts (older contracts signed when there was only a single provider, but now affecting less than 10 percent of the market) are significant impediments to competition."

As Comm. McDowell argued, "In some cases, cable companies relied upon our 2003 Order to make arrangements with owners of older buildings to wire them for the first time, or to upgrade them with newer technologies, in exchange for a limited period of time when they could be the exclusive video service provider to allow for recovery of their investments. The record indicates that many buildings may have been upgraded, or brought online for the first time, as a result of this policy. 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."

In disagreeing with McDowell's assessment, Commissioner Deborah Tate argued yesterday that landlords won't have that much reason to complain, because the order doesn't make that big of a change anyway.

"This Order does not abrogate existing contracts, but rather declares exclusivity clauses to be unenforceable," Commissioner Tate said yesterday. "Other provisions of service contracts remain intact. Also, this Order is focused solely on access to MDUs [multiple-dwelling units]. Other competitive, freely negotiated business arrangements are untouched by this action."

So after a modicum of fresh debate, landlords may still be able to make a deal with one service provider, but not to say it made a deal with only one; and when pressured by tenants to enable access to someone else, they can't use contracts as an excuse. It's a small gain, but a gain nonetheless. Whether the FCC succeeds at squelching a business practice originally and intentionally created by the FCC, remains in doubt.

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