By: Andrew Regitsky
In a Report and Order (Order) released February 15, 2022, in Docket 17-142, the FCC takes steps to bring more broadband competition to multi-tenant environments (MTEs) including apartments, condominiums or other multi-tenant buildings. These actions have been championed by competitive providers and new entrants that do not have as large of an embedded customer base as incumbents and face significant barriers to build out their networks. Often, they are stymied by property owners that refuse to allow competitive broadband services in premises where they already have exclusive arrangements and revenue sharing agreements with incumbent providers.
In the Order, the Commission address practices that have emerged that undermine the goals of its rules prohibiting exclusive access contracts. Previously, in two orders adopted in 2000 and 2008, respectively, it prohibited telecommunications carriers from entering or enforcing exclusivity contracts with MTE owners in both commercial and residential MTEs. And in 2007, the Commission prohibited certain Multichannel Video Programming Distributer (MVPDs) such as Comcast and DirecTV from entering or enforcing exclusivity contracts with residential MTE owners. The Commission concluded that exclusive access contracts harm competition and “discourage the deployment of broadband facilities to American consumers” by impeding entry of competitive providers.
Thus, the current Order applies only to those entities and in those contexts where exclusive access contract prohibitions already apply.
First, the agency adopts new rules prohibiting providers from entering into two types of revenue sharing agreements that are used to evade its existing rules – exclusive and graduated.
In an exclusive revenue sharing agreement, the communications provider offers the MTE owner consideration in return for the provider obtaining access to the building and its tenants and prohibits the MTE owner from accepting similar consideration from any other provider. Thus, an exclusive revenue sharing agreement allows a communications provider to prevent other providers from sharing payments with the MTE owner. (Order, at para. 20.).
In a graduated revenue sharing agreement, sometimes known as “tiered” or “success-based” agreements, a provider pays an MTE owner a greater percentage of revenue as its penetration in the building increases. Under such an agreement, as a provider serves more tenants in an MTE, the MTE owner receives a greater level of compensation for each tenant. Therefore, the more tenants in an MTE that a provider furnishes service to, the more compensation the MTE owner receives on a pro rata basis. (Id., at para 23).
The prohibition on graduated and exclusive revenue sharing agreements applies both to agreements entered into after the effective date of these rules and those already in existence when these rules become effective. The rules thus prohibit providers from (1) executing new graduated or exclusive revenue sharing agreements, and (2) enforcing existing graduated or exclusive revenue sharing agreements on a going forward basis.
Second, the FCC adopts new rules requiring providers to disclose the existence of exclusive marketing arrangements in simple, easy-to-understand language.
Such disclosure must be included on all written marketing material directed at tenants or prospective tenants of an MTE subject to the arrangement and must explain in clear, conspicuous, legible, and visible language that the provider has the right to exclusively market its communications services to tenants in the MTE, that such a right does not suggest that the provider is the only entity that can provide communications services to tenants in the MTE, and that service from an alternative provider may be available. (Id., at para. 33).
In a separate Declaratory Ruling, the Commission clarifies that its existing rules regarding cable inside wiring prohibit so-called “sale-and-leaseback” arrangements which effectively deny access to alternative providers. A sale-and-leaseback arrangement is an arrangement whereby an incumbent provider conveys its inside wiring—typically both home and home run wiring—to a residential MTE owner and then leases it back on an exclusive basis.
The Report and Order and Declaratory Ruling will become effective 30 days after publication in the Federal Register.
However, for existing contracts with exclusive and graduated revenue sharing agreements, compliance with the prohibition on enforcing such agreements will become effective 180 days after publication of this Order in the Federal Register.