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Telcos Favor FCC's MDU Lockup Ban

The Federal Communications Commission (FCC) yesterday stepped in and declared that it is illegal for carriers of all flavors to enter into exclusive contracts to provide telecommunications services in multiple dwelling units (MDUs). (See FCC Bans Exclusive Triple-Play Deals in MDUs.) And -- surprise! -- the cable industry and telcos are taking opposing views on the Commission's ruling.

"Verizon agrees that consumers deserve to choose among competing providers without being blocked by exclusive access agreements," writes a Verizon Communications Inc. (NYSE: VZ) spokesman. But while Verizon agrees with the FCC's ruling on exclusive access contracts, it maintains that it should be allowed to hold exclusive marketing rights in certain MDUs.

"Verizon suggests that any restriction be limited to exclusive access agreements, and should not affect other types of exclusive or preferential marketing arrangements. Exclusive marketing agreements promote competition as they offer residents additional options and information without restricting their ultimate choice of service providers," the company states in a legal filing submitted to the FCC.

While Verizon says it has never held any exclusive provider contracts in any MDU, it has actively pursued exclusive marketing contracts in densely populated markets such as New York, where it is trying to bring FiOS to into as many apartment buildings as possible. (See Fiber-to-the-MDU: Verizon's Manhattan Project.)

AT&T Inc. (NYSE: T) also favored the FCC's ruling, citing filings it made with the Commission back when SBC and BellSouth were still independent companies.

Cable companies had a different take. The National Cable & Telecommunications Association (NCTA) , though public on previous MDU matters, declined to comment on this matter. (See NCTA Seeks MDU Ruling Reversal .)

Still, the cable industry's top lobbying arm has maintained that the FCC lacks the legal authority to abolish existing contracts between MDU owners and cable operators. (See NCTA Seeks MDU Ruling Reversal .)

The U.S. Court of Appeals for the D.C. Circuit recently rejected the NCTA's request to stay a portion of the rules that would scrap exclusive MDU contracts that are already in place. (See NCTA Takes MDU Row to Court and FCC's MDU Rule Lives On.) An NCTA spokesman says the court has yet to decide whether to overturn that entire rule. The NCTA's position, in part, is that cable operators would be unable to recoup MDU infrastructure investments if the exclusivity provisions of existing deals are abrogated.

While there's still a chance that the court could overturn that portion of the FCC order, cable operators have been moving ahead under the new FCC provisions, according to Jim Honiotes, principal for Lynch Cable Resources Inc. , a Denver-based firm specializing in cable-MDU contracts.

— Raymond McConville, Reporter, Light Reading and Jeff Baumgartner, Site Editor, Cable Digital News

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