FCC Bans Cable MDU Lockups
In a move pleasing to Verizon Communications Inc. (NYSE: VZ) and other telcos, the Federal Communications Commission (FCC) on Wednesday adopted a new set of rules that ban cable operators from forging exclusive video deals with "multiple dwelling units" and "other real estate developments." (See FCC Opens Up MDU Market.)
In the unanimous (and expected) 5-0 FCC vote, the rules aim to build competition in a market that some telcos, cable overbuilders, and other non-incumbent video service providers have found difficult to crack, thanks in large part to exclusivity clauses that tend to wind their way into MDU service contracts.
The FCC Report and Order found that nearly 30 percent of the U.S. population lives in MDUs, and that number is expected to rise.
FCC Commissioner Robert McDowell, who concurred with the ruling, wondered if it would stand up to a legal appeal.
"After unanimously inviting cable companies and building owners to strike such deals in 2003, the FCC may not be abrogating those exact same agreements immediately rather than waiting for them to expire and without providing a grace period," he said, in a statement. "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."
As expected, the decision drew applause from Verizon and SureWest Communications (Nasdaq: SURW), as well as RCN Corp. , a cable overbuilder based in Herndon, Va.
Verizon spokesman David Fish said: "We still need to obtain franchises in some areas and reach agreements with MDU owners to get into the building. But we're plowing ahead with great results so far."
The FCC ruling should also create some uniformity on the subject of MDU exclusivity, as 18 states -- including New York, Connecticut, Florida, Kansas, Illinois, and Minnesota -- already enlist mandatory access laws. However, some of these states treat the rules differently than others.
"In general, those laws will remain in effect," Fish says. "But it is likely that uncertainties in those states may be resolved by the FCC order. For states without laws addressing exclusive access contracts, the FCC's rule will step in to help consumers. At this point, it probably isn't possible to quantify the exact effect on consumers in Verizon's growing TV deployment area."
Fish said about a quarter of Verizon's access lines are in MDU environments.
The ban on exclusive MDU deals appears only to apply to larger cable operators. In making the ruling, the FCC noted that it has adopted a Further Notice that will seek comment on whether the agency should also address exclusivity clauses entered into by satellite TV providers, private cable operators, and other MVPDs (multichannel video programming distributors) that are not subject to Section 628.
That was a sore point for the National Cable & Telecommunications Association (NCTA) , the U.S. cable industry's chief lobbying arm.
NCTA senior VP Dan Brenner, in a prepared statement, said: "If eliminating exclusive contracts for some video providers is good for consumers, then it should have been applied to all providers."
Jim Honiotes, vice president and partner at Lynch Cable Resources Inc. , a Denver-area firm that negotiates MDU contracts for several top cable operators, said there are multiple facets of exclusivity to consider, and how the FCC is addressing them isn't entirely clear yet.
Some exclusive MDU contracts do not allow any other service providers on the property, although an earlier FCC ruling allows apartment dwellers to use satellite TV services. In other cases, the exclusive portion may only be tied to who is allowed to market video services on the property. And there's still the question about exclusive use of the home-run wiring in an apartment building.
"If the FCC rule says cable can't do anything exclusively, that's going to change the game entirely," Honiotes said. "It seems there are as many questions left unanswered as they [the FCC] did answer."
But, the ruling does appear to address exclusivity for access as well as marketing. "Similar to exclusive access arrangements, exclusive marketing arrangements between MVPDs and MDU owners may have the potential to have an anticompetitive effect in the video market," said FCC commissioner Jonathan Adelstein, in his statement on the matter.
The ruling also should have an effect on how MDU contracts are negotiated going forward, as some MSOs paid a pretty penny for the exclusive contracts they did manage to obtain. Because operators were able to lock in long-term deals, some were willing to rewire buildings with the knowledge that they would have a decade (or more) to recoup the investment. With the new FCC rules, operators will not be so inclined to sprinkle in such such deal-sweeteners in subsequent MDU contracts.
— Jeff Baumgartner, Site Editor, Cable Digital News, and Raymond McConville, Reporter, Light Reading