February 17, 2022

FCC Acts to Prohibit Exclusive Service and Wiring Arrangements in Office, Condominium, and Apartment Buildings

4 min

Yesterday, the FCC modified its building inside wiring rules governing service provider access to apartment, condominium, and office buildings, otherwise known as multi-tenant environments or multiple dwelling unit buildings (MTEs). Note that in particular circumstances these rules can also apply to private real estate developments, trailer parks, and planned community developments located on private land.

Some background: Starting in 1993 FCC wiring rules have prohibited certain exclusive agreements between telecommunications providers and mul­tichannel video programming distributors and MTE building owners that grant the provider exclusive access to and rights to provide service to an MTE. Underpinning those rules is an FCC policy that exclusive access and service contracts harm competition and consumers by limiting service choice in MTE buildings.

Nonetheless, the rules had always made compromises that opened loopholes creating avenues to de facto exclusivity, and those loopholes were widely and creatively exploited. Over time, those loopholes have gradually been closed, and here the FCC takes its latest step to advance that closure.

Yesterday's Report and Order and Declaratory Ruling modifies the FCC's inside wiring rules to:

  1. Prohibit telecommunications carriers in commercial and residential MTEs and most multichannel video programming distributors in residential MTEs from entering into exclusive or graduated revenue-sharing agreements with building owners.
    • The rules do not apply to broadband or Internet service only providers.
    • Prohibited exclusive revenue-sharing agreements are agreements where the communications provider first offers the MTE owner consideration in return for the provider obtaining access to the building and its tenants, and then prohibits the MTE owner from accepting similar consideration from any other provider or otherwise prevents other providers from sharing payments with the MTE owner.
    • Prohibited graduated revenue-sharing agreements are "tiered" or "success-based" agreements where a provider pays an MTE owner a greater percentage of revenue as its penetration in the building increases. As a provider serves more tenants in an MTE, the MTE owner receives a greater level of compensation for each tenant, and thus more compensation overall on a pro rata basis.
    • The rules apply both to agreements signed after the effective date of the rules and those already in place (existing con­tracts will have 180 days after Federal Register publication to come into compliance). In other words, the rules prohibit providers from both (1) executing new exclusive or graduated revenue-sharing agreements, and (2) enforcing existing agreements on a going-forward basis.
    • The rules invalidate only the specific clauses conferring exclusivity. Where an exclusive marketing arrangement or revenue-sharing clause is part of a larger contract, only the clause is invalidated with the remainder of the contract left unaffected.
  2. Require providers to comply with a consumer disclosure requirement for any exclusive marketing agreements, including "in plain language" disclaimers on marketing materials directed at MTE tenants that inform them of the existence of any exclusive marketing arrangements.
    • The required disclosure must (1) be included on all written marketing material from the provider directed at tenants or prospective tenants of the affected MTE; (2) identify the existence of the exclusive marketing arrangement and include a plain-language description of the arrangement and what it means; and (3) be made in a manner that it is clear, conspicuous, and legible.
    • The term "written marketing material" includes all electronic or print material.
    • Written marketing material does not include general-purpose marketing material that incidentally reaches tenants or prospective tenants (e.g., general area media or online advertising, website promotions).
    • Written marketing material is "directed at" a tenant or a prospective tenant of an MTE if it (1) contains specific mention of the MTE; (2) is provided directly to the tenant or prospective tenant because of its relationship (or prospective relationship) to the MTE, regardless of the means by which it is provided (including, but not limited to, being sent via email, regular mail, mailbox insert, or door hanger); or (3) is given to a third party, including the MTE owner, with the understanding it will be directed at tenants or prospective tenants of the MTE.
  3. Prohibit sale-and-leaseback or IRU-type arrangements between video providers and residential MTE owners whereby an incumbent provider conveys ownership of building wiring, usually after construction or rebuild, to the MTE owner and then leases it back on an exclusive basis for a long term or even in perpetuity.

The FCC wiring rules remain surprisingly complex, and providers should take caution before hastily reacting or changing their contractual relationships with property owners.