NMHC Notebook: TV Interference

NMHC Notebook: TV Interference
Published: December 03, 2007

By Betsy Feigin Befus VP, Employment Policy & Special Counsel, NMHC/NAA Joint Legislative Program

In March of this year, the Federal Communications Commission (FCC) requested public comments on whether the Commission should regulate exclusive contracts between multifamily communities and providers of video services, including cable television companies.

In response, the National Multi Housing Council (NMHC), National Apartment Association (NAA) and a coalition of national real estate groups allied under the banner of the Real Access Alliance (RAA) explained to the FCC why exclusive contracts should not be banned. Unfortunately, on Oct. 31, the FCC formally voted to retroactively prohibit these agreements.

The FCC's decision appears to be in response to claims by some large telecommunications firms that have recently begun to provide video services to apartment building residents that exclusive contracts obstruct competition—and, therefore, their ability to enter this market. But the truth is that apartment owners have long used exclusive contracts to leverage their bargaining power with video companies to provide better service and lower prices to residents. In exchange for exclusive access to an apartment community for a limited term, cable companies have offered lower fees, expanded products and higher service standards.

The case for exclusive contracts

An exclusive contract is an agreement between a video service provider and an apartment owner that gives the service provider some form of exclusive right on the property.

There are generally three types of exclusive agreements. "Exclusive access" contracts grant a service provider the exclusive opportunity to offer services or to install its infrastructure on the property. An "exclusive marketing" agreement grants an exclusive privilege to market services on the property. (Under these agreements, other providers have the ability to serve residents, subject to an agreement with the property operator, but the exclusive provider has special marketing opportunities on the property.) Finally, if the property owner also owns the wiring that's used to deliver video services on the property, the owner may grant a provider the exclusive right to use them. Any competing service provider would have to install additional wiring. (It's important to note that at this point, the FCC has banned only the enforcement of exclusive access agreements; exclusive marketing and bulk billing agreements are still allowed—for now. The Oct. 31 announcement included the Commission's plan to examine whether those agreements should also be banned.)

In exchange for granting exclusivity, the apartment owner can obtain benefits for apartment residents, including commitments for improved service or network upgrades and lower rates. Owners may also negotiate compensation to defray infrastructure costs or for marketing services on behalf of the service provider.

Thus, exclusive contracts benefit both the apartment resident and the apartment owner. Exclusive contracts can benefit smaller video service providers as well, by allowing them to get a foothold into a market that has traditionally been dominated by several mammoth providers.

The bottom line

Simply put, the FCC's decision to ban exclusive access agreements is without legal authority and the reasoning upon which it is based is erroneous. The ban on exclusive access agreements will damage the multifamily video market and the apartment residents that the Commission purports to protect.

The Commissioners asserted that banning exclusive contracts will encourage competition in the multifamily video market for the benefit of apartment residents, offering a choice among providers and eventually bringing down prices. Both assumptions reveal the FCC's misguided thinking regarding the perceived harm of exclusive access agreements and a misunderstanding of how the multifamily video services market works. Residents may well end up with deteriorating service and programming, and paying more for video services as a result of the FCC decision.

In our comments and visits to the FCC, NMHC/NAA and the RAA argued that there is no market breakdown due to exclusive access agreements that requires government intervention. We explained that exclusive contracts actually advance the FCC's goal of expanding broadband access by enabling video providers to recover investments in new and upgraded infrastructure that would otherwise be cost prohibitive.

The permissibility up to this point of exclusive access contracts has resulted in new or enhanced cable service for consumers by enticing cable companies to invest their infrastructure in exchange for ensuring a sufficient return on that investment. In some areas, the ban on these contracts will mean that cable companies no longer have the financial incentive to invest in certain markets or in smaller apartment communities.

Finally, the RAA said the FCC lacks legal authority to directly regulate the real estate industry, nor does it have the power to interfere with agreements between owners and cable operators.

Just four years ago, the FCC agreed that exclusive access agreements in the multifamily industry could actually encourage competition. In fact, when the FCC banned exclusive contracts between commercial building owners and video providers in 2000, it specifically excluded apartments. Frankly, other than complaints from a few very large and extremely influential telecommunications firms, we don't understand what could have changed since then to make the FCC reverse its own decision.

To comment on this article, contact Diana Mosher, editor-in-chief, at dmosher@multi-housingnews.com