Communications Advisory Bulletin
FCC Declares Exclusive Access Agreements Between
Multichannel Distributors and Multiple-Dwelling Units Unenforceable
By Maria
T. Browne and Brigham
John Bowen
[November 2007]
On Nov. 13, the FCC published its anticipated Report and Order
and Further Notice of Proposed Rulemaking (FNPRM) declaring exclusive
physical access clauses in multichannel video programming distributor
(MVPD) agreements with multiple-dwelling units (MDUs) unenforceable.
The Order, which reverses the FCC’s 2003 decision permitting
such exclusive arrangements, relies heavily on what it describes
as a changed market-place—principally on the large scale entry
of incumbent local exchange carriers (ILECs) into the video business
and triple-play bundling—to justify its new position.
The Order also concludes, based largely on the comments submitted
by ILECs, that exclusive MDU agreements disproportionately impact
low-income and minority residents of MDUs, and concludes that exclusive
agreements were made less to provide beneficial bargained-for benefits
to landlords and MDU residents than to firm-up incumbent MVPDs’
market share. The Commission largely ignored evidence that these
agreements facilitated investment in technology and infrastructure,
and determined that on the whole, the drawbacks of such agreements’
impact on competition outweigh the benefits they provide.
Significantly, the Order expands the Commission’s previous
definition of MDUs, and applies its prohibition not only to condominiums
and apartments, but also to “centrally managed real estate
developments” such as gated communities, mobile home parks,
and garden apartments characterized generally by long-term residency.
Time-share units, halfway houses, hospitals, nursing and assisted
living facilities, academic campuses and dormitories, military bases,
hotels, rooming houses, and jails are not covered by the new prohibition,
though ILECs, their affiliates, and other entities covered by Section
628 are subject to the Order.
As expected, the Commission declined to prohibit Direct Broadcast
Satellite (DBS) exclusive access agreements, but issued a Further
Notice inviting comment regarding these agreements, as well as regarding
exclusive marketing and bulk billing agreements, which also are
not prohibited under the new rule. “Wire exclusivity”
agreements which do not prohibit all forms of access to a given
property likewise are excluded from the Order’s scope.
The Commission bases its authority to issue the Order on Section
628(b) of the Cable Act, 47 U.S.C. § 548(b), asserting that
it may take action to prohibit all unfair competitive practices
that affect the delivery of programming and not just those related
to programming access, as well as on its ancillary Title I and Title
III authority. It also determines that the Order, which abrogates
existing contracts, does not result in a regulatory taking, downplaying
the impact on MVPDs’ businesses and investment-backed expectations.
The Order will be effective 30 days from its publication in the
Federal Register, publication of which could take place any time
within the coming few weeks. It is expected that the cable industry
will likely appeal the decision in court. Comments and Reply Comments
in the FNPRM are due 30 and 60 days after publication in the Federal
Register respectively, and the FCC promises an Order in that proceeding
within six months.
For more information, please contact:
This advisory is a publication of the Communications Group of Davis
Wright Tremaine LLP. Our purpose in publishing this advisory is
to inform our clients and friends of recent developments in the
communications industry. It is not intended, nor should it be used,
as a substitute for specific legal advice as legal counsel may be
given only in response to inquiries regarding particular situations.
Attorney advertising. Prior results do not guarantee a similar outcome.
Copyright
© 2007, Davis Wright Tremaine LLP.
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