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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 Davis Wright Tremaine LLP.
Our purpose in publishing this advisory is to inform our clients
and friends of recent legal developments. 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.
Copyright
© 2007, Davis Wright Tremaine LLP.
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