On February 15, 2022, the Federal Communications Commission (FCC) released a Report and Order (Order) that prohibits cable operators and other service providers from entering or enforcing agreements for exclusive or "graduated" revenue-sharing with owners of residential or commercial apartment buildings, condominiums, shopping malls, and other multi-tenant environments (MTEs, also known as multi-dwelling units, or MDUs). The Commission also adopted rules that require service providers to disclose to potential customers the existence of any exclusive marketing agreement with the property, although such agreements remain otherwise enforceable.
In addition, the Order clarifies that the Commission's existing rule governing cable inside wiring prohibits agreements by which an operator sells the wiring to the building owner and leases it back for the operator's exclusive use. The most common forms of bulk-billing arrangements, which do not specify revenue-sharing with the owner, are unaffected by the Order.
Background and Scope of Rules
The Order is the latest in a series of FCC orders over the last several decades that address competition for video, broadband, and telecommunications services in MTEs. Specifically, the Order resolves a series of questions the Commission raised in a 2019 Notice of Proposed Rulemaking and again in a September 2021 request to refresh the record.
The Commission's past actions include a 2007 prohibition on agreements that gave cable operators the exclusive right to provide service or otherwise access an MTE, and several orders and rules that require cable and telecommunications service providers to transfer ownership of inside wiring to the customer. The Commission previously considered the potential effects of revenue sharing agreements and exclusive marketing agreements on MTE competition for video, broadband, and telecommunications services but until now has declined to limit them.
As in its prior rulings on MTE competition, the new rules apply to multichannel video service providers (MVPDs), including cable operators and direct broadcast satellite services, and to common carriers. Any entity that is not already covered by the existing rules on MTE competition remains outside the scope of the rules: the Commission specifically declined to extend the rules to broadband-only service providers, noting "[w]e … will continue to monitor competition in MTEs to determine whether we should alter the scope of our rules to cover other providers … in response to any new information that comes to light."
Agreements for Exclusive or Graduated Revenue-Sharing Are Prohibited and Existing Agreements Will Be Unenforceable
The Order amends the FCC's existing rules to prohibit two types of revenue-sharing agreements between MTE owners and service providers.
First, the new rules prohibit any MVPD or telecommunications service provider from enforcing or entering into any agreement by which the provider obtains the exclusive right to provide the owner compensation in exchange for access to the MTE. Second, the new rules prohibit any such provider from entering into or enforcing any agreement by which it compensates the MTE owner on a "graduated basis," defined as any agreement under which the amount of revenue the MTE owner receives as compensation increases with the total number of tenants taking the service.
The new rules prohibiting service providers from entering into these types of revenue sharing agreements will go into effect 30 days after publication in the Federal Register. Covered service providers will not be able to enforce existing agreements for revenue sharing—meaning those agreements in existence on the date the new rules become effective—beginning 180 days after publication of the new rules in the Federal Register.
The new rules do not affect standard bulk billing agreements that have no graduated revenue sharing or exclusive access component. For example, agreements by which a provider delivers service to all or some units of an MTE for a set discount (or even graduated discounts) are unaffected by the Order, unless the agreement also calls for the service provider to share revenue with the MTE owner as a condition of exclusive access or on a graduated basis.
Exclusive Marketing Disclosures
Under the new rules, any MVPD or telecommunications service provider must disclose to prospective customers the existence of any agreement by which the provider has the exclusive right to market its service to tenants of the MTE. The disclosure must be included on all printed and electronic written marketing material directed at tenants or prospective tenants of the property and be "clear, conspicuous and legible."
Specifically, the provider must disclose:
- The existence of the contract, explaining the exclusive marketing arrangement in plain language;
- That the provider's exclusive marketing right does not mean that the provider is the only entity that can provide services to tenants; and
- That service might be available from other providers.
The disclosure requirements will apply to contracts that are already in place as well as new contracts entered after the effective date of the new rules. For new contracts, the FCC will enforce the disclosure requirements only after the Office of Management and Budget (OMB) approves or modifies the rules. For contracts in force as of the compliance date for new contracts, the new notice requirements will apply on the later date of OMB completion of its review of the rule or 180 days after publication in the Federal Register.
Sale and Leaseback of Inside Wiring
In a declaratory ruling issued with the Order, the Commission "clarified" that the existing rules governing the disposition of cable wiring in MTEs prohibit any arrangement by which a cable operator sells or otherwise conveys ownership of inside wiring to the MTE owner and then leases back the wiring for its exclusive use. The Commission reasoned that the existing rules already prohibit service providers from using their ownership of wiring to "to prevent, impede, or in any way interfere with" a resident's ability to use the wiring to receive an alternative service.
Notably, the clarification applies only to wiring owned by cable operators: the Commission's rules governing telecommunications inside wiring require common carriers to transfer control of inside telephone wiring to the MTE owner and to provide competitive carriers with non-discriminatory access to their wiring.
Court Upholds FCC's Expansion of OTARD Rule to Hub Sites
In a related matter, on February 11, 2022, the U.S. Court of Appeals for the District of Columbia upheld a recent Commission order which expanded its rule governing Over the Air Reception Devices (OTARDs) to cover antennas that act as hub sites or relays to other locations.
As initially enacted, the OTARD rule authorized the installation of antennas for the reception of video service (primarily antennas for satellite video service) on private property within the control of the resident and preempted all local restrictions, such as zoning, land-use, and homeowners' association rules and covenants with certain exceptions. The Commission had previously amended the OTARD rule to allow the use of an antenna to serve multiple customers but not antennas primarily designed as distribution hubs.
In 2021, the Commission expanded the rule to cover "hub and relay antennas that are used for the distribution of broadband-only fixed wireless services to multiple customer locations, regardless of whether they are primarily used for this purpose." The antennas must still satisfy other conditions of the OTARD rule.
Parties claiming physical sensitivity to radio transmissions had asked the court to overturn the Commission's new rule on various grounds. Among their claims were challenges to the Commission's authority under Section 207 of the Telecommunications Act of 1996, which required the Commission to enact the OTARD rule, and under Section 303 of the Communications Act, which generally authorizes the Commission to regulate radio transmission and antennas.
In Children's Health Defense v. FCC, the court rejected all challenges to the newly expanded OTARD rule. In an interesting passage, however, the court suggested the Commission was "on thin ice" with its preemption of local ordinances or contract provisions requiring property owners to provide notice to local governments or homeowners' associations before installing commercial-grade antennas. The court noted the First Amendment right of citizens to be informed about and perhaps object to a proposal to install a commercial antenna nearby their homes.
The FCC's latest actions further complicate the process of contracting for the provision of broadband and other services to MTEs. Davis Wright Tremaine LLP has significant experience in the application of the laws governing video, voice, and Internet service to MDUs. Please contact us if you would like further information.