FCC Declares Exclusive Access Agreements Between Multichannel Distributors and Multiple-Dwelling Units Unenforceable
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.