Client Alert

On March 27, 2007, the FCC issued a Notice of Proposed Rulemaking regarding the use of exclusive contracts for the provision of video services to Multiple Dwelling Units ("MDUs") and other real estate developments. Comments are due on June 18, 2007, and reply comments are due on July 18, 2007. As always, if you have any questions or need additional information, please contact us.

Although it is impossible to tell for sure, the proceeding appears to have been initiated in response to requests from Verizon and AT&T, both of whom are aggressively rolling out video services. Both Verizon and AT&T have complained that the prevalence of exclusive contracts between real estate owners and existing video providers have harmed their ability to deploy their video services.

The FCC seeks comment regarding whether and to what extent: (i) exclusive contracts limit competitor access to MDUs and other real estate developments for video services; (ii) the FCC has authority to regulate such exclusive contracts; and (iii) FCC action is needed to ensure that competitive providers have reasonable access to MDUs and other real estate developments for video services. A summary of the specific questions presented follows.

I. Whether And To What Extent Exclusive Contracts Limit Competitor Access to MDUs For Video Services

The FCC seeks comment on a number of issues related to the current environment for Multichannel Video Programming Distributors ("MVPDs") attempting to obtain access to MDUs or other real estate developments. Specifically:

• To what extent do exclusive contracts impede the realization of the FCC’s policy goals? 
• How often have competitive entrants confronted exclusive access agreements, what are the terms of those agreements, and are those agreements becoming more prevalent? 
• What affect has the FCC’s past regulation had on the multichannel video marketplace and what affect have FCC rules had on consumers who live in MDUs or other real estate developments? • What is the current status of state mandatory access laws and what impact do they have on the issues raised herein?
  • Whether MVPDs seek exclusive contracts in an effort to frustrate competitive entry. Do incumbent providers use the time during which new entrants are negotiating local franchises in order to obtain exclusive contracts?
  • Whether, in today’s market, exclusive contracts benefit new entrants, incumbent providers, or both?
  • Whether the video providers entering into such exclusive contracts would be unable to provide service to MDUs or other real estate developments absent the protections afforded by exclusive contracts?

II. Whether And To What Extent The FCC Has Authority to Prohibit the Use of Exclusive Contracts

The FCC tentatively concludes that it has authority to regulate exclusive contracts for the provision of video services to MDUs or other real estate developments where the FCC finds that such contracts may impede competition and impair deployment of those services. Related to this tentative conclusion, the FCC seeks comment on the following:

• Whether the FCC has authority under Section 628(b) of the Communications Act of 1934 and Section 706 of the 1996 Telecommunications Act to regulate exclusive contracts for the provision of video services to MDUs and other real estate developments? 
• Whether the FCC has authority under Section 623, Section 1, Section 4(i), and Section 303(r) of the Communications Act of 1934 to this issue as well as other provisions that may provide us with authority to regulate exclusive contracts? 
• How should the FCC define what constitutes “unfair methods of competition or unfair or deceptive acts or practices” under Section 628(b) of the Communications Act? 
• Does Section 706 provide the Commission authority to address competitive concerns relating to exclusive contracts? 
• Does the Commission have authority to regulate only exclusive contracts entered into after the effective date of the regulations or could it declare existing exclusive contracts void or voidable? 
• Does the Commission have authority to regulate exclusive contracts entered into by MVPDs other than cable operators? 
• What is the affect of state mandatory access laws or other statutory or constitutional considerations on the FCC's authority to regulate exclusive contracts for the provision of video services?

III. Whether FCC Action Is Needed to Ensure Competitive Video Access to MDUs

The FCC also seeks comments in a number of areas regarding whether FCC action is needed to ensure competitive video access to MDUs and other real estate developments. Specifically, the FCC asks:

• What is the affect of state mandatory access laws or other statutory or constitutional considerations on the FCC’s authority to regulate exclusive contracts for the provision of video services? 
• Does the existence of exclusive contracts within a community reduce the likelihood of competitive entry in the community? 
• What are the typical durations of existing exclusive contracts? 
• Are the costs associated with providing service to MDUs or other real estate developments significantly more than the costs of providing service in other areas?
• Is there more risk associated with serving these types of developments? Are the marketing costs higher in these areas? Is customer churn higher? 
• How do the prices and services offered under the exclusive contracts compare to those offered to other customers? 
• Are additional payments made to or by the MVPD in return for exclusive contracts?
• Do existing exclusive contracts provide the MVPD with a right of first refusal when renegotiating the contract? 
• To the extent that some exclusive contracts can be pro-competitive and benefit consumers, we seek comment on those circumstances. 
• If the Commission determines that it would serve the public interest to regulate exclusive contracts, we seek comment on how we should regulate such contracts. 
• Should the Commission limit exclusive contracts only where the video provider at issue possesses market power? 
• If so, how should the FCC define "market power"? 
• Does the competitive impact of exclusive contracts differ depending on whether a competing terrestrial MVPD was able to provide service to the MDU or other real estate development at the time the exclusive contract was negotiated? 
• Are "perpetual contracts"¹ currently being executed? 
• If so, are perpetual contracts anti-competitive, as they effectively bar any competitive entry, or are there instances in which the use of perpetual contracts does not impede our policy goals of enhanced cable competition and accelerated broadband deployment? 
• Does the Commission have authority to nullify or otherwise regulate perpetual contracts. 
• Should the FCC establish explicit rules to which contracting parties must adhere or specific guidelines for MVPDs?

Womble Carlyle's Communications Attorneys

Howard J. Barr
Ross A. Buntrock (202) 857-4479
John F. Garziglia (202) 857-4455
Peter Gutmann (202) 857-4532
Michael B. Hazzard (202) 857-4540
Mark J. Palchick (202) 857-4411
Michael H. Shacter (202) 857-4494
Gregg P. Skall (202) 857-4441

1The FCC defines "perpetual contracts" as contracts that grant the incumbent provider the right to maintain its wiring and provide service to the MDU for indefinite or very long periods of time, or for the duration of the cable franchise term, and any extensions thereof.