FCC adopts new regulation of telecommunications in multi-tenant environments

Recent developments from the Federal Communications Commission (FCC) signal a renewed focus on leveraging the blunt instrument of regulation to spur telecommunications competition in apartment buildings, shopping malls, and other commercial and residential properties with multiple occupants.  

On February 15, 2022, a unanimous, bipartisan FCC voted to approve a Report & Order and Declaratory Ruling (Order) that prohibits certain exclusive arrangements between telecommunications providers and multi-tenant environment (MTE) owners. The Order, more fully summarized below, would change current rules by:

  1. Prohibiting exclusive and graduated revenue sharing arrangements;
  2. Prohibiting sale-and-leaseback arrangements; and
  3. Requiring disclosure of exclusive marketing arrangements. 

How consequential these rule changes will be in practice remains to be seen. As a reflection of the diverse economic interests at stake, the proceeding drew unusually heavy participation from fiber and cable representatives, multi-tenant industry associations, state and local governments, consumer groups, and wireless carriers. Some players in this space worried that increased regulation may disrupt the revenue streams and investment-backed expectations of MTE owners and telecommunications providers. Indeed, the Order is not just forward-looking. The new restrictions will also apply to existing contracts, which affected parties will need to consider amending or restructuring. The FCC, for its part, expects that the Order will offer new opportunities for competitive providers to enter multi-tenant markets dominated by a single incumbent, in turn exerting downward price pressure on retail rates. In these respects, affected parties would be well advised to seek experienced regulatory counsel to understand the business opportunities and potential challenges ahead.   

From another lens, however, the FCC’s new rules are more modest than some might have hoped or feared—owing, perhaps, to the compromises necessary to overcome the agency’s current political deadlock of two Democratic and two Republican commissioners. As one example, the Order disavows the intention to expand the FCC’s jurisdiction over “broadband internet access services” (BIAS) that were largely deregulated under the Trump-era FCC’s rules. Historically, the FCC’s MTE rules have applied to multi-channel video programming distribution (MVPD) providers and “common carriers” like telephone companies. The FCC has also confirmed that the MTE rules cover providers that offer both BIAS and telephony/television. Some observers predicted that the current FCC might extend the MTE rules to providers that exclusively offer BIAS but do not provide regulated telephone or television services. Such an outcome, it was thought, might be part of a broader initiative of this Democratic-led FCC to reclassify BIAS as a highly regulated “telecommunications service.” In this Order, however, the FCC did not alter the scope of its MTE rules.  (¶¶ 13-15). 

The Order stays away from other hot-button issues. It does not blaze new trails on the question of whether and when FCC rules preempt state and local laws that regulate or deregulate telecommunications providers’ access to MTEs. Nor does the Order act on various topics floated earlier in this proceeding such as in the FCC’s 2019 Notice of Proposed Rulemaking or 2021 Public Notice. For example, the Order refrains from: restricting exclusive arrangements for the deployment of rooftop and distributed antenna systems; mandating access to wires, conduits, and closets within a building; and drawing regulatory distinctions between large and small MTEs. 

One should not assume, however, that the FCC has relegated these and other issues to the dustbin. Congressional approval of a third Democratic commissioner may free the agency from existing political constraints and enable it to embark on a more ambitious regulatory agenda to restrict the terms and conditions of arrangements between MTE owners and telecommunications providers. History also suggests that the Order will not be the last word on the issue. Since 2000, the FCC has increasingly restricted arrangements that give service providers exclusive access to MTEs.

With the FCC’s approval, the  Order will be published in the Federal Register, which typically takes anywhere from one to three months. Some of the new rules will become effective 30 days after Federal Register publication. Others, such as the disclosure requirements, will follow a longer timeline before they become effective. The date of Federal Register publication also triggers deadlines to file judicial appeals and petitions for agency reconsideration. Further activity on this score would not be surprising, given the Order’s probable financial impact to a wide range of interested parties.

Summary of New Rules

Prohibits Certain Revenue Sharing Agreements.  The Order adopted new rules prohibiting providers from entering into or enforcing two types of revenue sharing agreements:

  • Exclusive Revenue Sharing Agreements.  In an exclusive revenue sharing agreement, the communications provider pays the MTE owner for access to the building and its tenants, and prohibits the MTE owner from accepting similar consideration from any other provider.  Thus, an exclusive revenue sharing agreement allows a communications provider to prevent other providers from sharing payments with the MTE owner.  The Order found that exclusive sharing arrangements are anti-competitive and de facto exclusive access agreements.  (¶¶ 20-22). 
  • Graduated Revenue Sharing Agreements.  In a graduated revenue sharing agreement, sometimes known as “tiered” or “success-based” agreements, a provider pays an MTE owner a greater percentage of revenue as its penetration in the building increases.  The MTE owner’s compensation therefore scales proportionally with the number of tenants served by the provider.  Here again, the Order found that graduated revenue sharing agreements are anti-competitive and de facto exclusive access agreements.  (¶¶ 23-26). 
  • New and Existing Contracts. The ban on these revenue sharing practices extends to new and existing agreements.  For existing contracts with prohibited provisions, the ban will be effective 180 days after the Order is published in the Federal Register.  For new contracts, the ban will be effective 30 days after the Order is published in the Federal Register.  As a practical matter, the new rules mean that parties cannot enforce the prohibited provisions.  The FCC’s rules do not, however, necessarily void the entirety of such contracts.  (¶¶ 27-32).   

Requires Disclosure of Exclusive Marketing Arrangements.

  • Scope.  The Order defines an “exclusive marketing arrangement” as “an arrangement, either written or in practice, between an MTE owner and a service provider that gives the service provider, usually in exchange for some consideration, the exclusive right to certain means of marketing its service to tenants of the MTE.”  (¶ 34).   
  • Disclosure Locations.  Disclosures must appear on all electronic or print material from the communications provider that: (1) contains specific mention of the MTE; (2) is provided directly to the tenant or prospective tenant because of its relationship (or prospective relationship) to the MTE, regardless of the means by which it is provided (including, but not limited to, being sent via email, regular mail, mailbox insert, or door hanger); or (3) given to a third party, including the MTE owner, with the understanding it will be directed at tenants or prospective tenants of the MTE.  The disclosure doesn’t need to be made to the general public, the FCC, or competitors.  (¶ 37). 
  • Disclosure Language.  The disclosure must identify the existence of the exclusive marketing arrangement and include a plain language description of the arrangement and what it means.  The provider must disclose that it has the right to exclusively market its communications services to tenants in the MTE, that such a right does not mean that the provider is the only entity that can provide such services to tenants in the MTE, and that service from an alternative provider may be available.  The Order does not prescribe specific “safe harbor” disclosure language.   (¶¶ 38-39).   
  • Disclosure Format.  The disclosure must be “clear, conspicuous, and legible.”  Although the Order did not prescribe a specific form, it said the standard consumer-protection factors would be relevant:  font size, white space, typeface, formatting, and unambiguous language.  (¶ 40). 
  • New and Existing Arrangements.  The disclosure requirement applies to new and existing exclusive marketing arrangements.  For new arrangements, the FCC will enforce compliance after the Office of Management and Budget (OMB) completes its review of the new requirement pursuant to the Paperwork Reduction Act.  For existing arrangements, the FCC will enforce compliance on the later of these two dates: (1) when the OMB completes its review, or (2) 180 days after publication of the Order in the Federal Register.  (¶ 41). 

Clarifies that Sale-and-Leaseback Arrangements Are Prohibited. 

  • Scope.  The Order defines a sale-and-leaseback arrangement as “an arrangement whereby an incumbent provider conveys its inside wiring—typically both home and home run wiring—to a residential MTE owner and then leases it back on an exclusive basis.”  This definition extends to all conveyances, even those that are not technically “sales.”  (¶¶ 52, 59).
  • Legal Ruling.  The Order includes a declaratory ruling that sale-and-leaseback arrangements violate two FCC rules.  First, they violate 47 CFR § 76.802(a)(2), (j), which obligates providers to take reasonable steps to ensure that an alternative service provider has access to the home wiring at the demarcation point following a subscriber’s voluntary termination of service.  Second, they violate a separate part of 47 CFR § 76.802(j), which prohibits providers from using their ownership interests in the subscriber’s property to interfere with the subscriber’s right to use its home wiring to receive an alternative service following the subscriber’s voluntary termination of service.   (¶¶ 47-59). 
  • Recent Sale-and-Leaseback Arrangements Targeted.  Although the FCC does not expressly grandfather older arrangements, the Order makes clear that the FCC “will focus [its] scrutiny on sale-and-leaseback arrangements entered into after the [FCC] began examining this practice in the” June 2017 MTE Notice of Inquiry.  (¶ 60). 
  • Effective Date.  The prohibition on sale-and-leaseback arrangements will become effective 30 days after the Order’s publication in the Federal Register.  (¶ 69).

 

Authored by Arpan Sura.

 

 

 

 

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