The FCC has long prohibited exclusive contracts between providers of certain communications services and MTE owners that explicitly prohibit entry by competitors, but it has allowed other types of arrangements that competitors say impede competition. in the MTE market. In 2017, the FCC issued a Notice of Inquiry (2017 NOI) seeking comment on the current state of broadband competition in MTEs and asking how it could better support consumer choice and broadband deployment in these environments. He specifically asked about (1) revenue sharing agreements; (2) proprietary wiring arrangements; and (3) exclusive marketing agreements. The 2017 Notice of Intent was followed by a 2019 Notice of Proposed Rulemaking and a 2021 Public Notice seeking comments and updating the record regarding the same issues.
After reviewing the filing, the FCC issued the order adopting new rules prohibiting exclusive and incremental revenue-sharing agreements between telcos and multiple video programming distributors (MVPDs) and requiring providers to notify tenants the existence of exclusive marketing agreements. A declaratory ruling attached to the order clarified that existing rules prohibit sale-leaseback agreements between MVPDs and residential MTE owners because they essentially block competitive access to other providers. The rules adopted in the Ordinance apply to communications services provided by telecommunications operators in commercial and residential MTEs, and to MVPDs subject to section 628(b) of the Communications Act in residential MTEs. The Ordinance does not apply only to broadband providers.
Prohibition of certain revenue-sharing agreements
Exclusive revenue sharing agreements. The ordinance adopted rules that prohibit suppliers from entering into or enforcing two types of revenue-sharing agreements with MTE owners: exclusive revenue-sharing agreements and progressive revenue-sharing agreements. In an exclusive revenue-sharing agreement, a communications provider offers consideration to the MTE owner in exchange for access to the building and tenants and the MTE owner agrees that it will not accept similar payment from a other supplier. Since MTE owners would receive no compensation when tenants switch to a new supplier, MTE owners have an incentive to block new suppliers from entering the building, thereby reducing or eliminating consumer choice. The FCC has found that agreements that prevent other providers from sharing payments with the owner of the MTE are anti-competitive and are essentially exclusive access agreements.
Progressive revenue sharing agreements. The order also prohibits incremental revenue-sharing agreements, sometimes called “tiered” or “success-based” agreements, between suppliers and MTE owners. In a progressive revenue-sharing arrangement, a provider pays an MTE owner a percentage of revenue that increases as it serves more subscribers in the building. The larger a portion of the tenants a provider serves, the more money it pays to the MTE owner. Like exclusive revenue-sharing agreements, progressive revenue-sharing agreements financially incentivize MTE owners to prevent competing suppliers from gaining access to the building and its tenants.
The prohibition on exclusive and incremental revenue-sharing agreements does not distinguish between commercial and residential MTEs, and it will apply to both agreements that currently exist as well as new agreements entered into after the date of entry. into force of the ordinance. The ban on new agreements will go into effect 30 days after the order is published in the Federal Register, while the ban on existing contracts will go into effect 180 days after the order is published.
Required Disclosure of Proprietary Marketing Arrangements
Although the Order does not go so far as to prohibit exclusive marketing arrangements, it does require service providers to disclose the existence of any current exclusive marketing arrangements they have with an MTE owner. The FCC found compelling evidence to suggest that when only one company can advertise in an MTE building, tenants are often unaware they have access to other providers, which also negatively impacts competition. The order requires that disclosures must: (1) be included in all written marketing materials (electronic or printed) of the provider to tenants or potential tenants of the MTE; (2) identify the existence of the exclusive marketing arrangement and include a plain language description of the arrangement and what it means; and (3) be written in a clear, visible and legible manner. The disclosure requirement does not apply to general purpose marketing, such as online advertising or website promotions, which incidentally reaches tenants/potential tenants.
The disclosure must also explain in “clear, conspicuous, readable and conspicuous language” that the provider has the right to market its services exclusively to tenants of the building, and must explain that such right does not mean that the provider is the only entity that can provide communication services to tenants and only other providers may be available. Although the requirement applies to both existing and future exclusive marketing agreements, the requirement for existing agreements will not be applied until (1) the Office of Management and Budget (OMB) completes its review of the requirement in accordance with the Red Tape Reduction Act. , or (2) 180 days after publication of the order in the Federal Register. New arrangements must comply with the requirement as soon as the OMB has completed its review.
Prohibition of sale-leaseback agreements
The order also clarifies that existing FCC rules prohibit sale-leaseback agreements that block competitive access to other providers. A sale-leaseback agreement is an agreement whereby an incumbent supplier transfers ownership of its home wiring to a residential MTE owner who then leases it to the supplier on an exclusive basis. This practice takes the inside wire out of the hands of the incumbent provider while allowing it to continue to provide service to existing subscribers. However, the FCC points out that when an incumbent provider participates in a sale-leaseback agreement, it violates its obligation to take reasonable steps to ensure that another service provider has access to the home wire when a subscriber puts voluntarily terminate service with the incumbent operator. provider. Providers are also prohibited from interfering with a subscriber’s right to use the home wire to receive alternative services after the subscriber has voluntarily terminated service. However, sale-leaseback agreements allow providers to do just that when they transfer ownership of the cabling to the owner of the MTE while the cabling is still under the control of the incumbent provider.
The FCC clarifies that in order to avoid confusion caused by the passage of time, the prohibition on such sale-leaseback agreements will not apply to agreements entered into prior to the 2017 NOI.
Service providers and MTE owners should review existing agreements to determine if they may violate the new rules and determine how and whether severability or change of law clauses can be used to make necessary changes and minimize disruptions to trade agreements and the provision of services. to tenants.