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Home / Articles / Are the FCC’s Inside Wiring Rules Still Relevant? Part I: Home Run Wiring Rules
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Are the FCC’s Inside Wiring Rules Still Relevant? Part I: Home Run Wiring Rules

The extent to which the FCC rules are useful in today's competitive MDU environment  January 2011

A lot has happened since the FCC's inside wiring rules were first promulgated in 1996. Notably, the market for MDU property access has become much more competitive, which was the Commission's goal from the beginning. Today, it is not at all uncommon for two or more broadband providers, each offering multiple communications services, to co-exist at an apartment or condominium community competing for subscribers. The extent to which the FCC wiring rules have contributed to the growth of competition is debatable, but also beside the point: government regulations exist to correct market failures, and when the market is competitive, the effectiveness of legacy regulations need not be debated. The question raised in this two-part article concerns the extent to which the FCC rules are useful in today's competitive MDU environment, and to suggest some strategies by which property managers may leverage existing rules to enhance competition at, and therefore the value of their MDU assets.

The FCC's wiring rules are based on the recognition that the coaxial cable wiring infrastructure inside a residential multi-dwelling unit building cannot be easily or cost-effectively replicated by a would-be competitor to the incumbent cable television operator using that wiring to serve residents. Therefore, without regulatory intervention, the incumbent provider has an irreducible advantage over potential rivals, and competition never gets off the ground. The FCC's inside wiring rules attempt to address this circumstance by mandating that in certain circumstances the incumbent cable company may be compelled to cede ownership and control over existing wiring infrastructure to the property owner, the cable television subscriber, or an alternative provider of video programming services.

The FCC rules apply to two categories of coaxial cable inside wiring: home run wiring and cable home wiring. Separate rules apply to each category of wiring.

The FCC defines home run wiring as "the wiring from the demarcation point to the point at which the MVPD's wiring becomes devoted to an individual subscriber or individual loop." The rules governing the disposition of home run wiring are found at 47 C.F.R. § 76.804.

By contrast, cable home wiring is "the internal wiring contained within the premises of a subscriber which begins at the demarcation point." The rules governing cable home wiring are found at 47 C.F.R. § 76.802.

In this Part I, we identify some of the problems associated with a property owner's use of the home run wiring rules. In Part two, we will suggest ways in which MDU owners may use the FCC's home wiring rules to facilitate competitive access to existing infrastructure while avoiding some of the problems identified in Part I.

1. Slow and Complicated

Although the FCC has devoted considerable effort over the years to drafting and amending the home run wiring rules in response to changing market conditions, it does not appear from this author's perspective that these rules are widely used by MDU property owners in the marketplace. There may be several explanations for this: First, the rules are complicated and time-consuming in their application. Second, it remains unclear if and how the rules apply when, as is now almost universally the case, the same coaxial cable wiring is being used to deliver multiple communications services in addition to video programming. Third, the rules are easily circumvented by the allocation of rights in an agreement between the property owner and the incumbent cable operator. These difficulties are briefly summarized below.

The home run wiring rules are subdivided into the "building by building" rules and the "unit by unit" rules.

The building by building rules apply where the incumbent cable operator owns the home run wiring, and does not have a "legally enforceable right to remain" on the premises – i.e., where the incumbent cable provider has no ongoing contractual right to access the MDU property, and the property is not subject to a state or local mandatory access law.

The unit by unit rules apply where the incumbent cable operator owns the home wiring and "does not ... have a legally enforceable right to maintain any particular home run wire dedicated to a particular unit on the premises against the MDU owner's wishes ..." The unit by unit rules may be used by a property owner to facilitate competition among several video providers in a building with only one set of home run wires; the FCC rules are designed to allow the owner to force the incumbent to share the existing wiring.

Regardless of which method is used, using the FCC's procedures to gain control over home run wiring can be complicated and time-consuming.

The building by building procedure requires that the property owner give the incumbent cable operator a minimum of 90 days notice of intent to invoke the rule; the incumbent then has 30 days after receipt of the notice in which to elect to sell, abandon or remove all the home run wiring in the building. The wiring must be disposed of according to the incumbent's election within 30 days after the end of the 90-day notice period. Thus, even if the incumbent cooperates, the rules contemplate four month transition phase.

The unit by unit procedure requires that the property owner give the incumbent 60 days notice; as with the building by building procedure, the incumbent has 30 days after receipt of notice in which to make a single election whether to sell, abandon or remove each home run wiring dedicated to a unit terminating the incumbent's cable service. If the incumbent elects to sell the wiring to the MDU owner, the parties have 30 days after the date of election in which to negotiate a sale price, and if there is no agreement on price, the matter may be referred to binding arbitration. Assuming incumbent cooperation, the unit by unit rules allow for a transition period of at least two month.

Under either procedure, the incumbent may delay the transfer of control by electing to sell the home run wiring and haggling over the price, or the incumbent may stop the process altogether simply by threatening to remove the wiring as it is entitled to do under the FCC rules. Although few providers actually remove home run wiring, the mere threat to do so is often enough to cause the property owner to cause the property owner to reconsider any strategy based on the FCC's home run wiring rules.

In addition, it is relatively easy for the incumbent to throw a wrench into the machinery from the outset, simply by asserting, more or less credibly, that the rules don't apply – for example, because, the incumbent retains a "legally enforceable right" to remain on the premises (in the case of the building by building rules) or to maintain a particular run of home run wiring notwithstanding the subscriber's intended termination of the incumbent's cable service. An incumbent's insistence that the rules do not apply, even if legally groundless, forces the property owner into the uncomfortable position of choosing among several bad options, such as going to court for a declaratory, or using "self-help" remedies to force relinquishment of control over wiring. The former option is expensive and time-consuming, and the latter option may expose the property owner to legal claims for damages based on breach of contract and/or on torts such as trespass and conversion.

2. Use of home run wiring for multiple services

A second reason why property owners may be reluctant to utilize the FCC's home run wiring rules is that the rules are based on the assumption that discrete communications services are delivered over specific kinds of internal wiring – video signals are delivered over coaxial RG6 cable wiring, and voice services over copper twisted pair CAT5 wiring. The FCC is well aware of the issues raised by the existence of dual regulatory regimes governing video and telephony wiring. For example, in a 1997 Report and Order, the Commission stated:

In the Inside Wiring Notice, we recognized that cable companies and telephone companies operate under different regulatory frameworks. We indicated that as technology advances to permit the delivery of cable and telephone services over the same wire, and as single companies develop the capacity to deliver both of these services, confusion might arise as to which regulatory scheme would be applicable. We sought comment on whether and how to harmonize the dual systems of regulation governing cable and telephone companies where broadband or multiple services are provided over a single wire or multiple wires... Based on the current record, it appears that service providers will continue to use separate inside wiring to provide cable and telephone service for at least the near future. If and when circumstances have changed, we will revisit this issue with the goal of creating a single set of inside wiring rules.

In the age of convergence – by definition – use of a single wire for the distribution of multiple signals is the rule, not the exception. When services converge on multi-purpose wire but regulatory regimes remain separate, conflicts can arise, as shown in the FCC's treatment of the all-important concept of a wiring "demarcation point."

The demarcation point is the point at which control over, and responsibility for, in-building wiring shifts from the provider to (on the subscriber's side of the demarcation point) the subscriber. The FCC has determined separate demarcation points for wiring used for separate services; the demarcation point for video wiring is specified in 47 C.F.R. § 76.5(mm), and designates a location entirely different from that specified as the demarcation point for telephone wiring according to 47 C.F.R. § 68.105. Moreover, the respective legal rights and duties of the provider, the MDU owner and the subscriber under the video wiring rules are very different from those established under the telephony wiring rules. Finally, the FCC classifies high-speed Internet access as an unregulated "Information Service" under Title I of the Communications Act; there are no rules governing the in-building wiring used to deliver Information Services, and there is no demarcation point for such wiring.

The existence of multiple demarcation points raises the question: Where is the demarcation point for coaxial cable wiring that is used to provide video, telephone and high-speed data services to residents of an MDU building? This question may be important because the demarcation point is the point at which the incumbent provider's control over wiring ends, and where an alternative provider may access the wiring. Doubt over the location of the demarcation point may complicate application of the FCC's home run wiring rules in a circumstance such as the following:

As mentioned above, the unit by unit rules may be invoked where the incumbent cable operator "does not ... have a legally enforceable right to maintain any particular home run wire dedicated to a particular unit on the premises against the MDU owner's wishes ..." But under what circumstances does the incumbent have a "legally enforceable right to maintain" a particular strand of wiring?

Suppose that the owner of an apartment building, wishing to provide tenants with a choice among video providers, invites a DBS provider on the property. A significant portion of residents have indicated their preference for satellite services over the incumbent's cable package. However, a number of those would-be DBS customers wish to retain the cable company's Internet access service, perhaps due to the inconvenience of establishing a new email address, or because the satellite provider does not offer a data service. When the property owner attempts to invoke the FCC's unit by unit home run wiring procedures, the incumbent responds that the procedures do not apply because the incumbent retains a right to "maintain" and use the wiring to provide Internet access service to subscribers.

Presumably, the Commission's words describing the predicate for application of the rule (i.e., the incumbent does not have a "legally enforceable right to maintain any particular home run wire ...") were chosen based on the following assumption: When an MDU resident chooses to terminate the incumbent cable operator's video service in favor of a competitor's, the incumbent loses its "legally enforceable right to maintain" the particular home run wire dedicated to that resident's unit. In other words, those who drafted the rule probably did not contemplate the dual use of home run wiring to deliver services other than video programming.

Does the fact that the wire is also being used to provide the resident's voice and/or Internet service imply that the incumbent retains a right to "maintain" the wiring, such that the unit by unit rules cannot be used to facilitate competitive entry by an alternative video provider? The lack of a clear answer to this question creates uncertainty in the marketplace, which may deter property owners from utilizing competitive strategies that rely on the FCC's home run wiring rules.

3. Contractual Waiver of FCC Rules

A third reason why the FCC's inside wiring rules are not widely used is that they are easily circumvented by contractual provisions. Recall that the home run wiring rules apply only when the incumbent cable operator owns the home run wiring, and the rules do not preempt state contract or property law. If the incumbent's right of entry agreement with the owner specifically addresses the disposition of home run wiring upon the termination of service, specifies that the FCC rules do not determine the disposition of home wiring, or provides that the wiring is the property of the building owner, the FCC procedures do not apply.

In late 2007, the FCC retroactively and prospectively prohibited the enforcement of exclusive service agreements between multi-channel video providers (other than satellite television providers) and MDU owners. The "Exclusivity Order" was issued primarily to allow MDU owners locked into long-term exclusive access agreements with cable operators to open up their buildings to competition from telephone companies entering video programming markets.

However, even after the Exclusivity Order became effective, owners and providers can in practice establish exclusive arrangements, and the financial benefits associated with exclusivity, by erecting contractual barriers to competitive entry. The most common method of conferring de facto exclusivity on a chosen provider is by specifying in the right of entry agreement that the existing inside wiring is owned by the property owner (regardless of who paid for and installed the wiring), but exclusive use of that wiring is granted to the provider. The effect of this kind of contractual provision is twofold:

First, because it not practically or economically feasible to install a second run of inside wiring, a provider who retains exclusive control over the existing wiring is usually the exclusive provider in the building.

Second, because the inside wiring is owned by the property owner rather than the provider, the owner may not utilize the FCC's home run wiring rules to facilitate competitive entry by an alternative video provider, even if competition is desired after the agreement is executed.

A contractual provision vesting ownership of inside wiring in the property owner, while granting exclusive use to a particular provider, in effect ensures that the designated provider will remain the exclusive provider at the property and thereby circumvents the purpose of the FCC's video exclusivity order cited above. Insofar as the exclusivity order is intended to promote competitive access to MDU properties, exclusive grants of wiring usage may be used to undermine the pro-competition policies the FCC seeks to implement by means of the wiring rules and the Exclusivity Order. Thus, the ease with which contractual language may nullify the applicability of the FCC rules provides a third explanation for their relative disuse, even after issuance of the Exclusivity Order.

In this Part I, I have attempted to summarize some of the main difficulties that face MDU property owners who wish to utilize the FCC's home run wiring rules in order to facilitate access to existing in-building wiring by alternative video providers. These difficulties explain why those rules are not used more often, and they suggest that the rules themselves may not be especially relevant as we move into the future. In Part II of this article, I will outline some strategies by which a property owner may leverage other FCC rules (specifically, the rules for cable home wiring) to achieve the same competitive goals while skirting some (but not all) of the problems identified in Part I.

 

All articles published in Broadband Communities magazine (www.bbpmag.com)

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