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MDU Owners Can Hit a Home Run

Where's the demarc? The FCC may have ordered an end to video exclusivity, but franchise operators still have some leverage over MDU property owners – unless they know about another FCC rule, the Sheet Rock Order.   July 2008

Worried about your video deals in light of the FCC's recent Exclusives Order banning exclusive service agreements between video providers and owners of multiple-dwelling unit buildings? The FCC sought to facilitate competitive entry into MDUs by alternative video providers. The order (now under appeal by the cable and apartment industries) applies both prospectively to bar the formation of new exclusive service agreements, and retroactively to bar the enforcement of exclusivity clauses in existing service agreements.

This article explains how owners may, in some circumstances, take advantage of this opportunity by way of a less well known FCC order dealing with the location of the "demarcation point" for cable's inside wiring.

A Scenario: Bringing in Competitive Providers

Consider this circumstance: In 2005, an MDU owner signed an exclusive ten-year service agreement with a franchised cable operator (the "MSO"). Now the owner wishes to take advantage of the FCC's Exclusives Order to bring in a competing video provider (perhaps a private cable operator distributing direct broadcast satellite programming, or a telephone company in the video business, both referred to in this article as "PCOs"). While the Exclusives Order doesn't authorize the owner to terminate the MSO's contractual right to serve its resident-subscribers, it does allow the owner to contract with the alternative provider, who will compete head-to-head with the MSO and thus provide residents with a choice.

Also assume that the alternative provider will only agree to invest in the building on condition that it have access to the existing wiring leading from the junction boxes to the individual units (the "home run wiring") as well as the in-unit wiring (the "cable home wiring"). However, the incumbent MSO refuses to share any wiring; the contract gives the MSO ownership and control over all inside wiring for the duration of the agreement, and also allows the MSO to remove the wiring upon termination or expiration of the agreement.

This would seem to be a quintessential occasion for the owner to invoke the FCC's "unit-by-unit" home wiring rules (found at 47 C.F.R. § 76.804(b)), which allow the owner to force the incumbent video provider to (1) sell, (2) abandon, or (3) remove every segment of home run wiring that leads to a resident who prefers a PCO's service over that of MSO, in order that those home run wires can be made available for PCO's use.

The MSO, however, rejects the owner's attempt to invoke the unit-by-unit rules, and raises the following three objections:

  1. The FCC rules do not apply at all because the service agreement gives MSO the right to control and maintain all the inside wiring. Therefore, one requirement for application of the unit-by-unit rules (that the incumbent have a "legally enforceable right to maintain any particular home run wire dedicated to a particular unit ... against the MDU owner's wishes ...") is missing, and the rules do not apply.
  2. The FCC rules do not apply because the service agreement specifically addresses the disposition of home run wiring, by giving the MSO the right to remove that wiring upon termination of the MSO's service. In its 1997 Report and Order, the Commission was careful to emphasize: "Where the parties' contract clearly and expressly addresses the disposition of home run wiring, our procedures will not apply." Even if the unit-by-unit rules do apply, the FCC-mandated procedure gives the incumbent the option to remove the home run wiring, and that is what the MSO intends to do, rather than make it available for use by a competitor.

The MSO adds that it would certainly rather invest tens of thousands of dollars in legal fees than give up one inch of wiring to the PCO.

A Solution: The Sheet Rock Order

Each of the MSO's three arguments is valid. If the matter were to end up in court, the MSO would likely prevail, leaving the property owner with a large legal bill and building residents with no choice among competing providers.

Nevertheless, a different and more favorable outcome may be available to the property owner who takes the time to become familiar with another FCC ruling, issued a few months prior to the Exclusives Order.

In June 2007, the FCC issued its so-called Sheet Rock Order, ruling that where cable inside wiring is hidden behind drywall at the point 12 inches outside of any dwelling unit in an MDU building, the "demarcation point" is located at that point where the wiring first becomes "physically accessible." That point generally is at the junction box, telecommunications closet or other central distribution facility.

The practical effect of this rule is:

What formerly was classified as "Home Run Wiring" is now re-classified (in most circumstances – wherever the hallway wiring is concealed behind sheetrock) as "Cable Home Wiring," so that its disposition is governed not by the FCC's Home Run Wiring Rules (47 C.F.R. §§ 76.804), but by the Cable Home Wiring Rules (47 C.F.R. § 76.802). These two sets of rules operate quite differently, in ways that are pertinent to the hypothetical scenario outlined above.

Some Definitions

In order to understand how the Sheet Rock Order has affected application of the Inside Wiring Rules, we must review three crucial definitions:

"Home Run Wiring" is defined 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." In general, the Home Run Wiring runs from the junction box through the building's hallways to the individual unit.

"Cable Home Wiring" is defined as "the internal wiring contained within the premises of a subscriber which begins at the demarcation point. Cable home wiring includes passive splitters on the subscriber's side of the demarcation point, but does not include any active elements such as amplifiers, converter or decoder boxes, or remote control units." In other words, Cable Home Wiring is the wiring on the subscriber's side of the demarcation point, including the wiring inside an individual dwelling unit.

"Demarcation Point" means "For new and existing multiple dwelling unit installations with non-loop-through wiring configurations, the demarcation point shall be a point at (or about) twelve inches outside of where the cable wire enters the subscriber's dwelling unit, or, where the wire is physically inaccessible at such point, the closest practicable point thereto that does not require access to the individual subscriber's dwelling unit."

The FCC's Sheet Rock Order ruled that wire located behind sheet rock is "physically inaccessible," such that in this circumstance, the demarcation point is the location, moving away from the individual unit, where the wire is physically inaccessible. Again, in most cases that location will be at the junction box or other central distribution facility, no matter how the demark is designated in the contract.

The net result of this relocation of the demarcation point is to radically expand that portion of the in-building wiring designated "Cable Home Wiring," and to radically shrink – or eliminate altogether – that portion of the wiring designated "Home Run Wiring."

To put it another way: Because the demarcation point constitutes the boundary between Cable Home Wiring and Home Run Wiring; in any MDU building where the hallways are encased in drywall, the Cable Home Wiring begins at the wall plate inside the unit and runs all the way to the junction box (rather than to a point twelve inches outside of the individual unit). Thus, there is no such thing as "Home Run Wiring." Rather, all the "horizontal wiring" on each residential floor is, as a result of the Sheet Rock Order, nothing but Cable Home Wiring.

Cable Home Wiring Rules

To return to our hypothetical scenario, suppose that instead of invoking the FCC's unit-by-unit rules for Home Run Wiring, the MDU owner instead decides to use the procedures outlined in the FCC's rules for Cable Home Wiring. As described below, the Cable Home Wiring rules are significantly more favorable to and more efficient than the Home Run Wiring rules.

The Cable Home Wiring Rules apply "upon voluntary termination of cable service by an individual subscriber" in an MDU. When the subscriber contacts the incumbent to terminate service, the incumbent must give the subscriber an opportunity to purchase the Cable Home Wiring at the per-foot replacement cost. If the subscriber declines to purchase, and either the MDU owner or the alternative provider has notified the incumbent that the alternative wishes to use the wiring, the owner or the alternative provider may purchase the Cable Home Wiring at the replacement cost. Only if no party wishes to purchase it may the incumbent remove the Cable Home Wiring. 47 CFR §76.802.

Therefore, the owner's first step is to notify all residents that beginning on a date certain (arranged in coordination with the PCO), they may choose to terminate MSO's service in favor of PCO's service. Those wishing to exercise that choice are advised to notify MSO of their decision either in writing, email or via telephone.

If in response to subscriber termination notices, the MSO fails to inform the subscribers of their option to purchase the Cable Home Wiring (which, after the Sheetrock Order, includes all the inside wiring from the wall plates to the junction box) at its per-foot replacement cost, that wiring "shall be considered abandoned, and the incumbent may not prevent the alternative provider from using the home run wiring immediately to provide service" (47 C.F.R. § 76.802(e)).

On the other hand, if the MSO does properly inform the subscribers of their purchase option, and a subscriber declines to purchase the wiring, the MDU owner or the PCO (or both together) may purchase it at the per-foot replacement cost.

Either way, the PCO may gain access to the incumbent MSO's existing inside wiring without waiting for the various deadlines described in the FCC's Home Run Wiring rules. Furthermore, the MSO "must take reasonable steps to ... ensure that an alternative service provider has access to the home wiring at the demarcation point" (at the junction boxes). The MSO's failure to cooperate in transitioning to the PCO would violate this obligation, giving rise to a complaint to the FCC.

How an MSO Could Fight Back

Now let's consider the MSO's three objections, described above, to the MDU owner's attempt to invoke the unit-by-unit Home Run Wiring rules:

  1. The fact that the service agreement gives the MSO the right to control and maintain all the inside wiring is irrelevant to the application of the Home Wiring rules. Those rules vest certain rights in the video subscriber, and the subscriber is not a party to, or bound by, the service agreement between the MSO and the MDU owner.
  2. The fact that the service agreement specifically addresses the disposition of Home Run Wiring or Cable Home Wiring does not preempt application of the FCC rules for Cable Home Wiring. Again, the Cable Home Wiring rules were promulgated as a consumer protection measure, and are unaffected by provisions contained in an agreement to which the subscriber is not a party.
  3. Unlike the rules for Home Run Wiring, which allow the incumbent to remove the Home Run Wiring in lieu of offering it for sale, the rules for Cable Home Wiring specifically require that the wiring be offered for sale to the subscriber (or to the MDU owner or the alternative provider) prior to the incumbent exercising the removal option. This fact significantly diminishes (relative to the Home Run Wiring rules) the incumbent MSO's bargaining power in negotiating disposition of the inside wiring.

Thus, none of the MSO's three objections is a valid defense to application of the FCC's Cable Home Wiring rules, which, following the Sheetrock Order, now apply to all the "horizontal wiring" in an MDU building, assuming the wiring is located behind drywall. The procedure outlined above provides the MDU owner with a much more efficient means of gaining control over existing inside wiring for the purpose of bringing competition to buildings no longer subject to exclusive access agreements.


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