Who Owns the Inside Wiring?

Here's the latest on rights of operators and property owners on distribution.   March 2005

Federal and state courts over the past few years have issued several important decisions interpreting the FCC's rules governing the disposition of cable "inside wiring" for MDU buildings, The FCC rules are designed to allow MDU owners to gain control over existing inside wiring and to make it available for use by competing video providers.

The court decisions in question are generally favorable to MDU owners and to private cable operators (PCOs). We take this opportunity to summarize the most important points here. Although it is theoretically possible (albeit unlikely) that these decisions could be overturned, we are confident that as of the beginning of 2005, the following constitutes established law:

State mandatory access laws do not block application of the FCC's rules for the unit-by-unit disposition of cable inside wiring.

The FCC's inside wiring rules have two main divisions: (1) the building-by-building rules allow the MDU owner to force the incumbent franchised cable operator ("MSO") to remove, sell or abandon all existing home run wiring in the building; and (2) the unit-by-unit rules allow the MDU owner to force the incumbent MSO to remove, sell or abandon the home run wires that lead to individual units occupied by residents who have terminated (or will soon terminate) the incumbent's service in favor of a competitor such as a PCO.

The building-by-building rules apply when the incumbent MSO lacks a "legally enforceable right to remain" in the building – principally, when the MSO's right-of-entry agreement ("ROE") expires.

The unit-by-unit rules apply when the incumbent MSO lacks a "legally enforceable right" to maintain individual home run wires – principally, when an individual subscriber terminates the MSO's service and the ROE does not give the MSO an exclusive right to serve the entire building.

Although they vary somewhat from state to state, a typical mandatory access statute gives a franchised cable operator a right, upon a tenant's request and over the MDU owner's objection, to install and maintain wiring in an MDU building for the purpose of providing service to the requesting tenant or tenants. Incumbent MSOs in "mandatory access" states have argued that the mandatory access statute – to the extent it provides the incumbent franchised MSO with a "legally enforceable right" to install and maintain inside wiring over the MDU owner's objection – prevents the owner from invoking the FCC rules, including both the building-by-building and the unit-by-unit rules.

In Time Warner Entertainment v. Atriums Partners, a United States District Court in Kansas held that the state's mandatory access statute – providing that a landlord may not interfere with or refuse to allow access or service to a tenant by a franchised cable operator – applied only where an MDU resident actually requested service from Time Warner.

Therefore, the statute did not give the incumbent MSO a "legally enforceable right" to maintain home run wiring leading to residential units not currently subscribing to the MSO's cable service, and the MDU owner could properly invoke the FCC's unit-by-unit rules to make those wires available for use by a competitor.

Most Right-of-Entry agreements do not block application of the FCC's rules for the unit-by-unit disposition of cable inside wiring.

In a decision rejecting Time Warner's appeal of the Atriums decision, the 10th Circuit Court of Appeals focused on the question of whether the incumbent MSO's right-of-entry agreement gave it a "legally enforceable right" to maintain all the home run wiring in the building, including home run wires not currently being used to provide Time Warner cable service to MDU residents.

The ROE agreement provided that Time Warner owned all the inside wiring, and had a right to "install, operate and maintain" all facilities needed to "provide CATV and Pay TV services to tenants in the [Atriums] Project." The Appeals Court held that this language did not provide Time Warner with a "legally enforceable right to maintain" home run wires leading to residents not currently subscribing to Time Warner's cable service, and the MDU owner could thus invoke the FCC's unit-by-unit rules to force the MSO to remove, sell or abandon those home run wires. This ruling is binding law throughout the 10th Circuit, which includes the six States of Oklahoma, Kansas, New Mexico, Colorado, Wyoming and Utah. Remember, however, that the Appeals Court is the second highest court in the nation, and its decision certainly constitutes persuasive legal authority in all other jurisdictions.

Right-of-Entry agreements signed at a time when there was little or no video competition are contracts of adhesion and ambiguities should be interpreted against the incumbent MSO.

In interpreting the language of the ROE agreement as described in (the 10th Circuit above, the Appeals Court emphasized that public policy considerations demanded that any ambiguities in the contract be resolved against Time Warner and in favor of the MDU owner. This rule of interpretation was based on three factors:

• First, the incumbent MSO (rather than the MDU owner) drafted the contract.
• Second, because there was essentially no competition for video services when the ROE agreement was signed, the terms of the agreement were not negotiated by parties with roughly equal bargaining power as much as they were presented by the MSO to the MDU owner as a "take it or leave it" proposal.
• Third, the ROE affected the public interest as articulated in the FCC's policy favoring competition in the MDU market, a policy expressed in the FCC's inside wiring rules.

All of these considerations persuaded the Court that any ambiguities in the ROE agreement should be resolved in a way that favored competition (therefore, application of the FCC's rules) over the monopolistic practices of the incumbent MSO. It is important for you to note that this rule of interpretation is "generally applicable." Legally, that means it is not limited to the specific issues addressed in the 10th Circuit's decision. Rather, a court is likely to interpret ROEs to favor competition on any issue where the contract is ambiguous, assuming that the ROE was signed at a time where there was little or no competition for video services in the local MDU market.

An incumbent MSO may not block application of the FCC's inside wiring rules by claiming its intention to use the existing home run wiring for video or other services in the future.

Some incumbent MSOs have sought to prevent MDU owners from invoking the FCC's inside wiring rules by claiming that they intend to use the existing but "dormant" home run wiring to provide video or other services to subscribers in the future.

This intention, they claim, gives the MSO a "legally enforceable right" to maintain the wiring infrastructure such that the MDU owner cannot use the FCC's inside wiring rules to make the wiring available for use by a competitor.

In early 2003, IMCC sent a Request for Declaratory Ruling urging the FCC to explicitly reject this claim, and now the Appeals Court in Time Warner v. Everest appears to have rejected the MSO's argument. As discussed above, the Court held that Time Warner's ROE agreement gave it a right to control only the home run wiring actually being used to provide Time Warner cable service to MDU residents. The MSO could not block competitive access to all the existing wiring (via the FCC's rules) based on the possibility that it might be used in the future to provide Time Warner services.

MDU owners seeking to invoke the FCC's inside wiring rules should not be deterred by the incumbent MSO's assertion that it intends to use the existing wiring to serve subscribers in the future.

An incumbent MSO that fails to make the required "remove, sell or abandon" election within ninety days after receiving notice of the MDU owner's invocation of the FCC's inside wiring rules has thereby abandoned the home run wiring to the MDU owner.

In 2003, a Rhode Island Superior Court issued an important decision dealing with a variety of issues relating to cable inside wiring in MDU buildings. See Coxcom v. Picerne Real Estate Group, 2003 WL 22048781 (R.I. Super 2003). One important issue addressed by the Court was the effect of the incumbent MSO's failure to make the FCC-mandated "remove, sell or abandon" election within ninety days after receiving the MDU owner's initial notice under the FCC's inside wiring rules.

In the Rhode Island case, the MSO responded to the MDU owner's initial notice by insisting that various right-of-entry agreements blocked application of the FCC rules in the first instance. Because Cox did not make the required election (to sell, abandon or remove) before the deadline, the Court held that by failing to cooperate, Cox had abandoned the wiring to the MDU owner, thus losing its option of selling or removing the wiring.

This means that an incumbent MSO takes a big risk if it chooses to dispute the applicability of the FCC's rules after receiving the MDU owner's initial notice. Specifically, such a dispute does not stop the clock on the FCC's deadlines from ticking, and if the MSO has not made the required election within the ninety-day period, it will have lost the option of removing or selling the wiring pursuant to the rules.

While the five points described above, having been endorsed by state or federal courts, may be viewed as established law, we do not imply that the points are uncontroversial or above challenge.

The reader should bear in mind the fact that mandatory access statutes and ROE agreements differ in specific cases, and reliance on the five points outlined above is no substitute for consulting legal counsel when appropriate.