Exclusive Use of Inside Wiring Clauses in Cable ROE Agreements

Exclusive Use of Cable Inside Wiring

May 2, 2014

Not long ago, I heard a cable company lawyer complain that satellite video providers entering MDU buildings routinely “cut the cable company’s wire” and connect it to the satellite provider’s system without authorization. Her complaint was that the DBS distributors don’t seem to understand that the inside wiring belongs to the cable company.

This cable lawyer’s complaint struck me as hollow because according to most MDU right-of-entry (“ROE”) agreements used by cable operators during the past 7 years or so, the inside wiring is the property of the building owner, not the cable operator. Thus, the lawyer’s reference to “the cable company’s wire” is deceptive according to the language of agreements written by cable company lawyers. What DBS distributors understand is that the cable operators deliberately structure their ROE agreements so as to circumvent application of FCC rules designed to facilitate competition from DBS providers.

It wasn’t always this way. Prior to the FCC’s 2007 Order prohibiting the enforcement of exclusive video service agreements for MDU properties, a typical cable access agreement stated that the cable company owns the inside wiring that it installed at the property. Cable operator ownership of inside wiring was the basic assumption underlying the FCC’s Inside Wiring Rules (47 C.F.R. § 76.800, et. seq.), which are intended to allow the MDU owner to gain control over inside wiring in order to make it available for use by a competitive MVPD (usually, a DBS distributor). The inside wiring rules (including both the rules governing cable home wiring and those governing home run wiring) allow the MDU owner to force the incumbent cable operator to sell, abandon or remove the wiring with certain time frames after receiving notice from the property’s owner. However, the FCC rules apply only to the extent that the inside wiring is owned by the incumbent cable operator.

As long as the cable company could form exclusive video service agreements with MDU owners, the Inside Wiring Rules weren’t really a problem for cable companies. Deep-pocketed cable operators could simply offer large door fee payments for long-term exclusive access rights, so that the MDU owner would be contractually prohibited from dealing with a second provider at all. However, all of that changed in 2007 when the FCC issued its exclusivity order banning exclusive video access agreements for video services. Unable to rely on exclusive access, the Inside Wiring Rules suddenly became a problem for cable incumbents; MDU owners were free to deal with competitive providers, and the Inside Wiring Rules gave those owners the ability to commandeer in-building wiring for the purpose of providing residents with a choice among providers.

The cable operators’ solution to the problem is as clever as it is elegant: Simply specify in the ROE agreement that the inside wiring is the property of the owner, and not the cable company, but require that the owner grant to the cable company the exclusive right to access and utilize all of the inside wiring in the building.

Often the grant of exclusive usage rights relating to wiring is not explicit but buried in more general provisions that require some careful parsing. For example, I recently came upon a “NON-EXCLUSIVE INSTALLATION AND SERVICE AGREEMENT” drafted by the same cable company that employs the complaining lawyer mentioned in the first sentence of this post. The agreement, signed in 2011, states, “[Cable Company] hereby conveys all its right, title and interest in and to the Internal Wiring to the Owner.”

A property owner might well think he’s made a pretty good deal in signing this agreement. After all, it’s a “NON-EXCLUSIVE” agreement, and the Internal Wiring belongs to the owner. Therefore, if the cable company doesn’t perform, he can always bring in the satellite company, right?

–Wrong.

The agreement says: “Owner represents that it has not granted and agrees that it will not grant use of enable any other person/third party to use any portion of the Equipment to provide services to residents.”

The term “Equipment” – over which the cable company is given exclusive control under the agreement – means “all above-ground and underground coaxial cables, fiber optic lines, Internal Wiring, internal coaxial wiring conduit … and any other equipment or facilities necessary for, installed and/or used by [cable company] to provide the Services. The Equipment extends from the external boundary lines of the Premises up to and including the outlets in each unit.”

Thus, while the “Internal Wiring” is the property of the owner, it is also part of the “Equipment”, and only the cable company has the right to use any of the Equipment – which also includes all of the conduit within and outside of the buildings, the risers, the molding and everything else “used by” the cable company to provide the services. This means that if the owner decided to bring in a satellite provider to compete with the cable company, the second provider would have to install its own conduit and wiring extending all the way inside the units. Because that is not going to happen, idea of competition is dead on arrival.

In other words, while the cable agreement seems at first glance to allow competition (and thus provides an inherent incentive to the cable company to perform at a high level), in fact the agreement precludes the possibility of any competition at all. In particular, the agreement was carefully drafted so as to circumvent clearly articulated FCC rules and policies favoring competition, in two ways:

First, by conveying to the cable company the exclusive right to use all of the Internal Wiring (not to mention all of the conduit, ducts and other pathways, and anything else that is “used by” the cable company), the agreement effectively designates the cable company as the exclusive provider of video services, in contravention of the public policies expressed in the FCC’s ban on exclusive service agreements.

Second, by specifying that the Internal Wiring belongs to the property owner, the agreement evades the FCC’s Inside Wiring Rules insofar as those rules apply only to inside wiring that is owned by the incumbent cable operator.

For these reasons, it is difficult to sympathize with the cable lawyer’s complaint about satellite providers ignoring contractual provisions giving the cable company exclusive control over cable inside wiring. When a competitive provider “cuts the cable company wire” and connects it to the satellite system in an MDU building, the satellite provider is simply attempting to implement the owner’s desire to allow a second provider to access the owner’s interior wiring in order to provide MDU residents with choice in accordance with FCC policies. If that attempt interferes with the cable company’s contractual rights, it’s because the cable company has deceptively written the ROE agreement so as to thwart the FCC’s rules and avoid competition.

What can be done? Shouldn’t the FCC step in to rule on exclusive use of inside wiring clauses in ROE agreements that have the purpose and effect of circumventing the Commission’s pro-competition rules and policies?

The answer is “yes,” but the FCC has too much on its plate at the moment to worry about cable inside wiring. So MDU owners and competitive providers need to find ways of dealing with the issue without help from regulators.

In forming strategies of self-help, it is always useful to ask oneself, apart from what the incumbent’s contract directly or indirectly says, whether the contract is likely to be enforced in the real world. Will the incumbent cable company be motivated to go to the wall in defense of a deceptively written agreement that is designed to evade FCC rules and defeat clearly articulated FCC policies favoring competition in MDU buildings? When push comes to shove, will the incumbent cable company want to invest its resources in defending an agreement that gives the cable company a long-term monopoly over all the wiring in a building, notwithstanding the facts that: (a) all the wiring is the property of the MDU owner and not the cable company, and (b) at least some of the wiring serves units occupied by residents who would prefer the services of a competitive provider over the incumbent’s service?

More specifically, the FCC’s rule on the disposition of cable home wiring (47 C.F.R. § 76.802) states that an incumbent cable operator may not use any ownership interest in property located on the subscriber’s side of the demarcation point in order to prevent an alternative service provider from accessing the cable home wiring at that point. If the subscriber wants to subscribe to an alternative provider’s service, can an “exclusive use of wiring” clause in an ROE agreement curtail the subscriber’s right to allow the alternative provider to access and utilize cable home wiring serving his or her unit in an MDU building? Would the incumbent really want to go to court with a claim based on the distinction between “ownership interests” and “exclusive use rights”?