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Question of the Day #3 -- What is an “ROE Agreement”?

An “ROE Agreement” is a right-of-entry agreement between a MDU property owner or homeowners’ association (“HOA”) and a cable or broadband service provider. When a service provider enters an MDU property for the purpose of providing services to residents, it is necessary and appropriate that the owner sign an ROE Agreement with the service provider because the service provider is entering, operating on and generating a profit on private property and the most basic characteristic of private property is the owner’s right to exclude others from entering. The ROE Agreement sets forth the terms and conditions of the service provider’s access to private property; if the service provider fails to comply with those terms and conditions, the ROE Agreement may be terminated and the service provider evicted.

For many years – before the advent of competition from satellite television providers (such as DIRECTV and Dish Network) and from telephone companies (such as AT&T and Verizon) into MDU markets – the big cable companies held what amounted to mini-monopolies within their respective franchise areas, and their ROE Agreement forms reflected that fact. The MDU Owner was expected to and usually did simply sign the cable company’s form agreement as it was presented. Quite often, these form agreements stated that the cable company would be the exclusive provider of video services for as long as the company held a city or county-issued cable franchise. Then, beginning in the early 1990s, the U.S. Congress and the FCC took action to break up cable’s local monopolies and facilitate MDU competition from satellite providers and later telephone companies in the video space. Pertinent FCC orders include the Inside Wiring Rules, the order banning exclusive video service contracts for MDU properties, and 2007’s FCC rule streamlining cable franchising processes at the state-wide level.

Most cable and broadband service providers, especially the larger dominant companies, have their own proprietary ROE Agreement forms that are written so as to favor the service provider for obvious reasons.

Even after the issuance of pro-competition rules, incumbent cable companies still utilize ROE Agreement forms that are heavily favor the service provider at the expense of the property owner. The incumbent’s goal remains the same: to suppress competition and consumer choice. Only the means to that end have changed. 

Cable companies use two general strategies to avoid competition at MDU properties: First, strategies to achieve de facto exclusivity, and second, strategies to secure the perpetual right to remain at the property beyond the expiration of the service agreement. 

As for the first, exclusive service rights can usually be secured as long as the service provider maintains exclusive control over essential infrastructure such as in-building wiring, and/or the physical pathways (conduits, ducts, etc.) in which wiring is placed. Even if the ROE Agreement states that it is “non-exclusive” in accordance with FCC rules, the contract is very likely written so as to prohibit the property owner from allowing any competing service provider to access or utilize any portion of the existing wiring infrastructure. Since adding a second parallel run of wiring infrastructure is not a rational economic decision, exclusive control over wiring means exclusive service rights. Therefore, cable and broadband agreement forms must be carefully scrutinized to ensure that FCC rules concerning exclusivity are not being indirectly circumvented. 

As for the second, perpetual service rights are secured through various more or less underhanded and often creative methods that may not be obvious upon first glance. The point to remember is an ROE Agreement is a business deal with a certain monetary value for each side. One variable built into that value is period of time during which access to private property is permitted. At the end of the term, the property must has the right to renegotiate a new deal and that right itself has real value. An ROE Agreement that removes or limits the owner’s right to renegotiate upon expiration of the term dilutes the value inherent in the right to re-negotiate.

If you have questions about ROE Agreements, please contact the Kandutsch Law Office for a free consultation.

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In wake of the FCC’s Notice of Inquiry called Improving Competitive Broadband Access to Multiple Tenant Environments, competitive access to multi-tenant properties is again a burning public policy issue. We intend to summarize the controversy in a series of blog entries in the coming weeks.

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