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Home / Articles / Blog / uncategorized / FCC´s Order on MTE Access Reform
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23
March
2022

FCC´s Order on MTE Access Reform

(Part I)


On February 15, 2022, the FCC issued a Report and Order entitled “Improving Competitive Broadband Access to Multiple Tenant Environments” (the “Order”). In this and a following post, we summarize the implications of the Order for incumbent and competitive service providers, as well as owners of MTE properties. This is the first of two posts. The first (this one) summarizes the FCC´s Order and identifies the type of service providers that are subject to the new rules. The second part will analyze ambiguities and potential legal problems with the new rules.

First a thumbnail outline of the Order.

Summary of FCC Order

The term “MTE” means a Multiple Tenant Environments (formerly known as a MDU), including commercial or residential premises such as apartment buildings, condominium buildings, shopping malls, office and retail buildings, or cooperatives that are occupied by multiple entities.

The Order changes the law on three points.

A.      Prohibition of Certain Revenue Sharing Agreements

  1. Exclusive Revenue Sharing Agreements.  Certain service providers are prohibited from entering into exclusive revenue sharing agreements with MTE owners.  (We discuss which providers are subject to the prohibition in section _ below. In this section of the post, we refer to “providers” without delving into the question of which are subject to the Order and which are not.) An “exclusive revenue sharing agreement” is a contractual arrangement under which the provider pays the MTE owner financial consideration in return for the owner´s granting of building access rights to the provider. A revenue sharing agreement is “exclusive” if it prohibits the MTE owner from accepting similar consideration from any other provider. Most of the standard agreements used by cable operators include an exclusive revenue sharing arrangement.
  2. Graduated Revenue Sharing Agreements.  Providers may not enter into graduated revenue sharing agreements with MTE owners.  A “graduated revenue sharing agreement” requires that the provider pay an MTE owner a greater percentage of revenue as its penetration in the building increases.
  3. Applicability.  The new rule restricting revenue sharing agreements apply to all agreements, regardless of whether entered into prior to or after the effective date of these rule.
  4. Compliance Dates.  The restrictions on existing revenue sharing arrangements will take effect 180 days after publication of the Report and Order in the Federal Register.  Restrictions on new revenue sharing arrangements will take effect 30 days after publication of the Report and Order in the Federal Register.

B.      Required Disclosure of Exclusive Marketing Arrangements

  1. Disclosure of exclusive marketing arrangements. Providers must disclose the existence of exclusive marketing arrangements with MTE owners.  These disclosures must:
                      (a)  Be included in all of the provider´s written marketing material insofar as it is directed at tenants or prospective tenants of an MTE;
                      (b)  Explain in clear, conspicuous, legible, and visible language that the provider has the exclusive right to market its services to residents or commercial tenants in the MTE;
                      (c)  State that the provider´s exclusive marketing rights do not mean that the provider is the only entity that can provide communications services to residents or commercial tenants in the MTE;
    and
                      (d)  State that similar services may be available from a different provider(s).
  2. Applicability.  These disclosures apply to all exclusive marketing arrangements, regardless of whether entered into prior to or after the effective date of the Order.
  3. Compliance Dates.  For existing contracts, the disclosure requirement will be enforced on the later of: (i) the Office of Management and Budget completing its review of the new requirements pursuant to the Paperwork Reduction Act; or (ii) 180 days after publication of the Report and Order in the Federal Register.  For new contracts, the disclosure requirement will be enforced after the Office of Management and Budget completes its review of the new requirements pursuant to the Paperwork Reduction Act.

C.      Declaratory Ruling Regarding Sale-and-Leaseback Arrangements

  1. Sale-and-leaseback arrangements between providers and MTE owners are prohibited.  A “sale-and-leaseback arrangement” is an arrangement whereby the incumbent provider conveys its inside wiring (usually both the cable home wiring and home run wiring (as defined in 47 C.F.R. 76.5 (ll) and 76.800 (d), respectively) to a residential MTE owner, who then grants to the incumbent provider the exclusive right to access and use the inside wiring. Sale-and-leaseback arrangements do not include contracts for the installation of new inside wiring and related facilities in which the MTE owner has sole ownership interest.  The Order says that “any form of conveyance violates section 76.802(j) of our rules in this context”, including those where there is no sale, the sale [price] is nominal, or otherwise (even if no money transfers from one party to the other).

    Note: This rule is problematic in a number of ways that are addressed in section _ of this post.

  2. Compliance Dates.  The new rule applies to sale-and-leaseback arrangements entered into after the Commission began examining this practice in the 2017 MTE Notice of Inquiry.

D.    Application of New Rules to Specific Types of Entities


It is very important, and not immediately obvious, to determine what types of service providers are required to comply with the rules summarized above.

  1. Entities Subject to Rules on Exclusive Marketing and Revenue Sharing Arrangements

 The new rules banning graduated revenue sharing arrangements and requiring disclosure of exclusive marketing arrangements apply only to:

  1. Telecommunications Carriers that are subject to Section 201 (b) of the Communications Act (the “Act”) as amended (47 U.S.C. § 201 (b)). A Telecommunications Carrier is an entity that provides Telecommunications Services – that is, telephone service. Broadband Internet Access Service (BIAS) is not a Telecommunications Services. Therefore, the restrictions on exclusive marketing and revenue sharing arrangements do not apply to providers of stand-alone BIAS. Note: it is quite possible that the newly constituted FCC will reclassify BIAS as a Telecommunications Service, in which case providers of stand-alone BIAS would become subject to the new rules on exclusive marketing and revenue sharing arrangements.
  2. Multichannel Video Programming Distributors (MVPDs) that are subject to Section 628 (b) of the Act.  Cable Operators are MVPDs, as are telephone companies such as AT&T and Verizon that deliver video service by means of a cable system, parts of which are located in the public-right-of-way (PROW) – all of these video service providers are subject to Section 628 (b) and are therefore subject to the new rules on exclusive marketing and revenue sharing arrangements.
  3. Private Cable Operators (PCOs) are not subject to the new rules on exclusive marketing and revenue sharing arrangements. that distribute satellite video services by means of equipment located entirely on private property, without using the PROW, are MVPDs, but they are not subject to Section 628 (b). Therefore, PCOs are not subject to the new rules on exclusive marketing and revenue sharing arrangements. Because the Order is less than crystal clear on the scope of the new rules, it is worth explaining why PCOs are excluded from coverage. In its 2007 Order on Exclusive MDU Agreements, the Commission wrote (emphasis added):

    “32. We fashion the prohibition pursuant to Section 628 for several reasons. First, that provision is a base our statutory authority to regulate exclusivity clauses.99 Second, incumbent cable operators, which are subject to Section 628, are the beneficiaries of the vast majority of exclusivity clauses. As described in paragraph 10 above, incumbent cable operators are primarily responsible for the recent increase in newly executed exclusivity clauses. Also, the evidence in the record indicates that incumbent cable operators are using them to impede the entry of new competitors into the MVPD market in many areas. Incumbent cable operators are still by far the dominant force in the MVPD business, with a market share most recently measured at 67 percent100 and the ability to impose steadily rising prices.101 Our prohibition is limited to those MVPDs covered by Section 628(b). It does not reach PCOs or DBS providers because we do not have an adequate record on which to decide whether such a prohibition is warranted for non-cable operators.”

    Therefore, PCOs are not subject to the new rules on exclusive marketing and revenue sharing arrangements.

E.    Entities Subject to New Rule on Sale-and-Lease Arrangements

The new rules banning Sale-and-Leaseback of wiring arrangements (referred to as “SL”) are promulgated as part of the FCC´s Inside Wiring Rules, 47 C.F.R. § 76.800, et seq. (specifically, § 76.802 (j)). Therefore, the new SL rule applies to all entities that are subject to the Inside Wiring Rules.

Clearly, all cable operators, whether they be traditional cable operators or telephone carriers like AT&T and Verizon, are subject to the Inside Wiring Rules, and therefore may not enter into SL agreements. And providers that deliver stand-alone BIAS are not subject to the Order as it concerns SL arrangements. How about PCOs, that are not cable operators because their facilities are located entirely on private property without using the PROW?

F.    PCOs are Not Subject to the New Rule on Sale-and-Leaseback Arrangements

In paragraph 47 of the Order, the FCC says:

We clarify that section 76.802(j) of the Commission’s rules prohibits sale-and-leaseback arrangements. Our clarification is intended to facilitate competitive entry in MTEs, a goal of the 1992 Cable Act that has motivated the Commission’s cable inside wiring rules for nearly three decades.

In other words, only carriers that are subject to Section 76.802 (j) are subject to the rules on SL.

47 C.F.R. § 76.802 (j) says (emphasis added):

(j) Cable operators are prohibited from using any ownership interests they may have in property located on the subscriber's side of the demarcation point, such as molding or conduit, to prevent, impede, or in any way interfere with, a subscriber's right to use his or her home wiring to receive an alternative service. In addition, incumbent cable operators must take reasonable steps within their control to ensure that an alternative service provider has access to the home wiring at the demarcation point. Cable operators and alternative multichannel video programming delivery service providers are required to minimize the potential for signal leakage in accordance with the guidelines set forth in 47 CFR 76.605 (a) (13) and 76.610 through 76.617, theft of service and unnecessary disruption of the consumer's premises.

Section 76.802 (j) applies only to “cable operators.” The term “cable operator” is defined at 47 C.F.R. § 76.5 (cc):

(cc) Cable system operator. Any person or group of persons (1) who provides cable service over a cable system and directly or through one or more affiliates owns a significant interest in such cable system; or (2) who otherwise controls or is responsible for, through any arrangement, the management and operation of such a cable system.

In order to be considered a “cable operator,” the service provider must provide a cable service over a “cable system.” Section 76.5 (a) defines term “cable system” as follows (emphasis added):

(a) Cable system or cable television system. A facility consisting of a set of closed transmission paths and associated signal generation, reception, and control equipment that is designed to provide cable service which includes video programming, and which is provided to multiple subscribers within a community, but such term does not include:
(1) A facility that services only to retransmit the television signals of one or more television broadcast stations;
(2) A facility that serves subscribers without using any public right-of-way…

A PCO system (consisting of dish antenna normally installed on the rooftop of a MTE property to receive signals from a satellite and a signal distribution system) to receive television signals from a satellite does not use any public right-of-way. Therefore, a PCO does not operate a “cable system.” And because it does not operate a cable system, a PCO is not a “cable operator.” And because it is not a cable operator, Section 76.802 (j) does not apply to a PCO. And because Section 76.802 (j) does not apply to a PCO, no PCO is subject to the FCC´s Order as it relates to sale-and-leaseback arrangements.

Part II will discuss some ambiguities and potential problems with the new rule on Sale-and-Leaseback arrangements.

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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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