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MTE Access II

This is Part II of a blog entry concerning the FCC´s recent Order on MTE Access Reform.

Problematic Aspects of those aspects of the FCC Order that Relate to Sale-and-Leaseback Arrangements  

I believe that there are several potentially serious flaws and ambiguities in the ban on SL arrangements, including the following.

Legal basis for FCC Order

As summarized above, the Order is based on Section 76.802 (j) of the FCC´s Inside Wiring Rules. That Section says:

(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.

The Commission says that SL arrangements violate this rule in two ways:

First, by virtue of such arrangements, a cable operator uses its ownership interest in the cable home wiring located on the subscriber’s side of the demarcation point (by selling it and leasing it back on an exclusive basis) to prevent the subscriber from taking advantage of the cable inside wiring rules - that were applicable to the subscriber prior to the sale of the inside wiring - to obtain alternative service from a competing provider following a voluntary termination of service (Order, ¶ 56).

Second, by transferring ownership of the home wiring to the MTE owner, “while the wiring is still within the in incumbent provider´s control, and then leasing it back to the incumbent on an exclusive basis, the incumbent fails to “take reasonable steps within its control to ensure that an alternative provider has access to the home wiring at the demarcation point (Order, ¶ 55).

It is completely obvious that cable operators use SL arrangements for the purpose of preventing an alternative service provider from accessing the home wiring at the demarcation point. In my own practice I have faced this problem hundreds of times over the years, and there is no doubt that SL arrangements have an anti-competitive purpose and effect. I have written about this exact subject on this blog: Following the FCC´s ban on exclusive MTE access agreements in 2007,  incumbent cable operators altered their standard access agreement forms in order to avoid the FCC´s regulatory efforts – because the Inside Wiring Rules only apply to wiring that is owned by the cable operator, the incumbent simply transferred ownership of the wire to the MTE owner, while maintaining their monopoly over inside wire by way of exclusive wiring usage agreements.

Nonetheless, the FCC´s reasoning raises several more or less technical problems.

a.    Jurisdiction

The Inside Wiring Rules governing the disposition of cable home wiring, including Section 76.802 (j), apply only to wiring that is owned by the incumbent cable operator, and not to wiring that is owned by the MTE owner. Section 76.801 (“Scope”) says:

The provisions do not apply where the cable home wiring belongs to the subscriber, such as where the operator has transferred ownership to the subscriber, the operator has been treating the wiring as belonging to the subscriber for tax purposes, or the wiring is considered to be a fixture by state or local law in the subscriber's jurisdiction.

This is why the Order strains to attach the prohibition onto the wire while the cable operator still owns it - before ownership is transferred to the MTE owner. But, generally speaking a typical sale-and-lease clause in a cable contract specifically says that the inside wire becomes the property of the MTE owner at the moment it has been installed in the building. That means that at any time when the wire is still owned by the cable provider, it cannot be “cable home wiring” – because cable home wiring is defined in Section 76.5 (ll) 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.

Because “cable home wiring” is defined as the wire extending from the demarcation point into the subscriber premises, there is no such thing as “cable home wiring” before it is installed in an MTE building; and because wire can only become “cable home wiring” at the moment it is installed – which is also the moment when it becomes the property of the MTE owner, and also the moment when Section 76.802 (j) can apply – it is hard to see how the FCC has jurisdiction over the wire that is subject to the sale-and-leaseback clause in the first place. Of course, this may seem like a hyper-technical point, but in the law, decisions often turn on exactly such hyper-technical points.

b.    Home Run Wiring

By its terms, Section 76.802 (j) applies to “cable home wiring,” which extends from the demarcation point (normally located twelve inches outside of an MTE unit, see discussion below) to the wall plates within the unit. For practical purposes, the cable home wiring is the wiring inside a unit. The “home run wiring” is the wiring that extends to the demarcation point. The term is defined in Section 76.800 (d) 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.”

The problem is that in the usual circumstance, a competing provider seeking access to an MTE building needs access to the existing home run wiring, to which the incumbent cable operator is given exclusive access under the SL arrangement. In fact, many SL clauses found in cable access agreements, only apply to the home run wiring, if only because the FCC´s OTARD rules (47 C.F.R. § 1.4000) already prevent the cable operator from monopolizing in-unit wiring.

Thus, a competitive provider needs access to the home run wiring. However, there is no equivalent to Section 76.802 (j) in the rules governing the disposition of home run wiring (i.e., Sections 76.804 et seq.). There is no rule requiring the incumbent to facilitate competitive access to, or to refrain from impeding a competitor´s access to the home run wiring. Therefore, notwithstanding the Order and the honorable pro-competitive policies expressed therein, incumbent cable operators may continue to monopolize the home run wiring in an MTE building, and for that reason  alone, the Order is unlikely to have any significant effect on industry practices.

c.    Demarcation Point

Another problem with the FCC´s reasoning is that “cable home wiring” is defined by reference to the “demarcation point,” which is where the cable home wiring begins and extends into the subscriber premises. Remember, the FCC´s Order prohibiting sale-and-leaseback arrangements only applies to wiring on the subscriber´s side of the demarcation point. Therefore, it is crucial to determine exactly where the demarcation point is located, and in practice this is easier said than done.

The term “demarcation point” for cable wiring is defined at 47 C.F.R. § 76.5 (mm) (2):

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 phrase “physically inaccessible” “describes a location that:

(i) Would require significant modification of, or significant damage to, preexisting structural elements, and
(ii) Would add significantly to the physical difficulty and/or cost of accessing the subscriber's home wiring.”

For example, where wiring is behind sheetrock at the point twelve inches outside of a unit,  it is considered “physically inaccessible,” which means that the demarcation point is moved from the twelve-inch location back away from the unit to a location where it is first physically accessible, which often turns out to be the lockbox. I have written about the implications of the so-called “sheetrock rule” here:

Apart from the practical difficulties involved with locating the demarcation point (i.e., in determining where wiring becomes “physically accessible), it is, I believe, generally accepted in the industry that the parties to an access agreement may choose to specify the location of the cable demarcation point in an MTE building. Some access agreements rely on the FCC´s definitional location of the demarcation point at twelve inches outside of the unit. Other access agreements specify a different location. In particular, in fiber-to-the unit architectures, which are becoming the industry standard, an access agreement typically locates the demarcation point at the ONT which is plugged into a smart panel within each individual unit, usually in a closet. When the demarcation point is located within the individual unit, the only effect of the FCC Order is to block exclusive use of the wiring extending from the smart panel to the wall outlets – and, as described above, the FCC´s OTARD rule already prevents the incumbent from exclusively controlling that portion of the inside wiring.

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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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