Save Access

from: NY Times

October 29, 2007
F.C.C. Set to End Sole Cable Deals for Apartments
By STEPHEN LABATON

WASHINGTON, Oct. 28 —The Federal Communications Commission, hoping to reduce the rising costs of cable television, is preparing to strike down thousands of contracts this week that gave individual cable companies exclusive rights to provide service to an apartment building, the agency’s chairman says.

The new rule could open markets across the country to far-ranging competition. It would also be a huge victory for Verizon Communications and AT&T, which have challenged the cable industry by offering their own video services. The two companies have lobbied aggressively for the provision. They have been supported in their fight by consumer groups, satellite television companies and small rivals to the big cable providers.

Commission officials and consumer groups said the new rule could significantly lower cable prices for millions of subscribers who live in apartment buildings and have had no choice in selecting a company for paid television. Government and private studies show that when a second cable company enters a market, prices can drop as much as 30 percent.

The change, which is set to be approved Wednesday, is expected to have a particular effect on prices for low-income and minority families. They have seen cable prices rise about three times the rate of inflation over the last decade. A quarter of American households live in apartment buildings housing 50 or more residents, but 40 percent of households headed by Hispanics and African-Americans live in such buildings.

“Exclusive contracts have been one of the most significant barriers to competition,” Kevin J. Martin, chairman of the commission, said in an interview. Cable prices have risen “about 93 percent in the last 10 years,” he said. “This is a way to introduce additional competition, which will result in lower prices and greater innovation.”

The decision is the latest in a series of actions by the commission under Mr. Martin to put pressure on cable companies to lower their rates and make their markets more competitive. In December, in a 3-to-2 decision, the commission approved a proposal by Mr. Martin to force municipalities to accelerate the local approval process for the telephone companies to enter new markets. The phone companies had asserted that many municipalities had been delaying approvals, often in the face of cable industry lobbying.

Last month, the commission approved a rule that requires the largest cable companies to provide programs produced by their affiliates to all of their rivals, including the phone companies and satellite television companies. The commission is also considering a proposal to make it less expensive for independent programmers to lease channels from cable companies.

Mr. Martin has also pressed the cable companies to offer so-called à la carte plans that would permit subscribers to buy individual channels, or groups of channels, at lower rates than they now pay.

The new rule would shift the bargaining power over cable and broadband services to apartment residents from landlords and tenant associations. It has been long sought by consumer groups as part of a broader effort to cut prices to the roughly 100 million households that pay for access to television.

The change would be an abrupt reversal for the commission, which only four years ago ruled that such exclusive agreements sometimes actually promoted competition by giving landlords the leverage to negotiate for the best terms.

Commission officials said they had prohibited other exclusive contracts involving telecommunications, including those in commercial buildings, but trade groups representing cable companies and building owners have indicated they may challenge the commission’s move in court.

Commission officials said the rule aims to put an end to some common practices of landlords and tenant associations that have deprived tenants of choices. They said that in many communities, there has been only one cable provider, and while landlords and tenant associations could select a satellite television provider, the competition from those companies has not led to lower cable prices.

The cable companies have also managed to shut out competition by signing long-term exclusive deals. The officials said they hoped that opening the apartment doors to the telephone companies, which offer the same packages of television, broadband and phone services as the cable companies, would force the cable companies to cut their rates.

A few states, including New York, have laws that either restrict or prohibit a landlord or tenant association from entering into an exclusive contract with a cable company. But most states have no such laws, and no state has struck down existing exclusive contracts. Commission officials, consumer groups and rival companies maintain that even in those states like New York with access laws, the rules are not uniformly enforced. They said a federal regulation would fix that.

In one area alone, Hilton Head, S.C., a small cable provider, the Hargray CATV Company, has been battling for two years with its larger rival, Time Warner, which claims to have an exclusive contract forever to provide service in developments to more than 20,000 customers. Similar battles have been waged between other cable companies and rivals involving buildings across the country.

Moreover, consumer groups said the number of lengthy exclusive contracts appears to have increased in recent months as AT&T and Verizon have begun to expand their video services and as the commission has indicated it might intervene to ban exclusive arrangements.

“For people in apartment buildings, this could be the most significant step towards bringing down cable prices,” said Gene Kimmelman, vice president for federal affairs at the Consumers Union. “Most people in apartment buildings have been subject to a monopoly provider, with little or no local control and no federal control over pricing. This is the most significant step regulators can take short of regulating prices.”

But large cable companies, as well as associations representing building owners and tenant groups, said the change would fundamentally alter the economics of cable television in apartments in ways that would be harmful to consumers. They are threatening to challenge the commission in court.

“It is both unlawful and, as a matter of public policy, wholly inappropriate and counterproductive for the commission to bar cable operators from enforcing existing exclusive contracts,” said Daniel L. Brenner, a senior vice president of the National Cable and Telecommunications Association, the cable industry’s main trade association in Washington. “Exclusive contracts and building-by-building competition can, in fact, promote investment, efficiency and competition.”

The commission and trade groups said they did not know the precise number of contracts, though they estimated the amount to be in the thousands.

The cable industry and the owner associations said the cable companies were often granted exclusive rights to buildings after agreeing to make major capital investments in upgrading systems, and that a new rule striking the exclusivity clauses would be an illegal taking of property in violation of the Fifth Amendment.

“The F.C.C.’s approach is wrongheaded,” said Jim Arbury, senior vice president for government affairs at the National Multi-Housing Council, which represents about 1,000 owners, managers and developers. “They think that banning exclusives means there will be more competition, when the fact is that exclusive contracts play a definite role in the area of promoting competition.”

He continued: “It allows the apartment owner to play the various providers off against each other and get the best deal for residents in terms of quality and price.”

Commission officials say that the agency has previously prohibited exclusive contracts in other telecommunications areas, and that the courts have upheld such restrictions.

The commission has, for instance, prohibited exclusive contracts for telecommunications services in commercial buildings. It has also required telephone companies that provide service to apartments to offer access to their wires to rival companies.