FCC bans exclusive TV deals for cable

Commission adopts new rules that ban cable operators from locking apartment buildings into exclusive contracts in exchange for service.

Apartment dwellers will soon have more choice when it comes to TV service providers, thanks to a new rule adopted Wednesday by the Federal Communications Commission that bans cable operators from striking exclusive contracts with apartment buildings.

Specifically, the FCC's order will prevent building owners from establishing deals that lock residents into only one TV provider. The rule impacts all new contracts between cable operators and apartment building owners. It also applies to all existing contracts that have exclusivity clauses.

The FCC says roughly 30 percent of Americans live in what are called multiple dwelling units, or MDUs. The new rules should provide more choice for such dwellers as telephone companies like AT&T and Verizon Communications start offering TV services targeting this market.

"I believe that people that live in apartment buildings deserve to have the same choices as people that live in the suburbs," FCC Chairman Kevin Martin said during the commission's open meeting. "There is no reason that consumers living in apartment buildings should be locked into one service provider."

But while the FCC may have opened up some choice in the TV market, it didn't apply the rules evenly to all companies offering TV service, including satellite TV companies and smaller private cable operators. These companies also use exclusive contracts to lock in customers in apartment buildings. But they are currently excluded from the exclusivity rules.

Phone companies, such as AT&T and Verizon, which also offer TV service, will be included in the new rules. Seventeen states and Washington, D.C., already ban exclusive contracts.

Commissioner Michael Copps expressed concern that the rules may favor certain companies over others. But he said the FCC would soon be looking to extend the rules to all TV providers.

"Happily we will be addressing these competitive parity issues in the next six months," he said. "In the meantime, I would caution any MVPDs (multichannel video programming distribution providers) seeking to take advantage of this regulatory lag time that they do so at their own risk."

Even though all five of the FCC's commissioners supported the adoption of the new rules, Commissioner Robert McDowell said he felt that the FCC was standing on shaky legal ground in applying the rules to existing contracts. He said that in 2003, the FCC actually encouraged these types of arrangements so that cable operators would wire older buildings with cable infrastructure. He said the commission is opening itself up for legal challenges by not allowing these older contracts to expire before applying the new rule.

"To flash cut to a new regulatory regime without a sensible transition period only begs for an appeal that could result in a court throwing out all of our order, the good with the bad," he said.

Dan Brenner, senior vice president for law and regulatory policy for the National Cable and Telecommunications Association, characterized the action to terminate existing contracts as "legally suspect."

He said he was also disturbed by the inconsistencies in the order.

"If eliminating exclusive contracts for some video providers is good for consumers, then it should have been applied to all providers," he said in a statement.

Martin defended the commission's action to apply the rules to existing contracts by saying that cable operators have had at least four years to recoup their costs and that it was time to end these types of agreements.

Chairman Martin has long had a contentious relationship with the cable industry. Over the years, he has been a , which would allow people to pick and choose the TV channels they wanted instead of subscribing to an entire package of channels. The cable industry has long fought the a la carte model, saying it would cost consumers far more than what they pay today.

The cable industry has also butted heads with Martin over the implementation of cable cards, a technology that is supposed to help spur a retail set-top box market and give consumers more choice over the type of devices they use to access and get services from their cable operators.

An order requiring all cable set-top boxes to have separate security on cable cards went into effect this summer. The cable industry claims that it has been forced to implement technology that is expensive and provides little use to consumers.

But Martin has defended his positions by saying that he is simply protecting the interests of consumers. During that meeting he said cable prices shot up 93 percent between 1995 and 2005, and that cable is the only industry regulated by the FCC that has seen such price increases during this period. By contrast, telecommunication services have all seen drastic declines in pricing for consumers.

Even though the FCC seemed to single out cable in the MDU market, the commission tried to level the playing field in another area. Also at the Wednesday meeting, the FCC extended rules that were adopted earlier this year that streamlined the video franchising process for new entrants--like the phone companies--to the incumbent cable providers.

But the cable industry doesn't believe the FCC went far enough, because the order only applies to new franchise agreements. This means that cable operators must wait until their current franchise agreements expire to realize the benefit of the new rules, while the telecommunications industry can enjoy those benefits today.

Martin once again said his main interest was in protecting consumers.

"As I have said before, I am committed to seeing that consumers are able to realize the benefits of competition in the forms of better services and lower prices," he said. "I hope that the regulatory parity that we establish in this order helps to achieve this goal."

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