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The FCC and Exclusivity Clauses in Cable Contracts: New Developments

11/01/2007

A recent Federal Communications Commission (FCC) Order has possible consequences for all parties with an interest in multi-dwelling unit developments (MDUs), including apartments, condominiums, gated communities and similar developments.

In October 2007, the FCC Order changed the contractual relationships between existing multi-channel video program distributors (MVPDs), such as Comcast and Time Warner, and MDU owners. The Order prohibits the enforcement of exclusivity clauses in existing and future contracts between certain cable operators and MDU owners. The ruling aims to foster competition among those with an interest in multi-channel video programming for MDUs, as well as among new entrants into the video distribution market, like AT&T and Qwest.

Exclusivity Contracts Voided

Cable service providers commonly enter into exclusivity clauses for video services with MDU owners, to the exclusion of other cable service providers.

The FCC found that such arrangements stifle competition and are detrimental to consumers. The Order thus prohibits these exclusive arrangements and means that current and future exclusivity contracts may not be enforced.

While only “building exclusivity” clauses (as opposed to other exclusivity clauses, such as wiring and marketing), are prohibited, building owners can continue to contract with any or no video distributors.

The FCC has also broadened its definition as to what constitutes an MDU. An MDU now includes centrally managed residential properties of all types, including apartment buildings, cooperatives, condominiums, gated communities, mobile home parks, garden apartments and other developments.

Changes in the Law

MDU owners, HOAs, developers and others might need to take steps to address this change in law. Review any existing contract to determine whether it contains a building exclusivity clause. You will still have to abide by wire or marketing exclusivity clauses.

Note too, that the Order does not address contracts with direct broadcast satellite services (DirecTV and Dish Network) or private cable operators. If you have a contract with these providers, nothing in this FCC Order will affect your relationship.

Generally, the unenforceability of a building exclusivity clause will have little impact on the rest of the contract. Many contracts contain a “severability” provision that allows the parties essentially to disregard a provision that is determined to be unlawful, without affecting the remainder of the contract.

However, in at least two instances you may wish to discuss your contract with your attorney. First, a severability clause may require that, in the event of a change in law affecting the contract, the parties must meet to negotiate a substitute provision that is in compliance with the law.

Second, be aware that cable operators could assert that the change in law affects the parties’ consideration for the contract. The operator may believe that it must revisit the consideration paid under the contract in order to recover its investment.

Furthermore, the FCC’s Order did not discuss questions about ownership of wiring, conduit, cross connects and other facilities issues. If you find yourself in a dispute, your attorney can likely help wade through the applicable regulations and contractual provisions.

Offers from Competitive Providers

The FCC’s Order does not prevent you from contracting—or deciding not to contract—with any particular provider. Although building exclusivity is no longer permitted, you may still be able to secure certain advantageous terms with new entrants or possibly receive concessions from your existing provider.

These new providers often offer promotional pricing, bundled service offerings and expanded programming.

Monitor developments

The National Cable Television Association (NCTA) and others have challenged the FCC’s Order in court. The NCTA’s challenge has been denied.

However, even if the challenges to the Order are successful, it is unlikely we will return to the environment that preceded the Order. The FCC’s actions are designed to promote competition and broadband deployment by providing consumers with a greater choice of providers, and expanding the opportunities for new entrants in the video marketplace. However, MDU owners will need thoughtfully to examine the effect of such an environment and take the requisite steps to advance their interests and address their concerns. Consider talking to an attorney to address your options.

Becky DeCook provides strategic representation and counsel relating to transactions, regulatory compliance, and litigation for telecommunications and energy-related matters at the Denver law firm of Moye White LLP. Her colleague, Dominick Sekich, provides strategic counsel to clients in complex corporate, communications, Internet, utilities, and regulatory matters. Contact them at becky.decook@moyewhite.com and dominick.sekich@moyewhite.com

ABOUT THE AUTHOR

Rebecca B. DeCook

Attorney

Dominick Sekich

Attorney