FCC May Forbid Exclusive Cable Deals With Apartment Complexes

In a move that could create millions of potential new customers for telecommunications companies now hawking video service and deal a blow to cable companies, the Federal Communications Commission (FCC) appears poised to ban deals that give cable carriers exclusive access to residents of large apartment complexes.

The FCC is scheduled to hold a hearing Wednesday on the issue of “localism,” a broad topic covering media ownership andtelecommunications competition alike. Among the items to be taken up is a proposed order that would nullify the use of exclusive contracts for providing video services to so-called multiple dwelling units, or MDUs.

FCC Chairman Kevin Martin has said opening up such developments to video competition is a key part of a larger strategy to encourage cable companies and telecom firms to go head-to-head.

Millions of Apartment Units

Martin has argued that studies presented to the FCC have found prices drop as much as 30 percent when competition is introduced to markets where carriers previously had an exclusive right to deliver service.

If the rules are changed, individual apartment unit dwellers or condo owners would be free to choose service from any provider that offered it. Both AT&T, with its U-verse service and Verizon, through FiOS (Fiber Optic Service), have said that their networks pass millions of apartment units that they cannot provide service to without a rules change.

The change would be a major blow to cable companies, which are already struggling to compete with telecom giants that have managed to add video service to already strong service bundles that include high-speed Internet access and wire-line and mobile phone service.

Counting Heads

Martin is believed to have enough votes to get the rule passed at the FCC meeting Wednesday. The exclusivity arrangements have been a contributing factor to a near doubling of cable TV rates over the past decade, he told The New York Times.

The last time the issue came up, the FCC voted to keep exclusivity agreements in place, with some commissioners arguing the deals promoted cost competition by allowing property owners and landlords to negotiate bulk agreements with cable providers.

Under Martin, the FCC has significantly increased the amount of competition in the television marketplace as part of a more hands-off regulatory approach that encourages competition as a way of driving down consumer prices and increasing consumer choice.

In December, the FCC voted 3-2 in favor of rules changes meant to dramatically expedite the local-licensing process that telecommunications companies must follow in order to obtain the right to deliver video services. Most cable companies followed old rules, which often led to licensing processes that stretched on for months.

“Competition is desperately needed in the video market,” Martin said at the time. Martin has also argued that opening up apartments to competition will address racial inequities in cable pricing — with minority and low-income consumers seeing their cable rates rise faster than the overall population.

Martin also favors so-called a la carte pricing, which would allow consumers to choose individual channels rather than having to buy them in packages.

Accelerating a Trend

The move comes at a time when cable companies and telecoms are experiencing diverging fortunes. While major phone carriers such as AT&T and Verizon have posted strong earnings and say their still-small video operations are gaining new subscribers, cable companies have shown modest growth. Comcast, for example, last week missed analyst targets.

That is a change from just a year ago, when cable looked to have the upper hand by offering bundles of service that included VoIP (Voice over Internet Protocol) and high-speed Internet, noted telecom analyst Jeff Kagan.

“Adding video has put telecom competitors in a much stronger position,” Kagan told the E-Commerce Times. “They have been able to convince regulators that the new landscape requires new rules.”

Verizon President and Chief Operating Officer Denny Strigl noted the possible rules change in a conference call discussion the telecom’s earnings Monday. “It would be very helpful to have the kind of rules the FCC is looking at,” he said.

Being able to deliver video services to more homes will be a key part of most telecoms’ future strategies and earning the right to deliver those services now will put them in position to capitalize on what is expected to be explosive growth of video-on-demand, Ovum analyst Aleksandra Bosnjak told the E-Commerce Times.

While the video-on-demand market remains relatively modest today, it will be worth close to US$13 billion in less than four years.

“On-demand video is a must-have part of the future portfolio vision for just about every major telecom concern,” Bosnjak added. Most have already begun to put the back-end pieces in place with distribution deals and network technology, leaving the connections to consumers as the last key piece of that puzzle.