FCC Bans Exclusive Contracts for Telecommunications Services in Apartment Buildings
 
March 25, 2008
 
Eric Fishman - New York

In a long-awaited report and order, the FCC has banned common carriers from entering into exclusive contracts to provide telecommunications services in residential “multiunit premises” (also known as “multiple tenant environments” or MTEs). This ruling extends an earlier 2000 decision by the Commission to prohibit such contracts in commercial MTEs, and is consistent with a ruling by the Commission late last year prohibiting the use of exclusivity clauses for the provision of video services to multiple dwelling units and other real estate developments.

Specifically, under the new rule, in both commercial and residential settings, common carriers may not enter into contracts for the provision of telecommunications services with premises owners that restrict consumers’ access to other telecommunications providers. In addition, common carriers may not enforce telecommunications service exclusivity contracts in MTEs that are either predominantly commercial or predominantly residential. The Commission found that such exclusive agreements between carriers and building owners hurt consumers and harmed competition, with little evidence of countervailing benefits, and have blocked access by consumers to competitive telecommunications services.

The stated intent of the FCC’s ruling is to create parity in the provision of telecommunications services to consumers, regardless of whether they are located in commercial or residential buildings. The new rule also broadly applies to “any contract, written or oral, that would in any way restrict the right of any residential multiunit premises owner, or any agent or representative thereof, to permit any other common carrier to access and service residential tenants on that premises.” In other respects, however, the plain language of the new rule is somewhat more limited:

• Common Carriers
  
  By its plain language, the new rule applies only to “common carriers,” a term that does not include entities that provide telecommunications on a non-common carrier or private carrier basis. Under long-standing case law, unlike common carriers, private carriers make individualized decisions regarding the terms and conditions of their service offering, and generally contract with a relatively stable clientele on a medium-to-long-term basis to fulfill specialized communications needs.
• Telecommunications Services vs. Information Services
  
  By its plain language, the Commission’s ruling is also limited to the provisioning of “telecommunications service,” a term which the Communications Act defines to mean “the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used.” The Act, in turn, defines the term “telecommunications” to mean “the transmission, between or among points specified by the user, of information of the user’s choosing, without change in the form or content of the information as sent and received.” Pursuant to the Act and long-standing case law, this term does not include so-called “information services” including but not limited to Internet services.
• Multiunit Premises and “Predominant Use”
  
  Pursuant to the FCC’s rules, the ban against exclusive telecommunications service agreements applies only to “multiunit premises.” The Commission’s rule defines the term “multiunit premises” to mean “any contiguous area under common ownership or control that contains two or more distinct units.” A commercial multiunit premises is “any multiunit premises that is predominantly used for non-residential purposes, including for-profit, non-profit, and governmental uses.” A residential multiunit premises is “any multiunit premises that is predominantly used for residential purposes.” In interpreting this language, the Commission has stated that the new rule, like the preceding rule affecting commercial MTEs, does not apply to hotels or similar establishments, since guests of hotels are not “tenants” so much as transient users, for whom the prohibition against exclusivity would not have the same competitive benefits. At the same time, to the extent that a hotel itself is a tenant in a commercial building, the FCC’s prohibition against exclusive contracts would apply. Thus, a telecommunications carrier providing service in an MTE that includes a hotel as one of its tenants would be prohibited from entering into an exclusive contract.
  
  Residential property owners are well advised to keep these regulatory developments in mind as they negotiate and review access agreements with telecommunications service providers. Until recently, the ability of property owners to negotiate these types of agreements has been relatively limited, since in many cases service providers have enjoyed a monopoly for their respective services in their designated service areas. That situation, however, has changed dramatically over the past few years, with the emergence of new technologies, and the leverage of property owners to conduct arms-length discussions on fees, the quality of service, outages and other variables.
  Holland & Knight, whose attorneys authored the first model access agreement for telecommunications service providers and commercial building owners on behalf of the Real Access Alliance, continues its active involvement in this area, helping to advise clients as new legal developments and new technologies emerge.

For more information, email Eric Fishman at eric.fishman@hklaw.com or call toll free, 1.888.688.8500.