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FCC Ready to Ban Exclusive Cable Contracts
Deals With Developments, Apartment Complexes in Jeopardy
By Kim Hart, Staff Writer
Washington Post
Wednesday, October 31, 2007

When several Loudoun County neighborhoods were built five years ago, a Dulles company won long-term exclusive contracts to provide cable service to hundreds of residents.

At the time, OpenBand Multimedia was the only company willing to invest millions of dollars to bring cable service to less-populated areas. Some residents want a choice now that Verizon Communications and others are offering competing TV services, but they're locked into a contract that could last decades.

The Federal Communications Commission is set today to ban such contracts between cable TV providers and the owners of apartment buildings, condominium complexes and planned subdivisions. Banning exclusive agreements could help promote competition and reduce cable rates for an estimated 100 million consumers, FCC members said in interviews.

The move will open the door for telephone giants Verizon and AT&T, which now offer video services, and smaller cable competitors such as RCN. Those companies have argued that long-term cable contracts lock them out of key markets.

Cable companies and apartment-building owners say exclusive agreements allow them to offer reduced rates to residents. Property owners can negotiate rates in return for guaranteeing a large number of customers for cable providers, who in turn say they could not otherwise afford to extend their networks into apartment buildings.

The proposed ban has unanimous support from the five-member FCC. Chairman Kevin J. Martin said in an interview that cable rates have almost doubled over the past decade while rates for Internet and wireless services have dropped because of competition.

Now that other companies are trying to go head-to-head with cable operators, "we have to make sure we are removing any barriers for people to be able to come in and compete," Martin said.

The FCC has pressured the cable industry to adopt more competitive practices. Last year, it forced municipalities to speed the process for phone companies to enter local television markets. Another proposal up for a vote today would extend that provision to cable companies.

"We want to even the playing field for similarly situated players," Commissioner Robert M. McDowell said. "What's fair is fair."

About a quarter of the U.S. population lives in apartments, and industry experts estimate that 5 to 10 percent of those buildings have exclusive contracts. Many contracts last 5 to 10 years, while a small number can last indefinitely.

Martin wants to abolish existing contracts as well as future deals -- a reversal of the commission's previous ruling that such exclusive contracts benefit consumers by letting landlords negotiate lower rates.

"The commission can change its mind, but it's a bad precedent to let the government undo contracts because of changes in public policy," said Daniel Brenner, senior vice president of the National Cable and Telecommunications Association. He questioned the FCC's authority to regulate property owners' rights to enter such contracts.

Brenner said cable prices have risen to reflect more sophisticated programming technology, such as high-definition and digital.

The effect of eliminating such agreements would be magnified for minority residents and senior citizens, many of whom live in apartment buildings or retirement communities. Commissioners and consumer groups say increasing competition would reduce prices for minorities, seniors and people with low incomes. But some minority advocates argue that cable operators would have no incentive to reach low-income areas without exclusive contracts.

"These arrangements have helped provide companies with the guaranteed customer base necessary to justify investing in some of the more hard-to-reach places," said former D.C. Council member Sandra C. Allen (D-Ward 8). "We have to fight against the desire by some new entrants to only serve the wealthiest residents while bypassing lower-income homes."

Seventeen states, including Virginia and the District, have outlawed exclusive agreements between cable companies and property owners, but the rule is not always enforced. Maryland allows the contracts, which would be prohibited by the FCC's rule.

RCN, based in Herndon, has been shut out of Montgomery County apartment buildings that have exclusive deals, said Richard Ramlall, senior vice president of strategic and external affairs. "The new FCC law would be very helpful to us," he said. "We can finally knock on these doors and be competitive."

Not all smaller competitors would benefit. Shenandoah Telecommunications, which serves parts of Virginia and Maryland, and OpenBand in Northern Virginia say they could not afford to extend their networks without the return on investment guaranteed by exclusive contracts.

Cable companies often offer service at discounts in exchange for bulk subscriptions. Some property owners fear that they will have to pay more to rewire their buildings for competitors.

"That could drive up rents as the cost is shifted back to developers," said Richard Holtz, chief executive of InfiniSys Electronic Architects, a consulting firm that helps property owners negotiate agreements with cable companies. "It's tough to justify having more than one provider."