Publications + Presentations

Summary:

• Rules Updates: The Federal Communications Commission (FCC) has updated rules impacting the relationships and interactions between service providers and tenants of Multi-Dwelling Units (MDUs) and Multi-Tenant Environments (MTEs).
• Prohibited Agreements: MDU owners and service providers can no longer enter into exclusive or graduated revenue-sharing agreements.
• Marketing Disclaimers: Service providers must include clear disclaimers in marketing materials, informing tenants of any exclusive marketing agreements. The disclosure must clearly state that although a provider may have exclusive marketing rights, tenants may still have access to other service providers.
• Sale-and-Leaseback Arrangements: The FCC has clarified existing rules to explicitly state that Sale-and-Leaseback arrangements are prohibited between cable operators and MDU owners.
• Bulk-billing Arrangements: These continue to be permitted under the current regulations.
• These rules reflect an ongoing effort to promote competition and consumer choice in the communications services market.

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The Federal Communications Commission (FCC) has recently introduced multiple new rules that will impact how telecommunication service providers (cable, phone, internet, etc.) interact with tenants in and owners of Multi-Dwelling Units (MDUs) or Multi-Tenant Environments (MTEs). Both service providers and MDU owners need to be aware of these rules, which include changes to revenue sharing agreements, exclusive marketing agreements, and sale-and-leaseback arrangements – practices that the FCC has determined to be harmful to consumer choice and competition.

It is important to note that the rules surrounding revenue sharing agreements and marketing disclaimers discussed in this article apply to communications services provided by (1) telecommunications carriers in both commercial and residential MDUs, and (2) multichannel video programming distributors (MVPDs) subject to section 628(b) in residential MTEs.¹

Below is an overview of key updates and what they mean for MDU owners moving forward:

1. Prohibition of Certain Revenue Sharing Agreements

The FCC has long ruled that it is unlawful for cable providers and telecommunications carriers to enter into exclusive service or “access” agreements with MDU owners.² These exclusive agreements grant a single provider the sole right to offer services to all tenants within the MDU.

However, some service providers and MDU owners also entered into exclusive revenue sharing agreements and graduated (tiered) revenue sharing arrangements, which circumvented the original rules. These agreements were officially declared unlawful because they function as “de facto” exclusive agreements – meaning the arrangements have the same effect.

A revenue sharing agreement typically involves an MDU owner receiving compensation from a communications provider in return for allowing the provider access to the building and tenants. The compensation may come in various forms, such as a pro-rata share of revenue generated or a one-time payment per unit. In exclusive revenue sharing agreements, the provider compensates the MDU owner for exclusive access to tenants, and the owner is prohibited from accepting compensation from other providers.

In graduated revenue sharing agreements, the compensation for the MDU owner increases as more tenants subscribe to the service. These agreements, while not exclusive in name, still create the practical effect of limiting competition and thus are prohibited.

What This Means for MDU Owners:

• MDU owners can no longer enter into exclusive or graduated revenue-sharing agreements with service providers.³
• This rule applies retroactively, so any existing agreements of this nature must be adjusted to comply with the new rules.
• This prohibition applies to both standalone contracts and clauses within broader contracts.
• The FCC's ruling does not currently prohibit bulk billing arrangements – where a service provider agrees to provide service to all tenants within a building and the tenants are billed a pro-rata share of the total cost. However, it will be important to monitor the FCC rules for any changes that may occur.
• While the FCC rules apply to specific service providers, they do not prevent an MDU owner from refusing access to certain providers. However, it’s important to note that some states, including Ohio, have enacted mandatory access laws for utility providers.⁴ This means that the ability of an MDU owner to deny access to a service provider is state-specific.

2. Disclosure of Exclusive Marketing Agreements

Exclusive marketing agreements between a service provider and an owner of an MDU are permitted. But, to further enhance transparency, the FCC now requires service providers to disclose any exclusive marketing arrangements they have with MDU owners.⁵ An exclusive marketing arrangement allows a service provider the exclusive right to market its services to the tenants of an MDU, usually in exchange for consideration.

The new rule mandates that service providers must include clear disclaimers in all marketing materials (both print and electronic) directed at tenants or prospective tenants of the MDU. These rules do not apply to general marketing materials that incidentally reach tenants/prospective tenants (i.e. online advertising, website promotions).

Direct marketing materials must clearly explain that the provider has exclusive marketing rights but that the provider is not necessarily the only one capable of offering communication services to tenants and alternative providers may still be available. The disclaimer must be in clear, conspicuous, legible, and visible language.

What This Means for MDU Owners:

• MDU owners are not directly responsible for ensuring compliance with this rule; it is the service providers' responsibility. However, it may be helpful to be aware of the disclosure regulations on service providers, so you can ensure that any service providers you work with are compliant with these disclosure requirements. This helps tenants understand that they aren’t limited to one service provider, even if they see exclusive marketing materials.⁶

3. Sale-and-Leaseback Arrangements

In a sale-and-leaseback arrangement, a service provider sells its inside wiring to the MDU owner and leases it back for exclusive use. This type of arrangement between a cable provider and owner of an MDU is now explicitly prohibited by the FCC, as it interferes with tenants' ability to access alternative providers.⁷ These arrangements were found to restrict the ability of tenants to use alternative service providers after the termination of services from the original provider.

What This Means for MDU Owners:

• MDU owners and service providers can no longer enter into sale-and-leaseback arrangements for cable wiring.

Promoting Competition and Consumer Choice

The FCC’s updated rules reflect an ongoing effort to promote competition and consumer choice in the communications services market. For MDU owners, these changes mean greater flexibility for tenants, increased transparency in marketing, and a rethinking of revenue-sharing agreements. Understanding and adapting to these new rules will ensure that service providers and MDU owners remain in compliance while also fostering a competitive environment for service providers.

It’s important for MDU owners to stay informed about these changes and to consult with legal and industry experts as needed to ensure that any existing agreements are updated to reflect the new regulatory landscape.