Written by C. Scott Canady   for CAI Online

The Federal Communications Commission (FCC) concluded that revenue sharing agreements and exclusive use sale-and-lease back wiring arrangements between internet service providers and community associations are anti-competitive and violate the commission’s rules. The FCC found that exclusive marketing arrangements between community associations and internet service providers may continue but require arrangements be disclosed to residents.

Competition for Communication Services

The FCC has a long history of prohibiting practices that limit consumer choice of communications services in multiple tenant environments (MTEs), a term that includes community associations. The FCC acted in 2000 , 2007 , and 2008 to restrict enforcement of exclusive service contracts between telecommunications and video service providers and MTEs. The recent FCC action is a continuation of this policy.

FCC Review of Competition for Broadband Internet Service in MTEs

In 2019, the FCC released a report evaluating competition for internet services in MTEs and issued a notice requesting public comments on internet service competition in MTEs. The FCC requested comments on (1) exclusive marketing arrangements; (2) de facto exclusive wiring arrangements; (3) bulk billing arrangements; (4) revenue sharing agreements; and (5) exclusive rooftop access contracts.

CAI’s response to the FCC request for public comments (1) urged the Commission to reaffirm its long-standing position that exclusive marketing arrangements are permissible and noted disclosure of exclusive marketing arrangements may benefit consumers; (2) expressed concern over wiring contracts with exclusive use clauses; (3) supported continued use of bulk billing arrangements; and (4) noted that revenue sharing agreements and exclusive rooftop contracts identified by the Commission were uncommon among community associations.

There are three types of arrangements included in the FCC’s report and order; including:

Revenue Sharing Agreements

Revenue sharing agreements provide for payments between an internet service provider and an MTE as tenant or resident service subscriptions increase. According to the FCC’s analysis, these agreements are an incentive for MTEs to take actions that functionally prohibit other service providers from offering services to tenants and residents. All revenue sharing agreements, including agreements where payment increases as subscriptions increase, are rendered unenforceable by the 2022 Report and Order.

Sale-and-Lease Back Agreements

The 2022 FCC Report and Order prohibits wiring sale-and-lease back arrangements between internet service providers and MTEs. These arrangements involve an internet service provider installing new broadband internet wiring in the MTE, selling the wiring system to the MTE, and then leasing the wiring from the MTE on an exclusive basis. The commission held that such arrangements are structured to evade existing prohibitions on exclusive access arrangements and are unenforceable. All existing wiring sale-and-lease back arrangements are unenforceable under the new FCC ruling.

Exclusive Marketing Arrangements

The FCC affirmed that exclusive marketing arrangements between internet service providers and MTEs are permissible, but determined that such arrangements were confusing for consumers. The FCC will continue to monitor exclusive marketing arrangements and how these influence consumer behavior, particularly if the arrangements lead consumers to believe they may only receive internet services from one provider.

To reduce consumer confusion, the FCC requires any internet service provider with exclusive marketing arrangements in MTEs to disclose the marketing arrangement and inform tenants or residents that internet services may be available from other service providers. The disclosure requirements apply exclusively to internet service providers. Community associations have no disclosure requirement under the new FCC ruling.

FCC Remains Concerned about Competition for Communications Services in MTEs

The FCC continuously reviews the competitive environment for communications services in community associations and other MTEs. The FCC will continue to monitor market conditions, particularly the impact of exclusive marketing arrangements.

Community associations may find it useful to review existing agreements with internet service providers, as well as video and telecommunications service providers, to determine if the agreements remain enforceable. Ensuring that internet service providers comply with new disclosure rules will protect the availability of such agreements in the future.

C. Scott Canady Principal at Tambala Strategy, LLC

Scott Canady’s 13-year record of public service includes experience gained in the U.S. House of Representatives and in the U.S. Department of Housing and Urban Development.

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