Multiple Dwelling Units (MDUs)
On October 31, 2007, the Federal Communications Commission (FCC) unanimously adopted a Report and Order (the “ Order”) that prohibits the enforcement of exclusivity clauses in contracts for the provision of video services to Multiple Dwelling Units (“ MDUs”), including apartment buildings, cooperatives, condominiums, trailer parks, etc.
The Order applies to most cable operators; though the FCC made it clear it would be considering whether to extend the ban on exclusivity contracts to other Multichannel Video Programming Distributors (MVPD), such as satellite, private cable operators and telephone companies. The Order is the first step in the FCC’s attempt to introduce competitive parity among video providers with regard to their servicing of MDUs.
The Order prevents a MDU from entering into an exclusive contract with a cable provider to provide cable video to the unit. The FCC justifies its authority based on Section 628 of the Communications Act of 1934, as amended (“the Act”). That provision, which is contained in the section dealing with cable communications, provides the FCC with the authority to prevent cable operators from engaging in unfair methods of competition. Since Section 628 of the Act only provides this authority to the FCC with regard to cable providers, the Order is limited only to exclusivity agreements between MDUs and most cable companies.
The Order does not abrogate the entire contract between a cable provider and the MDU. Rather, the effect of this Order will only prevent enforcement of the exclusivity provision that may exist within such a contract. The Order defines “exclusivity provisions” as those that, “prohibit any other MVPDs from access whatsoever to the premises of the MDU building or real estate development.” The Order does not create rules for “wire exclusivity” (which allows more MVPDs into a MDU but prohibits them from using the existing wires in the MDU even if the wires are owned by the MDU) or “marketing exclusivity” (which allows over MVPDs into a MDU but prohibits the owner from marketing their services).
Since 18 states – including New York, Connecticut, Florida, Kansas, Illinois and Minnesota – have already enacted similar prohibitions on exclusivity contracts, the nationwide effect of this Order may be less dramatic than envisioned.
Concurrently with adopting the Order, the FCC also adopted a Further Notice of Proposed Rulemaking seeking comment on whether to take action on exclusivity clauses in contracts between satellite, private cable operators and other “ MVPDs” and the owners of MDUs. The Further Notice of Proposed Rulemaking sought comment on whether the FCC should also prohibit exclusive marketing and bulk-billing arrangements between MVPDs and MDUs.