[Federal Register: January 7, 2008 (Volume 73, Number 4)]
[Rules and Regulations]
[Page 1080-1089]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07ja08-11]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 76
[MB Docket No. 07-51; FCC 07-189]
Exclusive Service Contracts for Provision of Video Services in
Multiple Dwelling Units and Other Real Estate Developments
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: The Commission's action concerns ``Multiple Dwelling Units''
such as apartment or condominium buildings and centrally managed
residential real estate developments (collectively, ``MDUs''); cable
operators that provide video service in MDUs; and agreements that grant
them the exclusive right to provide video programming service in an
MDU. The Commission finds that such agreements, in granting
exclusivity, harm competition, the provision of programming to MDU
residents, and broadband deployment. Thus, the Commission prohibits the
enforcement of existing exclusivity clauses and the execution of new
ones by cable operators (and a few others). This prohibition will
materially advance the Communications Act's goals of enhancing
competition, consumer choice in video service and programming, and
broadband deployment.
DATES: Effective March 7, 2008.
ADDRESSES: Federal Communications Commission, 445 12th Street, SW.,
Washington, DC 20554.
FOR FURTHER INFORMATION CONTACT: For additional information on this
proceeding, please contact John W. Berresford, (202) 418-1886, or Holly
Saurer, (202) 418-7283, both of the Policy Division, Media Bureau.
SUPPLEMENTARY INFORMATION: This is a summary of the Federal
Communications Commission's Report and Order in MB Docket No. 07-51,
FCC 07-189, adopted October 31, 2007, and released November 13, 2007.
The full text of this document is available for public inspection and
copying during regular business hours in the FCC Reference Center,
Federal Communications Commission, 445 12th Street, SW., CY-A257,
Washington, DC 20554. These documents will also be available via ECFS
(http://www.fcc.gov/cgb/ecfs/). (Documents will be available
electronically in ASCII, Word 97, and/or Adobe Acrobat.) The complete
text may be purchased from the Commission's copy contractor, 445 12th
Street, SW., Room CY-B402, Washington, DC 20554. To request this
document in accessible formats (computer diskettes, large print, audio
recording, and Braille), send an e-mail to fcc504@fcc.gov or call the
Commission's Consumer and Governmental Affairs Bureau at (202) 418-0530
(voice), (202) 418-0432 (TTY).
Summary of the Report and Order
1. The Notice of Proposed Rulemaking (``Notice'') in this
proceeding solicited comment on the need to regulate contracts
containing clauses granting one multichannel video programming
distributor (an ``MVPD'') exclusive access for the provision of video
services (``exclusivity clauses'') to multiple dwelling units
(``MDUs'') and other real estate developments. Exclusive Service
Contracts for Provision of Video Services in Multiple Dwelling Units &
Other Real Estate Developments, Notice of Proposed Rulemaking, 22 FCC
Rcd 5935 (2007). Approximately 30 percent of Americans live in MDUs,
and their numbers are growing. In this Report and Order, we find that
contractual agreements granting such exclusivity to cable operators
harm competition and broadband deployment and that any benefits to
consumers are outweighed by the harms of such clauses. Accordingly, we
conclude that such clauses are proscribed by section 628 of the
Communications Act of 1934, as amended. That section prohibits unfair
methods of competition that have the purpose or effect of hindering
significantly or preventing MVPDs from providing ``satellite cable''
and/or ``satellite broadcast'' programming to subscribers and
consumers. Thus, in this Order we prohibit the enforcement of existing
exclusivity clauses and the execution of new ones by cable operators
and others subject to the relevant statutory provisions. This
prohibition will materially advance the Act's goals of enhancing
competition and broadband deployment.
2. The record in this proceeding does not contain much information
regarding the use of exclusivity clauses by providers of Direct
Broadcast Satellite (``DBS'') or other MVPDs that are not cable
operators subject to section 628 of the Act. In the interests of
developing a fuller record, and in the interests of regulatory parity,
we also issue a Further Notice of Proposed Rulemaking (``Further
Notice'') concerning MVPDs not subject to section 628. In this Further
Notice, we also seek comment on whether the Commission should prohibit
exclusive marketing and bulk billing arrangements.
I. Background
3. This section reviews the history of this proceeding and makes
several important findings of fact. Among these findings are that a
large and growing number of Americans live in MDUs and that a
significant number of those MDUs are subject to exclusivity clauses.
The beneficiaries of most of those clauses are incumbent cable
operators. Although Commission rules ensure that many residents of MDUs
and other real estate developments may receive satellite-based video
service, exclusivity clauses protect cable operators from competition
in MDUs from new entrants into the MVPD business, chiefly incumbent
local exchange carriers (``LECs'') and other wire-based MVPDs that
bring satellite cable and satellite broadcast programming to their
subscribers. We also find that the entry of incumbent LECs into the
MVPD business has led incumbent cable operators to increase their use
of exclusivity clauses in order to bar or deter the new entrants.
4. These practices are reached primarily by our authority under
section 628. That section, in brief, makes it unlawful for cable
operators to engage in certain unfair acts and methods of competition.
Specifically, section 628(b) prohibits cable operators from engaging in
unfair practices that have the purpose or effect of hindering
significantly or preventing their competitors from providing satellite
cable programming or satellite broadcast programming to subscribers or
consumers. Such video programming is made for broadcast or cable
systems and is delivered by satellite to MVPDs, who in turn deliver it
to their subscribers. Section 628
[[Page 1081]]
concerns two kinds of programming in particular. One is ``satellite
cable programming,'' which is video programming (not including
satellite broadcast programming) that is transmitted by satellite to
cable operators for retransmission to cable subscribers. See 47 U.S.C.
548(i)(1), 605(d)(1). The other is ``satellite broadcast programming,''
which is broadcast video programming that is retransmitted by satellite
by an entity other than the broadcaster or an entity under the
broadcaster's control. See 47 U.S.C. 548(i)(3). This programming
comprises the substantial majority of programming carried by MVPDs. In
section III below, we conclude that clauses that grant cable operators
exclusive access to MDUs and other real estate developments fall within
the scope of section 628(b), because those clauses effectively prohibit
new entrants into the MVPD market from providing satellite-delivered
programming to consumers who live in MDUs and other real estate
developments.
5. The Commission last considered issues concerning exclusivity
clauses in its 2003 Inside Wiring Order. At that time, the Commission
decided that exclusivity clauses had both pro-competitive and anti-
competitive effects, and that the record before the Commission made it
unclear what their net effect was. The Commission therefore decided to
take no action regarding exclusivity clauses at that time, but it did
not close the door to action if new circumstances arose in which such
clauses had new anti-competitive effects. The Notice of March 2007 re-
opened the issue and prompted the submission of much new evidence. The
Notice raised several questions concerning exclusivity clauses. These
included the Commission's legal authority to regulate such clauses; the
prevalence of such clauses; the possible increase in their number and
scope at the instigation of incumbent cable operators with the
impending entry of LECs into the MVPD marketplace; the benefits and
harms to competition and consumers of exclusivity clauses; and the
extent of any prohibition of such clauses, and other remedial action,
that we should impose.
6. The Notice attracted filings from large and small cable
operators and LECs, other providers of MVPD services (including so-
called private cable operators or ``PCOs''), builders and managers of
MDUs and other dwellings, elected officials, two state government
entities and many local governments, academic institutions, consumer
groups, labor unions, and subscribers to MVPD and other services. (PCOs
are also known as Satellite Master Antenna Television providers or
``SMATVs.'' They are video distribution facilities that use closed
transmission paths without using any public right-of-way. PCOs acquire
video programming and distribute it via terrestrial wiring in urban and
suburban MDUs and commercial multiple tenant units such as hotels and
office buildings. They are small compared to major incumbent cable
operators and incumbent LECs.)
7. For purposes of this Report and Order, we define the term
``MDU'' to include the kinds of dwellings that we have defined as being
MDUs in past decisions implementing the Act. That is, MDUs include
apartment, cooperative, and condominium buildings. For purposes of this
Report and Order, we adopt this definition but expand it to include
other centrally managed real estate developments. Thus, the term MDUs,
for purposes of this Report and Order, also includes gated communities,
mobile home parks, garden apartments, and other centrally managed
residential real estate developments. All of these are collections of
private individual households with residents remaining for lengthy,
indefinite periods of time, each in a dwelling space that is distinctly
separate but shares some common spaces requiring central management.
For purposes of this proceeding, MDUs do not include time share units,
academic campuses and dormitories, military bases, hotels, rooming
houses, jails, prisons, halfway houses, hospitals, nursing and other
assisted living places, and other group quarters characterized by
institutional living, high transience and, in some cases, a high need
for security. These latter institutions do not have most of the key
defining attributes of MDUs that we have just described, including
voluntary long-term residency and significant control by the resident
over uses of the private dwelling space. These attributes give the
resident a strong interest in making his or her own choice of a MVPD
provider and thus warrant regulatory action to preserve the resident's
ability to do so.
8. The record in this proceeding indicates that approximately 30
percent of Americans live in MDUs and that this percentage is growing.
The percentage of minorities living in MDUs is larger than that of the
general population. The majority of incumbent MVPDs serving MDUs
pursuant to exclusivity clauses are incumbent providers of cable
television service to the surrounding local community. A few of the
incumbent MVPDs that have executed contracts with exclusivity clauses
are PCOs or small providers of fiber-based communications services.
Some incumbent LECs have requested exclusivity clauses from MDUs. There
is no evidence in the record that providers of DBS service use
exclusivity clauses.
9. Exclusivity clauses that run in favor of cable operators
typically are a complete bar to entry into MDUs by fiber-deploying LECs
such as Verizon, AT&T, and Qwest, as well as PCOs. These competitors in
the MVPD marketplace receive much of their programming, both cable and
broadcast, via satellite for retransmission directly to their
subscribers. Although exclusivity clauses do not prevent MDU residents
from installing receiving dishes and receiving DBS service where the
Commission's ``Over the Air Reception Devices'' rules apply, they bar
new wire-based competitors from MDUs.
10. The record herein reveals that exclusivity clauses are
widespread in agreements between MVPDs and MDU owners, and that the
overwhelming majority of them grant exclusive access to incumbent cable
operators. Exclusivity clauses between MVPDs and MDU owners have the
clear effect of barring new entry into MDUs by wire-based MVPDs. The
evidence before us shows that this effect occurs on a large scale.
Verizon provided examples of exclusivity clauses, most of them in favor
of incumbent cable operators, that provoked requests to cease and
desist the marketing of its FiOS cable service. Verizon has
``repeatedly encountered exclusive access arrangements which have
prevented it from providing cable services to significant numbers of
residents.'' Early in its offering of FiOS, Verizon encountered
exclusivity clauses running in favor of incumbent cable operators,
which barred it from serving more than 3,000 residential units in the
Dallas, Texas, area and many other places, all totaling ``tens of
thousands of units in five separate states.'' Other examples of
exclusion, again mostly involving incumbent cable operators, are in the
record from would-be MVPDs, a local government, and a MDU owner who
agreed to exclusivity clauses in the past and now is prohibited from
offering its residents new and improved communications services. AT&T
states that ``efforts to lock-up MDUs have occurred in California,
Texas, and virtually every market where AT&T has begun to enter the
video service market''--efforts that are ``plainly intended to block
competition and * * * not designed to address aesthetics or congestion
in a MDU's common areas.'' The exclusivity clauses that AT&T has
recently encountered typically last between five and 15 years, often
with automatic renewal, or are
[[Page 1082]]
perpetual. Hargray CATV Inc., an affiliate of the incumbent LEC in
Hilton Head, South Carolina, began to provide cable service there as a
new entrant. It was forced to stop serving or marketing to 20,000 of
the 25,000 homes in the community, however, due to exclusivity clauses
entered into by real estate developers and the incumbent cable operator
(originally Adelphia, whose systems later were acquired by Time
Warner), decades ago in some cases.
11. Consumer groups are also concerned about exclusive agreements.
As noted by several consumer groups, a disproportionately large number
of communities of color live within MDUs. Consumer groups are concerned
that these residents are unable to enjoy the benefits of competition in
the video marketplace, and ask that the Commission act to ensure that
all consumers can reap the benefits of competition.
12. The record indicates that the evidence before us understates
the frequency of exclusivity clauses because many MDU owners are
unwilling or legally unable to make public the contracts containing
them. Also, many exclusivity clauses date from the time when cable
operators had a de facto or de jure monopoly on wire-based MVPD
service. In those market conditions, a MDU owner might have thought
that agreeing to exclusivity was not giving the cable operator anything
of significance. Some commenters state that a MDU owner can bargain for
good service, low prices, and other concessions in exchange for
exclusives. But the owner had no such bargaining power when the first
cable operator was ``the only game in town.''
13. More recent developments were not part of the record the
Commission compiled in the proceeding that culminated in the 2003
Inside Wiring Order. Significantly, LECs and other wire-based providers
have begun entering the video service business on a large scale. In
this environment, exclusivity clauses executed by incumbent cable
operators are causing an important loss of potential competition within
MDUs and thereby depriving MDU residents of recognized benefits
generated by competition in the form of price and service options.
Exclusivity clauses may also be deterring new entry into the MVPD
market in many areas because they put a significant number of new
customers off limits to new entrants.
14. Moreover, AT&T, Lafayette Utilities in Louisiana, United States
Telecom Association, and Verizon report that, with the imminent entry
of LECs into the multichannel video marketplace, incumbent cable
operators have increased the use of exclusivity clauses in their
agreements with MDU owners. As one commenter noted, ``[i]ncumbent
providers commonly engage in a flurry of activity to lock up MDUs and
other real estate developments in exclusive arrangements as soon as it
becomes clear that a new entrant will be coming to town.'' Sometimes
these clauses are inserted in fine print, in ``legalese,'' and without
adequate notice to the MDU owner.
15. In sum, the record demonstrates that exclusivity clauses bar
entry into MDUs by new providers of multichannel video service. It also
shows that, in reaction to the recent competitive challenge posed by
LEC entry into the video marketplace, incumbent providers (chiefly
incumbent cable operators) are increasingly using exclusivity clauses
in new agreements with MDU owners to bar the entry of their new rivals
and potential rivals. These developments constitute a substantial
change to the record the Commission compiled in the period leading up
to the 2003 Inside Wiring Order.
II. Discussion
A. Harms and Benefits of Exclusivity Clauses
16. In this section, we first describe the harms and benefits of
exclusivity clauses. We conclude that the harms significantly outweigh
the benefits in ways they did not at the time of the Commission's 2003
Inside Wiring Order. Specifically, they bar new entry and competition
for both MVPD services and the so-called ``triple play'' of voice,
video, and broadband Internet access services. They also discourage the
deployment of broadband facilities to American consumers. This, in
turn, has the effect of significantly hindering or preventing new MVPDs
from providing to MDU residents video programming services that are
within the scope of section 628(b). Section 628(b) of the Act makes it
unlawful for cable operators and their vertically integrated
programmers to engage in certain practices that hinder or prevent MVPDs
from providing ``satellite cable programming'' or ``satellite broadcast
programming'' to subscribers. ``Satellite cable programming'' is video
programming (not including satellite broadcast programming) that is
transmitted by satellite to cable operators for retransmission to cable
subscribers. ``Satellite broadcast programming'' is broadcast video
programming that is retransmitted by satellite by an entity other than
the broadcaster or an entity under the broadcaster's control. We
therefore conclude that cable operators' use of exclusivity clauses in
contracts for the provision of video services to MDUs constitutes an
unfair method of competition or an unfair act or practice proscribed by
section 628(b).
17. Harms Caused by Exclusivity Clauses. By far the greatest harm
that exclusivity clauses cause residents of MDUs is that they deny
those residents another choice of MVPD service and thus deny them the
benefits of increased competition. Congress and the Commission have
repeatedly found, and few parties dispute here, that entry by LECs and
other providers of wire-based video service into various segments of
the multichannel video marketplace will produce major benefits for
consumers. A significant increase in multichannel competition usually
results in lower prices, more channels, and a greater diversity of
information and entertainment from more sources. Notably, our most
recent Cable Price Survey Reports show that the presence of a second
wire-based MVPD competitor clearly holds prices down more effectively
than is the case where DBS is the only alternative. The fact that an
incumbent cable operator may face competitive pressures on its pricing
in a franchise area surrounding or adjacent to a MDU does not mean that
the residents of a MDU served by the same cable operator will reap the
benefits of such competition, including the option to choose among
competitive providers, some of which may provide a reduced-priced
bundled package. This is particularly true when incumbent cable
operators and MDU owners sign contracts before a competitive provider
enters the market, a practice that the record in this proceeding
indicates is quite common. Within the MDU, the incumbent, protected by
its exclusivity clause from any competition it may face outside the
MDU's boundaries, would have no incentive to hold down its prices
within the MDU. The MDU's residents would also be denied the benefits
of taking service from the new entrant, with potentially lower rates
and better features than the incumbent's.
18. In addition, a new provider of MVPD services such as a LEC is
likely to bring into a MDU some satellite-delivered cable programming
that the incumbent beneficiary of the exclusivity clause does not.
Absent the new entrant, the MDU's residents who favor that programming
will be denied the programming of their choice. This denial will fall
disproportionately on minorities and low-income families
[[Page 1083]]
(and on programmers specializing in programming oriented to those
groups), and all residents will be denied increased competition in
programming among MVPD providers. We agree with Consumers Union that we
should ensure that the ``no segment of the population is denied the
benefits of video competition.''
19. LEC entry is also likely to result in increased deployment of
fiber to American homes at lower cost per residence, and a new
competitor offering the ``triple play'' bundle of video, voice, and
Internet access service. An exclusivity clause in a MDU's agreement
with a MVPD denies all these benefits to the MDU's residents. Even if
exclusivity clauses do not completely bar new entrants from the MVPD
market everywhere, they foreclose new entrants from many millions of
households, a significant part of the national marketplace. Such
clauses could therefore deter new entrants from attempting to enter the
market in many areas. More important, exclusivity clauses deny
consumers in a part of the market the benefits that could flow to them,
and exclusivity clauses confer few, if any, benefits on those
consumers. These harms to consumers are greater than they were several
years ago, when new entry by LECs had not begun on a large scale, the
recent increase in fiber construction had not yet materialized, and the
popularity of the triple play was unproven.
20. The effect of exclusivity clauses on broadband deployment and
``triple play'' services merits further discussion. We have stated that
broadband deployment and entry into the MVPD business are
``inextricably linked.'' One basis for this observation is the recent
emergence of LECs, cable operators, and some other providers offering
consumers a ``triple play'' of voice, MVPD, and broadband Internet
access services. The offering of, and competition in, the triple play
brings to consumers not just advanced telecommunications capability,
but also a simplicity and efficiency that is proving to be highly
attractive in the marketplace.
21. In a MDU where an incumbent has the exclusive right to provide
MVPD service, no other provider can offer residents the triple play
today on its own facilities. Any new entrant that could offer all three
parts of the triple play but for the existence of an exclusivity
clause, which limits its offerings to voice and broadband Internet
access, would find entry less attractive. The new entrant might not
enter at all. Or, if the new entrant enters despite that handicap and
provides MDU residents with only voice and Internet access services,
leaving MVPD service to the beneficiary of an exclusivity clause, the
new entrant's wire is inefficiently underutilized. Thus, exclusivity
clauses reduce competition in the provision of triple play services and
result in inefficient use of communications facilities.
22. Exclusivity clauses can cause other harms to MDU residents. A
MDU owner may grant exclusivity to one MVPD based on the available
choice of service providers at a given time, and in doing so bar entry
into the MDU by a more desirable but later-arriving MVPD. Or, the
person who grants exclusivity to one MVPD may be the developer or
builder of a MDU, who may grant exclusivity against the long-term
interests of the residents and soon thereafter relinquish control of
the MDU. In addition, exclusivity clauses can insulate the incumbent
MVPD from any need to improve its service; Manatee County, Florida,
aptly describes incumbent beneficiaries of exclusivity clauses as
``sitting on these `fiefdoms.' ''
23. Finally, the record indicates that exclusivity clauses are not
always in the best interest of MDUs owners, either. Technologically
advanced buildings are important for attracting and retaining
residents, and a lack of competition for providing new communications
services can negatively affect a residential development. A MDU owner
may not see a benefit in an exclusivity clause that bars entry by new
providers that were not in the market when the clause was written.
24. Benefits of Exclusivity Clauses. When the Commission last
considered issues concerning exclusivity clauses in its 2003 Inside
Wiring Order, it determined that exclusivity clauses had some pro-
competitive effects. In some cases, exclusivity clauses, or at least
those of a limited duration, may help a MVPD to obtain financing to
wire an entire building for cable and other services and to recover its
investment over the term of exclusivity. Similarly, some commenters
claim that exclusivity clauses are especially necessary to attract
investment in marginally attractive MDUs.
25. Some commenters argue in support of the use of exclusivity
clauses that, with the decline of LECs' and cable operators'
traditional duty to serve all homes in an area, an exclusivity clause
may be necessary to attract a MVPD into a new real estate development.
Other commenters state that a MDU owner, needing to attract buyers or
tenants, may be counted on to represent them and will agree to an
exclusivity clause only if it is in their interests. The rational
owner, these commenters claim, will give exclusive access to the one of
several bidding MVPDs that offers the best mix of low price, quality
service, promised improvements and in some cases, specialized program
offerings. An exclusivity clause, in this view, substitutes competition
for the MDU for competition for individual residents, and the resulting
benefits may be passed on to the residents. In the same vein, some
commenters deny that exclusivity clauses allow MVPDs to become
complacent and provide inferior service; these entities believe that
the high turnover in MDUs requires building owners to maintain and
constantly improve their service so that the building or development
will attract new residents who will become its subscribers.
26. Conclusion. We conclude that exclusivity clauses cause
significant harm to competition and consumers that the record did not
reflect at the time of our 2003 Inside Wiring Order. We further find
that although exclusivity clauses may in certain cases be beneficial,
at least in the short term, to consumers, the harms of exclusivity
clauses outweigh their benefits. The evidence described in the
preceding paragraphs demonstrates that exclusivity clauses, especially
when used in current market conditions by incumbent cable operators,
are a barrier to new entry into the multichannel video marketplace and
the provision of triple play offerings. Such exclusivity clauses
inhibit competition in these markets and slow the deployment of
broadband facilities. In doing so, exclusivity clauses deny MDU
residents the benefits of increased competition, including lower prices
and the availability of more channels with more diverse content, as
well as access to alternative providers of broadband facilities and the
triple play of communications services their facilities support. It is
also noteworthy that there is no evidence in the record that MDU
residents pay higher rates for MVPD services in states whose laws
prohibit or limit exclusivity. These harms to consumers are traceable
to the incumbent cable operators' practice, increased recently, of
using exclusivity clauses, sometimes in fine print and without adequate
notice to MDU owners, to forestall competition, particularly when new
competitors are about to enter the market. We do not wish to deny MDU
residents these benefits based on incumbents' alleged need to be
shielded from additional competition, or to subject them to
[[Page 1084]]
something resembling the exclusive franchises of an earlier era.
27. Moreover, we find that cable operators' use of exclusivity
clauses in contracts for the provision of video services to MDUs
constitutes an unfair method of competition or an unfair act or
practice proscribed by section 628(b). Section 628 is designed to
increase ``competition and diversity'' in the multichannel video
marketplace, increase the availability of satellite cable and satellite
broadcast programming to persons in ``areas not currently able to
receive such programming,'' and ``spur the development of
communications technologies.'' That provision specifically prohibits
cable operators from engaging in unfair methods of competition or
unfair acts or practices that have the purpose or effect of hindering
significantly or preventing any MVPD from providing satellite cable
programming or satellite broadcast programming to consumers. We have
found above that a significant percentage of consumers live in MDUs. We
also found that, with the increasing entry of wire-based competitors,
such as LECs, into the MVPD marketplace, incumbent cable operators have
increased their use of exclusivity clauses with MDU owners,
particularly when new competitors are on the verge of entering a
particular market. The record shows that these exclusivity clauses have
the purpose or effect of preventing other MVPDs from providing the kind
of programming covered by section 628--satellite cable and/or broadcast
programming--to certain consumers; indeed, that is the intended and
inevitable effect of exclusivity clauses. Exclusivity clauses prevent
new entrant MVPDs from competing with entrenched incumbent providers on
the basis of service offerings, including programming, and on price.
Foreclosing competition in the MDU market in this way is unfair because
it deprives consumers residing in MDUs of the opportunity to choose a
MVPD provider. Cable operators' execution of exclusivity clauses, which
foreclose the competitive provision of MVPD service, the triple play,
broadband deployment, and satellite-delivered programming to MDUs, thus
constitutes an unfair method of competition in violation of section
628(b).
28. We reject arguments that exclusivity clauses mostly work to the
benefit of MDU owners and residents. First, as explained above, the
person signing an exclusivity clause for a MDU may be a builder or
manager whose interests do not coincide with those of the MDU's
residents, especially after a few years. Second, the cable operator may
have induced the MDU owner to accept an exclusivity clause before any
wire-based competitor was on the horizon, in which case there was no
``competition for the MDU'' at the time and no prospect of it in the
future. Third, the exclusivity clause may be in ``legalese'' and in
fine print and the MDU owner may be unaware of it. Fourth, the fact
that a new entrant wants to serve the MDU undercuts any claim that only
one wire-based provider can serve the building profitably--if new entry
would be unprofitable, it is unlikely that the new entrant would want
to enter. Fifth, there is no evidence in the record, other than
generalities and anecdotes, that incumbent MVPD providers couple
exclusivity clauses with significant new investments that they do not
make elsewhere, such as in states whose laws prohibit exclusivity.
Sixth, SureWest states that the triple play, which offers a provider
revenue from three services, reduces any need for exclusivity that it
may have had in the past, when MVPD revenue was the only way it could
recover its investment. Finally, other agreements between incumbent
MVPDs and MDU owners, perhaps providing for marketing exclusivity or
bulk discounts, can provide benefits similar to those alleged for
exclusivity clauses without causing the latter clauses' entry-
foreclosing harms to consumers. Therefore, although ``competition for
the MDU'' may have some theoretical advantages in some cases over
competition for individual consumers, it may not describe reality in
many cases. Even if it does, in general we find that the best results
for consumers come from preserving their ability to play an active role
in making an individual choice rather than allowing cable operators
using exclusivity clauses to foreclose individual choice. In addition,
as noted above, exclusivity clauses tend to insulate the incumbent from
any need to improve its service. Thus, we conclude that exclusivity
clauses generally do not benefit MDU residents.
29. The record contains claims that exclusivity clauses may lead to
lower prices. Although we cannot rule out the possibility that those
claims may be true in some cases, such assertions are outweighed by the
numerous studies showing that a second wire-based MVPD lowers prices.
We also reject arguments that ``exclusivity is not really a problem''
because many MDUs are not subject to exclusivity clauses and such
clauses expire. A practice that harms a significant number of
households in this country warrants remedial action even if it does not
harm everyone.
B. Prohibition of Exclusivity Clauses
30. For the reasons set forth above, we prohibit cable operators
and other entities that are subject to section 628 from enforcing
existing exclusivity clauses and executing contracts containing new
ones. These other entities are LECs and open video systems and are
discussed in section III below.
31. Specifically, 60 days after publication of this Report and
Order in the Federal Register, no cable operator or multichannel video
programming distributor subject to section 628 of the Act shall enforce
or execute any provision in a contract that grants it the exclusive
right to provide any video programming service (alone or in combination
with other services) to a MDU. Any such exclusivity clause shall be
null and void.
32. We fashion the prohibition pursuant to section 628 for several
reasons. First, that provision is a basis of our statutory authority to
regulate exclusivity clauses. Second, incumbent cable operators, which
are subject to section 628, are the beneficiaries of the vast majority
of exclusivity clauses. As described above, incumbent cable operators
are primarily responsible for the recent increase in newly executed
exclusivity clauses. Also, the evidence in the record indicates that
incumbent cable operators are using them to impede the entry of new
competitors into the MVPD market in many areas. Incumbent cable
operators are still by far the dominant force in the MVPD business,
with a market share most recently measured at 67 percent and the
ability to impose steadily rising prices. Our prohibition is limited to
those MVPDs covered by section 628(b). It does not reach PCOs or DBS
providers because we do not have an adequate record on which to decide
whether such a prohibition is warranted for non-cable operators.
Nevertheless, we are adopting a Further Notice of Proposed Rulemaking
in order to develop such a record and, based on it, evaluate whether
action is called for.
33. We put no time limit on the prohibition we adopt in the instant
order and we do not exempt from it any kind of MDU or any geographic
location. We do, however, limit our prohibition to those residential
real estate developments that we define as MDUs as discussed above.
34. The rule we adopt in this proceeding is consistent with the
longstanding Congressional prohibition of exclusive franchises for
cable service and the statement in our most recent Inside Wiring Order
that ``[n]ew entrants
[[Page 1085]]
to the video services and telephony markets should not be foreclosed
from competing for consumers in multi-unit buildings.''
35. The rule we adopt in this proceeding prohibits both the
enforcement of existing exclusivity clauses and the execution of new
ones. Both have the same competition- and broadband-deterring effect
that harms consumers. A rule that left exclusivity clauses in effect
would allow the vast majority of the harms caused by such clauses to
continue for years, and we believe that it is strongly in the public
interest to prohibit such clauses from being enforced. Those harms
would continue indefinitely in the cases of exclusivity clauses that
last perpetually or contemplate automatic renewal upon the renewal of
the incumbent cable operator's franchise.
36. Our prohibition of the enforcement of existing exclusivity
clauses does not disturb legitimate expectations of investors in MDUs
and the video service providers affected by this Order. The lawfulness
of exclusivity clauses has been under our active scrutiny for a decade,
making the parties to them aware that such clauses may be prohibited.
Although we have not prohibited enforcement of them until now, we had
previously recognized the reasons for doing so but had lacked an
adequate record on which to base such a decision. We have prohibited
the enforcement of exclusivity clauses for satellite-delivered
programming before. For example, the Commission prohibits, with respect
to distribution to persons in areas served by cable operators and other
MVPDs covered by section 628(b), exclusivity clauses for satellite
cable programming and satellite broadcast programming between a cable
operator and a vendor of such programming in which a cable operator has
an attributable interest, unless the Commission determines that such
contracts are in the public interest. Also, in the context of
commercial telecommunications services, the Commission has prohibited
the execution of exclusive access arrangements in multiple tenant
environments and has sought comment on whether to prohibit the
enforcement of existing exclusive access provisions. We recognize that
the Commission has yet to address the issue raised in the Competitive
Networks Further Notice of Proposed Rulemaking regarding the
enforceability of exclusivity clauses for telecommunications services
in residential MDUs. In light of the competitive parity implications,
we will resolve that issue within the next two months. Some states have
given some or all MVPD providers rights of access to MDUs.
37. Moreover, incumbent cable operators will still be able to use
their equipment in MDUs to provide service to residents who wish to
continue to subscribe to their services. Finally, we note that the rule
we adopt today does not require that any new entrant be given access to
any MDU. A MDU owner still retains the rights it has under relevant
state law to deny a particular provider the right to provide service to
its property. We merely prohibit the enforcement of existing
exclusivity clauses and the execution of new ones by cable operators.
While this Order prohibits the enforcement of existing exclusivity
clauses, it does not, on its own terms, purport to affect other
provisions in contracts containing exclusivity clauses.
38. We reject proposals that we should exempt contracts with
exclusivity clauses from this prohibition on a case-by-case basis or
that we should allow exclusivity clauses for small cable operators,
cable operators in rural areas, MVPDs that are found to lack ``market
power,'' MVPDs other than incumbent cable operators, ``planned
communities,'' and new real estate developments. We are reluctant to
deny any large class of MDU residents the benefits of increased
competition or to allow any cable operator to engage in future harmful
conduct. Finally, we wish to avoid the burden that would be imposed by
numerous individual adjudications about whether market power or some
other undesirable condition exists in an individual MDU or community,
or whether a particular entity in an allegedly unique situation is
exempted from the prohibition. In addition, as discussed in section III
below, restrictions adopted pursuant to section 628(b) apply
automatically to certain categories of MVPDs pursuant to sections
602(7), 628(j), and 653(c)(1)(A).
39. Some commenters have suggested that we allow exclusivity
clauses for a period of years or that we put a time limit on our
prohibition of them, such as a specific term of years, the end of the
current franchise of the incumbent cable operator, until ``effective
competition'' is found to exist in an area, or until some other measure
of competition is shown. We decline these suggestions. We are reluctant
to grant any communications companies an artificial period of immunity
from pro-competitive regulation during which the recovery of their
investment is guaranteed; companies in communications markets regularly
invest billions of dollars without any such guarantees. Chiefly, we
wish to avoid the burden of individualized adjudications and
measurements because we believe that they would burden us and the
industry, and we believe that the limited benefits that such clauses
confer are outweighed by their deleterious long-term effects on the
provision of competitive services to consumers.
III. Legal Authority
40. Several sources afford the Commission ample authority to
prohibit exclusivity clauses in contracts between cable operators and
owners of MDUs. First, consistent with our tentative conclusion in the
Notice, we conclude that we have authority under section 628(b) of the
Act to adopt rules prohibiting cable operators from enforcing or
executing contracts that give them the exclusive right to provide video
programming services (alone or in combination with other services) to
MDUs. Moreover, we conclude that pursuant to the Act the same
prohibition will apply to common carriers or their affiliates that
provide video programming directly to subscribers under section 628(j)
of the Act and to operators of open video systems under section
653(c)(1). Finally, we conclude that, even in the absence of this
explicit statutory authority, we have ancillary authority to prohibit
incumbent cable operators from entering into contracts that are for the
provision of video services to MDUs and that contain exclusivity
clauses.
41. Turning first to cable operators, the plain language of the
statute provides a solid legal foundation for the rule adopted today.
Section 628(b) broadly states that:
``[i]t shall be unlawful for a cable operator * * * to engage in
unfair methods of competition or unfair or deceptive acts or
practices, the purpose or effect of which is to hinder significantly
or to prevent any multichannel video programming distributor from
providing satellite cable programming or satellite broadcast
programming to subscribers or consumers.''
42. Section 628(c)(1), in turn, directs the Commission, ``in order
to promote the public interest, convenience, and necessity by
increasing competition and diversity in the multichannel video
programming market and the continuing development of communications
technologies,'' to promulgate rules specifying the conduct prohibited
by section 628(b).
43. The plain language of section 628(b) encompasses the conduct at
issue here. First, although we have never specifically defined what
constitutes an ``unfair method of competition'' or
[[Page 1086]]
``unfair * * * act or practice'' beyond that conduct specifically
proscribed in section 628(c)(2), we have recognized that there is
additional conduct that could be proscribed under section 628(b). As
discussed above, the use of an exclusivity clause by a cable operator
to ``lock up'' a MDU owner is an unfair method of competition or unfair
act or practice because it can be used to impede the entry of
competitors into the market and foreclose competition based on the
quality and price of competing service offerings. Moreover, as we have
shown above, such a contract clearly has the effect of preventing a
MVPD from providing satellite programming to consumers. Indeed, by its
very nature, such an exclusivity clause prevents other MVPDs from
providing service to the consumers who live in the MDU.
44. We reject Advance/Newhouse Communications's suggestion that
this interpretation of section 628(b) suffers a logical flaw--why would
Congress only focus on ``satellite'' programming if it sought to vest
the Commission with the authority to ``curb unfair practices in the
cable industry generally.'' First, we are not finding that section
628(b) vests the Commission with some unlimited authority to limit
unfair practices in the cable industry. Rather, we are finding that the
language of section 628(b) prohibits unfair methods of competition with
the purpose or effect of hindering significantly or preventing MVPDs
from providing satellite cable and broadcast programming to consumers.
Moreover, we acknowledge that section 628 was primarily, but not
exclusively, concerned about the vertical integration of cable
operators and satellite programming vendors, and thus section 628
significantly focuses on those relationships. In addition, we note that
our decision to prohibit exclusivity clauses for the provision of video
services to MDU owners is consistent with the focus on satellite
programming because most programming is delivered via satellite. Thus,
we have explicit authority under section 628(b) to prohibit cable
operators from entering into exclusivity clauses with MDU owners.
45. We note that the New Jersey Division of Rate Counsel raises a
number of issues, including the argument that the Commission's
regulation of exclusivity clauses for MDUs violates the Tenth Amendment
of the U.S. Constitution, that hinge on its view that the Commission
lacks any authority to adopt the prohibition on exclusivity clauses
described herein. We need not address these tangential issues because,
as explained herein, we find that we have specific statutory authority
to adopt the prohibition.
46. Contrary to commenters' suggestions, the Commission's authority
under section 628(b) is not restricted to unfair methods of competition
or unfair or deceptive practices that deny MVPDs access to programming.
Section 628(b) is not so narrowly drawn. Anticompetitive practices can
hinder or prevent MVPDs from providing programming to consumers either
by blocking their access to programming or by blocking their access to
consumers, and there is nothing in section 628(b) that suggests that
the Commission's authority is limited to the former. Although NCTA
argues that the language ``from providing satellite cable programming
or satellite broadcast programming to subscribers or consumers''
indicates that section 628(b) was ``squarely directed at practices that
unfairly denied MVPDs access to programming,'' the better reading is
the one based on the clear and complete terms of the provision: any
practices that unfairly deny MVPDs the ability to provide such
programming to consumers are prohibited. Had Congress wanted section
628(b) to proscribe only practices denying MVPDs access to programming,
it could easily have done so by focusing that provision explicitly on
conduct that impairs MVPDs' access to programming. Congress knew how to
draft narrowly drawn provisions of that kind as evidenced by another
subsection, section 628(c)(2), which proscribes specific conduct
hindering MVPDs' access to programming. Thus, we believe that our
interpretation of section 628(b) gives meaning to the broad, plain
language of the statutory provision.
47. We recognize, as commenters point out, that much of section
628's legislative history focuses on MVPDs' access to programming.
However, the legislative history indicates that a primary concern
underlying section 628 was fostering competition among cable operators
and enhancing consumer choice. For example, the Conference Report on
section 628 reflects a concern that is broader than MVPDs' access to
programming:
``[T]he conferees expect the Commission to address and resolve
the problems of unreasonable cable industry practices, including
restricting the availability of programming and charging
discriminatory prices to non-cable technologies. The conferees
intend that the Commission shall encourage arrangements which
promote the development of new technologies providing facilities
based competition to cable and extending programming to areas not
served by cable.''
48. Our adoption of a rule prohibiting exclusivity clauses
addresses the Congressional concerns underlying section 628(b). The
rule will prohibit the continuation and proliferation of an
anticompetitive cable practice that has erected a barrier to the
provision of competitive video services. It also will promote the
development of new technologies that will provide facilities-based
competition to existing cable operators, and thus serves the purposes
set forth in section 628(a) (as well as other provisions of law, such
as section 706 of the Telecommunications Act of 1996). As Verizon
points out, fiber optic services and interactive video are new
facilities-based technologies that competitors seek to deploy.
Exclusivity clauses prevent competitive MVPDs from providing satellite
cable and broadcast programming to consumers by means of such new
technologies. SureWest similarly argues that, because the deployment of
broadband networks and the provision of video service are intrinsically
linked, exclusivity clauses that prevent it from providing video
services compromise its ability to deploy other advanced
telecommunications services, by inhibiting its ability to market a
package of services that consumers demand and reducing the revenues it
needs to support investment in new and innovative services.
49. More broadly, prohibiting exclusivity clauses for the provision
of video services will further the purposes of the 1992 Cable Act and
the 1934 Act. As several commenters point out, the 1992 Cable Act
sought to promote competition and consumer choice in cable
communications. In addition, the purpose of the Communications Act of
1934, as amended, is ``to make available, so far as possible, to all
the people of the United States * * * a rapid, efficient, Nation-wide
and world-wide wire and radio communication service with adequate
facilities at reasonable charges.'' Moreover, section 706 of the
Telecommunications Act of 1996 directs the Commission to ``encourage
the deployment on a reasonable and timely basis of advanced
telecommunications capability to all Americans * * * ''. Removing
barriers to allow access to a broad segment of consumers in the
multichannel video programming distribution market by prohibiting
exclusivity clauses for the provision of video services will further
these statutory purposes. As Verizon notes, once a MDU owner is
``locked'' into an exclusivity clause, ``residents are prevented from
choosing alternative services that they might prefer--on the
[[Page 1087]]
basis of price, quality, and innovative and technologically advanced
service offerings.'' Thus, contrary to some commenters' arguments, our
interpretation of section 628(b) to prohibit exclusivity clauses for
the provision of video services is not only consistent with the plain
language of that statutory provision and confirmed by that provision's
legislative history, but also furthers the broader purposes of the Act.
We also find that Congress's failure in 1984 to include a provision
that would have mandated access to MDUs for cable service has no
bearing on our interpretation of the subsequent legislation that became
the 1992 Cable Act, particularly since there is no evidence that
Congress's failure to act in 1984 is at all related to the action it
did take in adopting section 628(b) in 1992.
50. We disagree with those commenters who argue that the regulatory
requirements outlined in section 628(c) circumscribe the Commission's
authority to prohibit exclusivity clauses for the provision of video
services. For example, Real Access Alliance (``RAA'') states that the
specific provisions of sections 628(c)(2)(A), (B), (C), and (D)
establish the full scope of the Commission's authority under section
628. However, nothing in these provisions indicates that they were
intended to establish the outer limits of the Commission's authority
under section 628(b). In fact, the very title of section 628(c)(2),
``Minimum Contents of Regulations,'' strongly suggests that the rules
the Commission was required to implement had to cover the conduct
described in sections 628(c)(2) at the least, but that the Commission's
authority under section 628(b) was broader. The term ``minimum''
indicates that more could be covered since it is defined as ``the least
quantity assignable, admissible, or possible.'' (Webster's New
Collegiate Dictionary (1977).) This interpretation is confirmed by
section 628(c)(1), which grants the Commission wide latitude to
``specify particular conduct that is prohibited by [section 628(b)].''
Other commenters' suggestions along the same lines are unconvincing for
the same reasons.
51. As pointed out by several commenters, the Commission's
implementation of this provision to date has focused on ensuring MVPD
access to the programming they need to provide a viable and competitive
multichannel alternative to consumers, i.e., on the regulations adopted
pursuant to section 628(c)(2). In the decision initially implementing
section 628, the Commission described the provision as ``intended to
increase competition and diversity in the multichannel video
programming market, as well as to foster the development of competition
to traditional cable systems, by prescribing regulations that govern
the access by competing multichannel systems to cable programming
services.'' Nevertheless, the Commission stated:
``Neither the record of this proceeding nor the legislative
history offer much insight into the types of practices that might
constitute a violation of the statute with respect to the
unspecified ``unfair practices'' prohibited by section 628(b) beyond
those more specifically referenced in section 628(c). The objectives
of the provision, however, are clearly to provide a mechanism for
addressing those types of conduct, primarily associated with
horizontal and vertical concentration within the cable and satellite
cable programming field, that inhibit the development of
multichannel video distribution competition. * * * [A]lthough the
types of conduct more specifically referenced in the statute * * *
appear to be the primary areas of congressional concern, section
628(b) is a clear repository of Commission jurisdiction to adopt
additional rules or to take additional actions to accomplish the
statutory objectives should additional types of conduct emerge as
barriers to competition and obstacles to the broader distribution of
satellite cable and broadcast video programming.''
Viewing the implementation history as a whole, the Commission's early
focus on program access is not surprising. It was shaped both by the
specific provisions of section 628(c)(2)--since these regulations were
statutorily required and thus appeared to be of the most pressing
concern to Congress--and the policy goal in the 1992 Cable Act of
``'rely[ing] on the marketplace, to the maximum extent feasible' in
promoting the availability of programming to the public.'' But the
Commission's prior attention to these requirements in no way precludes
its exercise of clear statutory authority to regulate unfair practices,
beyond program access, which have the purpose or effect of hindering
significantly or preventing the provision of certain programming to
subscribers or consumers. The Commission has imposed no such artificial
limitation on the scope of its authority, and section 628(b) does not
require it.
52. The Commission has authority to delineate by rule conduct
prohibited under section 628(b) in order to promote the public interest
through increased competition and diversity in the MVPD market and
continued development of communications technologies. We have explained
how a rule prohibiting exclusivity clauses for the provision of video
services promotes the public interest here because it will likely
increase competition in the MVPD market and promote continued
development of communications technologies. Thus, we find that we may
by rule prohibit cable operators from executing exclusivity clauses for
the provision of video services to MDUs.
53. This prohibition necessarily also applies to common carriers
and open video systems. Although section 628(b) extends only to cable
operators, section 628(j) explicitly states that ``[a]ny provision that
applies to a cable operator under this section shall apply to a common
carrier or its affiliate that provides video programming by any means
directly to subscribers.'' In addition, section 653(c)(1)(A) provides
that ``[a]ny provision that applies to a cable operator under (A)
section[ ] * * * 628 * * * of this title shall apply * * * to any
operator of an open video system.'' Thus, pursuant to sections 628(j)
and 653(c)(1)(A), our prohibition on exclusivity clauses for the
provision of video services applies to both any common carrier or its
affiliate and also to OVS operators to the extent that these entities
provide video programming to subscribers or consumers.
54. Although we believe that we have specific statutory authority
to adopt this prohibition, as described above, we note that our
ancillary authority, under titles I and III of the 1934 Act, also
provides a sufficient basis to prohibit cable operators from enforcing
or executing exclusivity clauses for the provision of video service to
MDUs. Courts have long recognized that, even in the absence of explicit
statutory authority, the Commission has authority to promulgate
regulations to effectuate the goals and provisions of the Act if the
regulations are ``reasonably ancillary to the effective performance of
the Commission's various responsibilities'' under the Act. The Supreme
Court has established a two-part ancillary jurisdiction test: (1) The
regulation must cover interstate or foreign communication by wire or
radio; and (2) the regulation must be reasonably ancillary to the
Commission's statutory responsibilities. The prohibition we adopt here
applies to ``interstate and foreign communication by wire or radio,''
advances the purposes of both the 1992 Cable Act and section 706 of the
1996 Telecommunications Act, and serves the public interest.
55. Title I confers on the Commission regulatory jurisdiction over
all interstate radio and wire communication. The multichannel video
services provided by cable operators are interstate in nature and are
covered by the Act's definitions of ``radio communications'' and ``wire
communication.'' In addition, these services fall within the definition
[[Page 1088]]
of ``cable service.'' Thus, cable services are within the scope of our
subject matter jurisdiction granted in Title I.
56. In addition, we find that applying the prohibition against
exclusivity clauses for the provision of video services to cable
operators is reasonably ancillary to our statutory responsibilities
under the Act. As we have explained, prohibiting exclusivity clauses
for the provision of video services to MDUs will prohibit an
anticompetitive cable practice that has erected a barrier to the
provision of competitive video services. It also will promote the
development of new technologies that will provide facilities-based
competition to existing cable operators, and thus serves the purposes
set forth in section 628(a). In addition, for the same reasons
explained above, applying this prohibition to cable operators will
ensure the furtherance of the broad goals of the 1992 Cable Act and the
1934 Act generally.
57. Because several commenters raise concerns about the treatment
of exclusivity clauses in existing MDU contracts, we take particular
care to observe that the law affords us wide authority to prohibit the
enforcement of such clauses where, as here, the public interest so
requires. Indeed, as the Commission has previously stated, ``Congress
intended that rules promulgated pursuant to implement section 628
should be applied prospectively to existing contracts, except as
specifically provided for in section 628(h).'' In addition, the Fifth
Amendment's Takings Clause presents no obstacle to prohibiting the
enforcement of existing exclusivity clauses. To begin with, such a step
obviously does not involve the permanent condemnation of physical
property and thus does not constitute a per se taking.
58. Nor does the proposed rule represent a regulatory taking. The
Supreme Court has outlined the framework for evaluating regulatory
takings claims as follows: ``In all of these cases, we have eschewed
the development of any set formula for identifying a `taking' forbidden
by the Fifth Amendment, and have relied instead on ad hoc, factual
inquiries into the circumstances of each particular case. To aid in
this determination, however, we have identified three factors which
have particular significance: (1) The economic impact of the regulation
on the claimant; (2) the extent to which the regulation has interfered
with distinct investment-backed expectations; and (3) the character of
the governmental action.'' None of these factors counsels in favor of
finding a regulatory taking here.
59. First, prohibiting the enforcement of exclusivity clauses will
have minimal adverse economic impact on affected MVPDs. Nothing in the
rule precludes MVPDs from utilizing the wires they own to provide
services to MDUs or requires them to jettison capitalized investments.
Neither does it prohibit the enforcement of other types of agreements
between MDUs or MVPDs, such as exclusive marketing agreements. The rule
merely prohibits clauses that serve as a bar to other MVPDs that seek
to provide services to a MDU. The record in this proceeding
demonstrates that in some cases, exclusivity clauses in existing MDU
contracts impose adverse and absolute impacts upon would-be competitors
who are otherwise ready and able to provide customers the benefits of
increased competition.
60. Second, the rule does not improperly interfere with investment-
backed expectations. As previously stated, exclusivity clauses in MDU
contracts have been under active scrutiny for over a decade, and the
Commission has prohibited the enforcement of such clauses in similar
contexts. States have also taken action to prohibit such clauses.
Moreover, to the extent that MVPDs have used exclusivity clauses to
``lock up'' MDUs in anticipation of competitive entry or to obstruct
competition, as described above, any underlying investment-backed
expectations are not sufficiently longstanding or pro-competitive in
nature to warrant immunity from regulation.
61. Finally, with respect to the character of governmental action,
the rule's prohibition of the enforcement of exclusivity clauses in
existing MDU contracts substantially advances the legitimate
governmental interest in protecting consumers of programming from
``unfair methods of competition or unfair acts or practices''--an
interest Congress explicitly has recognized and protected by statute,
see 47 U.S.C. 628(b), and commanded the Commission to vindicate by
adopting appropriate regulations, see id. section 628(c)(1). The rule
we adopt today is based upon the Commission's detailed analysis of the
harms and benefits of exclusive MDU contracts, discussed above in
section II, and is carefully calibrated to promote this interest. In
short, the rule at issue here does not invoke Justice Holmes'
observation that ``if regulation goes too far it will be recognized as
a taking.''
62. Because the prohibition that we adopt today applies only to
cable operators, common carriers or their affiliates that provide video
programming directly to subscribers, and operators of open video
systems, and does not require MDU owners to provide access to all
MVPDs, we do not address comments raising concerns about the
Commission's authority to mandate such access. However, we reject
arguments suggesting that the Commission has no authority to regulate
such entities' contractual conduct because of the tangential effect of
such regulation on MDU owners. As explained above, sections 628(b),
628(j), and our ancillary jurisdiction provide ample bases for
regulating these specific MVPDs. Moreover, sections 4(i), 201(b), and
303(r) supply the Commission with strong authority to enforce the full
scope of the Cable Act prohibition at issue.
IV. Further Notice of Proposed Rulemaking
63. The Report and Order found that further inquiry and analysis
was needed before the Commission would decide how, if at all, to
regulate building exclusivity clauses that give exclusivity to DBS
service providers and PCOs. The Commission also refrained, in the
Report and Order, from regulating exclusive marketing arrangements
(which allow one MVPD into a MDU or real estate development but
constrain the ability of competitive MVPDs to market their services
directly to MDU residents) and bulk billing arrangements (which may be
exclusive but do not prohibit MDU residents from selecting a
competitive MVPD provider). The Commission commenced a further
rulemaking to inquire into these as-yet unresolved matters, and states
that it would conclude this rulemaking and release an order within six
months of publication of this Order.
V. Procedural Matters
A. Regulatory Flexibility Analysis
64. Pursuant to the Regulatory Flexibility Act of 1980, as amended,
the Commission has prepared a Final Regulatory Flexibility Analysis
(``FRFA'') of the possible significant economic impact on small
entities of the policies and rules addressed in this document. The FRFA
is set forth in Appendix B to the Report and Order.
B. Paperwork Reduction Act Analysis
65. The Report and Order does not contain new or modified
information collection requirements subject to the paperwork Reduction
Act of 1995 (PRA), Public Law 104-13. In addition, therefore, it does
not contain any new or modified ``information collection
[[Page 1089]]
burdens for small business concerns with fewer than 25 employees,''
pursuant to the Small Business Paperwork Relief Act of 2002, Public Law
107-198, see 44 U.S.C. 3506(c)(4).
C. Congressional Review Act
66. The Commission has sent a copy of the Report and Order,
including the FRFA, in a report to be sent to Congress and the
Government Accountability Office pursuant to the Congressional Review
Act. In addition, the Commission has sent a copy of the Report and
Order, including the FRFA, to the Chief Counsel for Advocacy of the
Small Business Administration.
D. Additional Information
67. For additional information on this proceeding, please contact
John W. Berresford, (202) 418-1886, or Holly Saurer, (202) 418-7283,
both of the Policy Division, Media Bureau.
VI. Ordering Clauses
68. Accordingly, it is ordered that, pursuant to the authority
contained in sections 1, 2(a), 4(i) 157 nt., 303(r), 335, 601(6),
628(b,c), and 653(c)(1) of the Communications Act of 1934, as amended;
47 U.S.C. 151, 152(a), 154(i), 157 nt., 303(r), 335, 521(6), 548(b,c),
and 573(c)(1), this Report and Order is adopted.
69. It is further ordered that, pursuant to the authority contained
in sections 1, 2(a), 4(i) 157 nt., 303(r), 335, 601(6), 628(b,c), and
653(c)(1) of the Communications Act of 1934, as amended, 47 U.S.C. 151,
152(a), 154(i), 157 nt., 303(r), 335, 521(6), 548(b,c), and 573(c)(1),
47 CFR part 76.2000 of the Commission's rules is amended, as set forth
below. It is our intention in adopting these rule changes that, if any
provision of the rules is held invalid by any court of competent
jurisdiction, the remaining provisions shall remain in effect to the
fullest extent permitted by law.
70. It is further ordered that the following documents shall be
made part of the record in this proceeding: (a) Letter from Leora
Hochstein, Executive Director, Federal Regulatory, Verizon, to Marlene
H. Dortch, Commission Secretary, MB Docket No. 05-311 (Aug. 9, 2006);
(b) Letter from Ms. Hochstein to Ms. Dortch, MB Docket No. 05-311 (July
6, 2006); (c) Comments of SureWest Communications in MM Docket No. 06-
189; (d) Comments of Manatee County, Florida, in MB Docket No. 05-311;
and (e) the Comments of Cablevision and Comcast in MB Docket No. 07-29.
71. It is further ordered that the rule contained herein shall
become effective 60 days after publication of this report and order in
the Federal Register.
List of Subjects in 47 CFR Part 76
Cable television..
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Final Rules
0
For the reasons discussed in the preamble, the Federal Communications
Commission amends 47 CFR part 76 as follows:
PART 76--MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE
0
1. The authority citation for part 76 continues to read as follows:
Authority: 47 U.S.C. 151, 152, 153, 154, 301, 302, 302a, 303,
303a, 307, 308, 309, 312, 315, 317, 325, 339, 340, 341, 503, 521,
522, 531, 532, 534, 535, 536, 537, 543, 544, 544a, 545, 548, 549,
552, 554, 556, 558, 560, 561, 571, 572, 573.
0
2. Add subpart X to part 76 to read as follows:
Subpart X--Access to MDUs
Sec. 76.2000 Exclusive access to multiple dwelling units generally.
(a) Prohibition. No cable operator or other provider of MVPD
service subject to 47 U.S.C. 548 shall enforce or execute any provision
in a contract that grants to it the exclusive right to provide any
video programming service (alone or in combination with other services)
to a MDU. All such exclusivity clauses are null and void.
(b) Definition. For purposes of this rule, MDU shall include a
multiple dwelling unit building (such as an apartment building,
condominium building or cooperative) and any other centrally managed
residential real estate development (such as a gated community, mobile
home park, or garden apartment); provided however, that MDU shall not
include time share units, academic campuses and dormitories, military
bases, hotels, rooming houses, prisons, jails, halfway houses,
hospitals, nursing homes or other assisted living facilities.
[FR Doc. E7-25349 Filed 1-4-08; 8:45 am]
BILLING CODE 6712-01-P