Freedom of Choice

MDUs aren’t medical schools. In the parlance of the Federal Communications Commission (FCC), that stands for Multiple Dwelling Units – or in English, apartment houses and the like. And in October, the FCC made MDUs more A-OK for cable TV. How? By banning exclusive cable TV contracts – the type that co-op boards and condo associations nationwide, as well as plain old rental landlords, routinely negotiate with the local cable company to get discounted rates in exchange for bulk subscriptions (see “The Whole Wired World,” Habitat, October 2006).

The FCC first allowed exclusive contracts in 2003, meaning your Cablevisions, Time Warners, or what-have-you could forbid bulk subscribers from additionally contracting for satellite, microwave, fiber-optic, or other ways of getting CSI pumped into their living rooms. New York, like a handful of other states, had disallowed such contracts, but the Supremacy Clause (Article VI, Section 2) of the U.S. Constitution stipulates that when there’s a conflict between state law and federal law, the federal law takes precedence (subject to the Fifth and Tenth Amendments and other constitutional law).

As a matter of practice, cable TV providers in New York City don’t appear to have pursued exclusivity in the interim. “We have never had [exclusives],” says longtime building manager Gerard J. Picaso, owner of his namesake firm. But since, technically, all those other forms of video delivery can contract for exclusivity, it’s instructive to see how the FCC’s mind works on this.

On October 31, the FCC adopted a Report and Order that bans exclusivity clauses in cable TV contracts with MDUs. The contracts themselves remain valid, but any exclusivity clauses are no longer in force beginning 30 days after the order is placed in the government’s standard public-announcement publication, Federal Register.

“The commission found that people who live in apartment buildings often have no choice of companies when it comes to their video service provider,” FCC Chairman Kevin J. Martin said in a statement. “This is because building owners often strike exclusive deals with one cable operator to serve the entire building, eliminating competition. There is no reason that consumers living in apartment buildings should be locked into one service provider.”

A sampling of New York City co-op and condo boards about the new rule finds some board presidents ready to shake Martin’s hand.

“I think it’s really good,” observes Warren Schreiber, president of the 200-unit Bay Terrace Co-op Section 1 in northeastern Queens. “I don’t know if most co-ops have entered into exclusive agreements, but I happen to know that in Florida, where condos have all entered into exclusive agreements with cable companies, it’s an absolute horror because they’re stuck with whatever services are being offered by their particular company. And even if [some unit-owners] don’t want cable, they have to take it.”

“We were at one time exploring bringing in [satellite-TV provider] Direct TV and got a price from them,” says Greg Fricke, president of the 333-unit 2 Tudor City Place co-op, “but when we went back to [cable-TV provider] Time Warner, we were told if we did that, they would take out their cable. They just don’t allow anybody else in the building.”

While Time Warner has a cable-monopoly franchise in the local area, as is standard practice with cable companies and municipalities throughout the country, satellite and fiber-optic video delivery is allowed to compete – except in buildings with exclusive contracts. “That’s the way it’s been,” says Fricke. “But if that changes, it presents a whole different field.”

Victor Cruz, Time Warner Cable’s vice president of special markets, says Fricke’s statement was “disconcerting. We would never pull out our cable because someone wanted an additional provider. I looked it up, and his agreement goes through January [2008]. We sent him a renewal [that] the building said they’d agreed to sign.” Was the co-op’s account rep playing a bluff? “Absolutely not,” says Cruz. “I spoke to the account manager, and he said he’s never had any problems there. We have [existing] contracts with buildings that also have Direct TV [satellite delivery] and RCN [microwave delivery]. We compete every day.”

Cable TV and related trade associations aren’t happy with the change, to say the least. Daniel L. Brenner, a senior vice president of the National Cable and Telecommunications Association, huffed to The New York Times, for instance: “It is both unlawful and, as a matter of public policy, wholly inappropriate and counterproductive for the commission to bar cable operators from enforcing existing exclusive contracts.”

Indeed, some FCC commissioners themselves are concerned about the possibility they have overreached. Robert N. McDowell, who concurred with the ruling, nonetheless said in a statement, “I am concerned about the legal sustainability of the order, should it be appealed.” His main reason is that “many buildings may have been upgraded or brought online for the first time” as a result of a 2003 FCC ruling that allowed exclusive contracts.

“To flash-cut to a new regulatory regime without a sensible transition period only begs for an appeal that could result in a court throwing out all of our order, the good with the bad.”

The FCC acted, one commissioner said, after having found that cable rates rose an astonishing 93 percent from 1995 to 2005; that prices for expanded basic cable service almost doubled; and that, while the prices of every other communications service such as long distance and cell went down, those for cable TV rose year after year.

Also, notes former longtime board president and current vice president Michael Connelly of the 168-unit 173-175 Riverside Drive co-op, the ruling addressed a problem unique to free-market rental properties – for which a landlord can negotiate an exclusive bulk contract and be paid a fee from the cable company.

“In rental properties, there’s a disconnect between who has the right to grant the exclusive contacts and who benefits,” he says. “In a co-op, if there is any payment for an exclusive contract, it accrues to the co-op.”

Connelly’s co-op already has a nonexclusive agreement with Time Warner. “Our contract guarantees a certain number of users in exchange for a discount, and if there were to be a shortfall, the co-op would have to make up the difference. We’re free to contract with satellite providers,” he says. “In fact, we actually have a contract with a satellite provider for our gym.” Three or four years ago, when the co-op built the private gym for residents’ use, “We’d gone to Time Warner to see if we could cut a better deal than with the satellite provider. But we couldn’t because Time Warner was treating it like a neighborhood bar, like it was a public space,” which gets charged more than a private residence.

Interestingly, there’s nothing right now to stop non-cable delivery systems, such as those using satellites or fiber optics (principally Verizon’s FiOS system), from offering or insisting upon exclusive contracts, as Verizon has tried to do, according to Bay Terrace’s Schreiber. “About a year ago, they contacted us about an exclusive agreement, and we didn’t want to do that,” he says. The company has since come back to offer nonexclusive terms. “We’re discussing it as a board, discussing it with our attorneys.”

The FCC, looking down that particular electronic trail, has already adopted what’s called a Further Notice of the Proposed Rulemaking, which seeks public comment to address exclusivity clauses by other such entities.

For now, the new possibilities under the ruling are “a topic we’ll be discussing at the next board meeting,” says Tudor City’s Fricke, who cuts to what, in a lot of ways, is really the heart of the matter: “There is a lot of discontent among shareholders and board members about the service we’re getting.”

Saving a buck here or there is nice, but it’s not make-or-break. Being treated well, however? That’s priceless. And nonexclusive.