The FCC Tackles MDU Broadband

The FCC recently adopted new rules that are aimed at bringing competition to apartments, condominiums, and other multi-tenant residential buildings. The FCC press release on the order is titled, “FCC Bans Exclusive Contracts for Telecommunications Services in Apartment Buildings”. The new FCC ruling found that exclusive arrangements between ISPs and landlords hurt consumers. The new rules passed with a 4-0 bipartisan vote.

It’s an issue that the FCC has been chasing for years, including a ruling in 2007 that banned a list of exclusive arrangements between ISPs and landlords. The main purpose of that order was to ban deceptive contracts that ISPs enforced to keep exclusive rights to buildings against the will of landlords. But the order did not create an outright ban of mutually-agreed-upon arrangements, and many landlords still have an exclusive arrangement with a single ISP.

The current ruling bans specific practices between ISPs and landlords that the FCC says block competition.

  • The order bans exclusive revenue share arrangements where the ISP and a landlord agree that the ISP is the only one who can give a cut of revenues to the landlord.
  • Also banned are graduated revenue sharing arrangements where the percentage of revenues shared with a landlord increases as the number of tenants subscribed to an ISP grows.
  • Also banned are sale-and-leaseback arrangements where an ISP sells inside wiring to the landlord and then leases it back in an exclusive basis so that other ISPs can’t use the wiring.
  • Finally, the order requires ISPs that marketing in apartments to disclose to tenants in plain language if they have an exclusive marketing arrangement with the landlord. The intent of this ruling is to let tenants know if there are other competitive choices.

It’s hard to develop regulatory rules for a market that encompasses a wide range of circumstances in multi-tenant buildings. For instance, there is fierce competition to become the ISP for high-end apartments and off-campus student housing at large universities. The ISPs that serve these kinds of buildings compete by bringing amenities other than tenant broadband, such as WiFi everywhere inside and outside of buildings, and smart home functions that use the ubiquitous broadband.

But many apartment buildings aren’t attractive to ISPs. Some older buildings are hard to serve because of physical challenges like not having a place for an ISP to house electronics or no separate electric meters for ISP equipment. Some apartments have high churn, which increases an ISP’s costs. No change in FCC rules will lure ISPs to compete inside of buildings that are hard to serve or that aren’t financially lucrative.

One simple challenge is the ability for multiple ISPs to string fiber to apartment units. A common fiber wiring technique hides the fiber in the upper corners of hallways, and it’s hard to imagine how multiple ISPs can use this same wiring process, so the first ISP in place will have an advantage over later ISPs.

One issue the FCC ruling didn’t acknowledge is the popularity of bundling broadband in with the rent. A Parks Associates survey released last July showed that 40% of apartment tenants liked having broadband included in the rent. This ruling might make it a challenge for a landlord to bundle broadband with the rent.

I also foresee some market risks from the ruling. There are now many ISPs that specialize in serving apartments that might decide that the added competition and risk make it impossible to profitably serve buildings. It’s likely, at least in some cases, that open competition rules might discourage ISP investments in MDUs and decrease choices rather than promote it.

But the FCC is reacting to a slew of consumer complaints it received as a result of an FCC request for comments in September 2021. There are a lot of unhappy apartment tenants who complain of high prices, slow speeds, and poor customer service from ISPs. An ISP with an exclusive arrangement is a monopoly in that building, and there is a long track record of ways that monopolies cut corners to maximize profits.

It’s a tough issue. Since every apartment building is unique, there will be buildings where the tenants benefit from these new rules and others that might be harmed by them – and the same might said of anything that regulators try to do in such a complicated market. It’s hard to fault the FCC for trying to pinch off additional arrangements between ISPs and landlords that harm tenants. Over the years, ISPs have found legal loopholes around any new FCC rules concerning apartments, and it’s likely that determined ISPs and landlords can still find ways to create exclusive arrangements. I doubt that we’ve heard the end of this topic.

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