On March 2, 2010, the Federal Communications Commission (FCC) ruled that cable operators could continue to make bulk billing and exclusive marketing arrangements with apartments, gated communities and other multiple-dwelling units (MDUs).

In 2007, the Commission had banned exclusive service arrangements in MDUs, but in this Second Report and Order, the Commission decided that the benefits of bulk billing agreements in MDUs outweigh any negative effects, and that exclusive marketing agreements in MDUs have no significant harmful effects on consumers. The Commission therefore declined to prohibit these kinds of agreements between MDUs and cable operators.

In addition, although the Commission requested and received comments as to whether the ban on exclusive service agreements should apply to direct broadcast satellite (DBS) providers and private cable operators, the Second Report and Order does not rule on that issue, apparently preserving the issue for a future time. In the meantime, satellite providers and private cable operators may continue to use exclusive MDU service agreements that cable operators may not.

Background

In November 2007, the FCC issued a Report and Order reversing its 2003 decision that permitted exclusive service arrangements for MDUs. In the First Report and Order, the FCC declared that such exclusive service agreements between MDUs and cable operators are unenforceable, although it excused satellite video providers from the ban. For more details, see our description of the original Report and Order dated Nov. 15, 2007. The U.S. Circuit Court of Appeals for the D.C. Circuit upheld the Commission, as explained in our advisory dated May 29, 2009.

As the appeal of the first Report and Order proceeded, the FCC considered comments submitted in response to the Further Notice of Proposed Rulemaking issued with the initial order that banned exclusive service agreements. That Further Notice asked three main questions: (1) whether the prohibition on exclusive service agreements should apply to DBS and private cable operators providers; (2) whether bulk billing arrangements should be prohibited, and; (3) whether exclusive marketing agreements (such as where one provider has the exclusive right to advertise within the development, or to provide information brochures in new tenant packages), should be prohibited.

Second Report and Order

In the Second Report and Order, the FCC answered two of the three primary questions raised in its further notice. First, the Commission observed that “bulk billing appears to lower prices, increase the volume and variety of programming, encourage high quality and innovation, and bring video, voice, and data services to MDU residents.” Beyond this, the FCC noted that bulk billing “often makes possible specialized services for MDU residents,” such as security channels, closed circuit monitoring, community channels, WiFi, and free broadband and cable service in common areas of MDUs. According to the Commission, these benefits outweigh the potential harm of bulk agreements.

With respect to exclusive marketing arrangements, the FCC found that the record did not support a rule prohibiting these marketing deals. The Commission instead found that marketing exclusivity provides only a slight advantage to competitors, “and there is no indication that it prevents or significantly hinders other multichannel video programming distributors (MVPDs) from providing video services.” It found, however, that marketing exclusivity does confer some benefits on consumers, including lower rates and improved access to financing for some competitors and MDU owners.

The Second Report and Order fails to mention the Commission’s inquiry into whether the ban on exclusive service agreements should apply to DBS providers and private cable operators. As a result, this order implicitly allows satellite providers and private cable operators to continue to use exclusive MDU service agreements that cable operators may not.