The Federal Communications Commission, in a Report and Order and Declaratory Ruling released February 15, 2022, adopted new rules intended to promote choice of communications services for the more than 100 million Americans living and working in multiple tenant environments (MTEs) and to promote greater competition among providers of service to MTEs. The new rules prohibit providers from entering into enforcing two types of revenue sharing agreements with MTE owners that amount to de facto exclusive access agreements and require providers to disclose the existence of exclusive marketing arrangements. The FCC also clarified that existing cable inside wiring rules prohibit “sale-and-leaseback” arrangements.

Scope of New Rules

The new rules apply to communications services provided by (1) common carriers in multiunit premises (a term that encompasses both commercial and residential MTEs, including apartment buildings, condominium buildings, shopping malls, and cooperatives occupied by multiple entities) and (2) cable operators and multichannel video programming distributors (MVPDs) subject to Section 548(b) of the Communications Act of 1934, as amended (Covered MVPDs) in multiunit dwelling units (MDUs), also referred to as residential MTEs. Covered MVPDs include cable operators, satellite cable programming vendors in which a cable operator has an attributable interest, satellite broadcast programming vendors, and common carriers or their affiliates that provide video services. The FCC declined to include broadband-only providers within the scope of the rules but stated that it will continue to monitor competition in MTEs to determine if further changes are warranted.

Exclusive Revenue Sharing Agreements

A common carrier is prohibited from entering into or enforcing any contract with an MTE owner regarding the provision of communications service in a multiunit premise in which the carrier receives the exclusive right to provide the premise owner compensation in return for access to the premise and its tenants. Similarly, a cable operator or Covered MVPD is prohibited from entering into or enforcing any contract regarding the provision of communications service in an MDU in which it receives the exclusive right to provide the MDU owner compensation in return for access to the MDU and its tenants.

Graduated Revenue Sharing Agreements

A common carrier is prohibited from entering into or enforcing any contract with an MTE owner regarding the provision of communications service in a multiunit premise in which it gives the multiunit premise owner compensation on a graduated basis. Similarly, a cable operator or Covered MVPD is prohibited from entering into or enforcing any contract regarding the provision of communications service in an MDU in which it gives the MDU owner compensation on a graduated basis. “Graduated basis” means that the compensation a common carrier pays to a multiunit premise owner (or that a cable operator or Covered MVPD pays to a MDU owner) for each tenant served increases as the total number of tenants at the premises served by the provider increases.

Disclosure of Exclusive Marketing Arrangements

A common carrier must disclose the existence of any contract regarding the provision of communications service in a multiunit premise in which it receives the exclusive right to market its service to tenants at the premises. Similarly, a cable operator or Covered MVPD must disclose the existence of any contract regarding the provision of communications service in an MDU in which it receives the exclusive right to market its service to tenants of the MDU. An exclusive marketing arrangement is an arrangement between an MTEowner and a service provider that gives the provider, usually in exchange for some consideration, the exclusive right to market its service to tenants of the MTE. The required disclosure must be included on all written marketing material from the provider that is directed at tenants or prospective tenants of the affected MTE, identify the existence of the contract and include a plain-language description of the arrangement, and be clear, conspicuous, and legible.

Compliance Dates

Revenue Sharing Agreements. The new prohibitions apply both to agreements entered into after the effective date of the new rules and to agreements already in existence when the rules become effective. For new agreements, the new rules will take effect 30 days after publication of the Report and Order in the Federal Register (Effective Date). For contracts already in place on the Effective Date, providers must bring their existing arrangements into compliance within 150 days after the Effective Date.

Required Disclosures. The new disclosure obligations also apply to all exclusive marketing arrangements entered into after the Effective Date and to agreements already in existence at that time. For new agreements, the new rules will take effect after the Office of Management and Budget completes review of the new requirement pursuant to the Paperwork Reduction Act. For contracts that are in existence as of the compliance date for new contracts, compliance will not be required until the later of 150 days after the Effective Date or the date OMB completes review of the new disclosure requirements, allowing providers time to bring their marketing materials into compliance.

Prohibition on Sale-and-Leaseback Arrangements

The FCC clarified that existing rule Section 76.802(j) prohibits arrangements whereby an incumbent provider conveys its inside wiring, typically both home and home run wiring, to a residential MTE owner before the subscriber terminates services, and then leases it back on an exclusive basis. Such arrangements are often referred to as “sale-and-leaseback,” but encompass all instances where an incumbent MVPD conveys its inside wiring in a residential MTE, whether or not for monetary consideration, to the MTE owner before the subscriber terminates service and then leases it back on an exclusive basis. The Declaratory Ruling will become effective on the Effective Date.