Apartment Complexes May Benefit From FCC Action Against Cable Contracts

Consumers, at least those who live in large apartment complexes, may be poised to win one for a change if an article by Stephen Labaton published in The New York Times on Monday is correct.

According to the Times report, the Federal Communications Commission (FCC) is considering striking down exclusive contracts between cable companies and apartment building owners and/or tenant associations that may have caused, in part, the rapid rise in the price of cable services.

It is apparently a common practice among owners of multiple family housing to sign such exclusive contracts with a single cable provider to wire the apartment building or buildings and then offer transmission services to tenants.

While tenants are free (depending on the physical configuration of the buildings) to subscribe to satellite television, the level of competition afforded by satellite providers has not noticeably impacted the price of cable services.

According to the article the new rule could lead to increased competition nationwide and would be a huge victory for Verizon Communications and AT&T which have lobbied aggressively against the lock-out from serving the apartment communities. Consumer groups, small cable providers, and satellite providers have also been fighting the restrictions.

FCC officials said that outlawing the monopolies could significantly lower cable prices for millions of subscribers who live in apartment complexes and had no choice in picking their providers. The Times, said that when a second cable company enters a market subscription prices can drop as much as 30 percent.

The benefit is expected to be most strongly felt in low-income and minority homes. Cable prices have risen about three times faster than inflation over the last ten years (an unbelievable 93 percent increase) and while about 25 percent of American families are housed in apartment buildings with 50 or more residents, 40 percent of Hispanics and African-Americans live in such buildings.

There may also be a spill-over to non-apartment dwellers. Smaller cable companies and telephone providers may be encouraged to enter markets which they have previously avoided because of high infrastructure costs.

The Times article did not address how the anticipated new ruling might impact residents of condominiums and coops. It is possible that, because owners of units under that type of ownership are assumed to be able to vote on the contracts entered into by coop boards and condo associations, they would not be affected by the FCC decision.

Only four years ago the Commission ruled that exclusive cable contracts could promote competition by giving landlords the power to negotiate for the best terms.

New York and a few other states have restrictions against landlords or tenant associations from entering into exclusive contracts with cable companies but there has never been an exclusive contract struck down because of such laws. The FCC, consumer groups, and cable competitors claim that these rules are not uniformly enforced.

The large cable companies, their trade organizations as well as apartment builders and owners associations such as the National Multi-Housing Council were quick to condemn the possible FCC action. The Times quoted Daniel L. Brenner, Senior Vice President of the National Cable and Telecommunications Association as saying "Exclusive contracts and building-by-building competition can, in fact, promote investment, efficiency, and competition."

Others said that eliminating the exclusive contracts after cable companies had invested heavily in installing and upgrading building systems would amount to an illegal taking of property in violation of the Fifth Amendment.

There is, however, precedent. The FCC has previously prohibited exclusive contracts for telecommunications services in commercial buildings and has required telephone companies that provide service to apartments to offer access to their wires to rival companies. Both actions have been upheld by the courts.