FCC looks at expanding competition rules, but it could preempt local regulations.

Exclusive deals between broadband providers and landlords have long been a problem for Internet users, despite rules that are supposed to prevent or at least limit such arrangements. The Federal Communications Commission is starting to ask questions about whether it can do more to stop deals that impede broadband competition inside apartment and condominium buildings.

FCC Chairman Ajit Pai yesterday released a draft Notice of Inquiry (NOI) that seeks public comment “on ways to facilitate greater consumer choice and to enhance broadband deployment in multiple tenant environments (MTEs).” The commission is scheduled to vote on the NOI at its June 22 meeting, and it would then take public comments before deciding whether to issue new rules or take any other action.

This could go in multiple directions. The NOI contains no specific proposal but asks questions suggesting possible actions the commission might take. Pai has worked aggressively to eliminate regulations industry-wide, and the NOI raises the possibility of preempting state or city regulations that prevent “market entry or impos[e] overly burdensome infrastructure access requirements onto private companies.”

The NOI discusses preempting local rules “that may expressly prohibit or have the effect of prohibiting the provision of telecommunications services” in multi-unit buildings. But one San Francisco regulation that could be preempted was designed to boost competition by expanding access to wires inside buildings. It’s too early to tell whether the FCC really wants to preempt any state or city rules or what authority the FCC would use to do so.

The NOI could also lead to an expansion of FCC rules, as it seeks comment on whether the commission should impose new restrictions on exclusive marketing and bulk billing arrangements between companies and building owners. The NOI further seeks comment on how “revenue sharing agreements and exclusive wiring arrangements between MTE owners and broadband providers may affect broadband competition” and “other contractual provisions and non-contractual practices that may impact the ability of broadband providers to compete in MTEs.”

The NOI also asks whether the commission should encourage cities and states to adopt model codes that promote competition in multi-unit buildings, and the document asks what practices those model codes should prohibit or mandate.

“A good idea to ask questions”

“It's a good idea for the FCC to ask these questions—particularly about the exclusive wiring arrangements, which tend to achieve the same outcomes as exclusive service contracts,” Phillip Berenbroick, senior policy counsel of consumer advocacy group Public Knowledge, told Ars. “Ending exclusive wiring arrangements has the potential to help consumers by ensuring that residents of multiple tenant environments, like apartment and condo buildings, aren't denied competitive choices for telecommunications services because the owner of the building has cut a deal with the incumbent provider.”

Besides apartment and condo buildings, the NOI could affect shopping malls and cooperatives that are occupied by multiple entities or individuals.

Just how the FCC would impose new regulations is another open question. The NOI seeks comment on how the FCC’s pending reclassification of broadband providers would affect its legal authority to address deployment and competition within multi-unit buildings. ISPs may escape their status as common carriers under Title II of the Communications Act as part of Pai’s proposal to unwind net neutrality rules, but the NOI asks if the FCC could use other sources of authority to regulate in multi-unit buildings.

According to Berenbroick, it’s clear from the draft NOI that the FCC would have to “engage in some legal gymnastics to square efforts to prevent unjust and unreasonable practices that impede broadband competition and deployment with its plan to reclassify broadband as a Title I information service in the net neutrality proceeding."

Exclusive marketing and bulk billing agreements

The NOI provides a history of FCC regulations in this area, noting that in 2007 and 2008 the commission “prohibited providers from entering into or enforcing exclusive agreements to provide services to customers in commercial and residential MTEs.”

While cable TV companies and telecom providers were barred from entering into or enforcing such exclusive agreements, the rules imposed requirements only on carriers, not on building owners. In practice, landlords can prevent new ISPs from installing service even when residents ask them to bring in competing providers.

Those rules apply to the ability of competing ISPs to serve customers inside multi-unit buildings, but they don’t cover exclusive marketing or bulk billing arrangements that might favor incumbent ISPs without fully shutting out other providers. The FCC looked into that issue in 2010, but the organization decided not to prohibit bulk billing agreements, “concluding that such arrangements predominantly benefit consumers through reduced rates and operational efficiencies and by enhancing deployment of broadband,” the new NOI says. The commission in 2010 also declined to prohibit exclusive marketing inside multi-unit buildings, as it found no evidence “that such arrangements significantly hinder or prevent” competition.

But now, the FCC is seeking comment on whether circumstances have changed since 2010 in such a way to warrant revisiting that decision not to take action against exclusive marketing and bulk billing agreements.

Incompas, a trade group that represents network providers seeking more opportunity to compete against incumbents, “alleged that some of these practices adversely affect competition in the MTE market,” the FCC’s proposed NOI says.

“How prevalent are these arrangements in the market? What are the typical terms of these arrangements?” the NOI asks. “How, specifically (including any examples), do these provisions affect broadband competition, if at all?”

Incompas also told the FCC that exclusive access to inside wiring is preventing competition. The NOI says:

Under Section 76.802(a) of the Commission’s rules, after a customer has ceased purchasing service from a provider, incumbent cable operators are required to make unused wiring available to others before removing it. Incompas has alleged that MTE building owners purchase that inside wiring and then lease back the idle wiring exclusively to the incumbent cable operator, leaving competitors with the choice of either installing duplicative wiring in residential units or not serving the building at all. We seek comment on the prevalence of this practice. What are the typical terms of these agreements? Do these lease agreements typically involve granting exclusive rights to the wiring? Are there ways exclusive access rights could be offered initially to multiple carriers, such as through a competitive bidding process, that would assuage concerns with exclusive arrangements?

The FCC is also seeking comment on revenue sharing agreements in which ISPs pay a share of revenue or a “door fee” to building owners in exchange for access to the building. The NOI asks whether these agreements are problematic, even when they aren’t exclusive, and whether they raise the price customers pay.

Preempting local regulations

As mentioned earlier, the NOI gives Pai room to remove regulations rather than just adding new ones. This could even target rules designed to expand access to inside wiring. A trade group called the Multifamily Broadband Council (MBC) “asked the Commission to preempt a San Francisco, California ordinance requiring MTE owners to permit competing broadband providers to use existing wiring in the MTE upon request from an occupant,” the FCC said.

Instead of promoting broadband deployment, the MBC argued that this rule hurts smaller ISPs that need either “undisturbed use of inside wiring” or bulk billing arrangements with building owners in order to secure financing from lenders who otherwise wouldn’t provide the funds these ISPs need to offer service. The city mandate gives an unfair advantage “to larger providers who do not need financing—particularly Google, whose subsidiary Webpass was, not coincidentally, [the San Francisco rule’s] primary proponent.”

San Francisco created the ordinance in December 2016 to prohibit building owners “from interfering with the choice of communications service providers by occupants.” The city would presumably object to any effort to preempt its new regulation, but Pai’s proposal asks whether infrastructure mandates like these reduce investment or hinder quality of service.

“As part of our ongoing efforts to facilitate broadband deployment and competition, we seek comment on whether there are state and local regulations that may inhibit or have the effect of inhibiting broadband deployment and competition within MTEs,” the NOI said. “Commenters are encouraged to provide examples of specific statutes and regulatory measures that hinder broadband deployment and competition within MTEs.”

Preemption of local rules is a risky strategy. When the FCC voted to block state laws that restrict growth of municipal broadband networks, North Carolina and Tennessee sued and were able to get the laws reinstated. In that previous instance, Pai argued that the FCC didn't have the authority to preempt the anti-municipal broadband state laws. But Pai’s NOI on competition in multi-unit buildings asks whether the commission’s preemption authority could be used in this rulemaking proceeding.