Wiring Rules a Competitive Threat - Multichannel

Wiring Rules a Competitive Threat

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Ostensibly for the purpose of promoting competition in the multiple dwelling unit market, the FCC issued its “cable inside wiring” rules in October 1997, allowing competing providers to take an incumbent operator’s MDU cable facilities for their own use.

As MSOs seek to provide MDU customers with the latest innovations in digital services, their substantial investments in those services are jeopardized by these rules.

The Federal Communications Commission’s rules divide MDU cable wiring into two categories — cable home wiring and cable home-run wiring. Cable home wiring is defined as the internal wiring contained within the premises of a subscriber which begins at the demarcation point. As you can see, the critical phrase in this definition is “demarcation point”, which is that point where the incumbent’s cable wiring first becomes physically accessible to an alternative video-service provider.

The FCC cited wiring embedded in brick, conduit or cinder blocks with limited or without access openings. On Jan. 29, 2003, the FCC further ruled — subject to a legal challenge by the National Cable & Telecommunications Association — that cable wiring installed behind sheet rock is inaccessible.

Anyone who thinks the FCC’s incursion into such minutiae is harmless is sadly mistaken. The practical consequences of these seemingly innocuous provisions are actually quite harmful, because operators upgraded MDUs at great expense before the FCC rules became effective.

They did so in such a way that much of their new wiring is “inaccessible” to competing providers and is therefore cable home wiring, which can be seized by competitors for little more than the cost of postage and some carefully worded correspondence.

If an operator has any of its wiring left after its competitor has taken its cable home wiring, the FCC’s cable home-run wiring procedures will allow that competitor to take the rest. They do so by allowing the condo owner and/or a competing provider to acquire that wiring on a building by building or a unit by unit basis. Although an operator is exempt from these rules if its MDU access agreement satisfies certain strict FCC criteria, most operators’ agreements are woefully outdated, boilerplate affairs, or are so broadly worded that they are deemed unenforceable as contracts of adhesion.

It is therefore no surprise that SMATV [Satellite Master Antenna Television] providers and condo owners have become increasingly aggressive in asserting their rights under those rules. However, a strong argument can be made that the FCC exceeded its basic statutory authority because the 1992 Cable Act only gave the Commission authority to promulgate regulations limited to the disposition of cable wiring within a subscriber’s premises.

The 1992 Cable Act’s legislative history confirms that the FCC’s statutory authority deals with internal wiring within a subscriber’s home or individual dwelling unit. Contrary to Congress’s legislative intent, the FCC contends that since the 1992 Cable Act does not prohibit the Commission from adopting rules concerning wiring outside a subscriber’s premises, it may do so because the rules were necessary to broaden the range of competitive opportunities in the multichannel video-distribution marketplace.

With a touch of sublime sophistry, the FCC disavowed any intent to violate a cable operator’s property rights.

Thankfully, the commission’s “we’re allowed to do anything we’re not prohibited from doing” justification of its own authority was rejected in a 2002 decision by the D.C. Circuit federal appeals court in MPAA v. FCC.

The economic consequences of not challenging the FCC’s basic statutory authority have become apparent in some recent court decisions in which SMATV providers ousted the incumbent cable operators in plain violation of their property rights. These cases make it clear that the cost of not challenging the FCC’s rules may be quite high. Moreover, by forcing subscribers to accept a “one size fits all” bundle of services from one provider, the FCC’s regulatory scheme has the perverse effect of stifling rather than promoting competition, and limiting the availability of new services for MDU customers.

A strong argument can also be made that the FCC’s cable inside wiring rules only apply to video programming. As the FCC itself declared, cable modem services are not cable services under the Communications Act. Under that logic, the FCC’s cable inside wiring rules cannot and should not apply to multiservice wiring installed by cable operators at MDU condo complexes.

Given their vulnerability to these onerous regulations, cable operators ought to shore up their MDU access agreements and, where the opportunity arises, challenge not only the application of the FCC regulations in particular cases, but the agency’s legal authority of the to issue them in the first place.

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