On April 27, 2022, the Federal Communications Commission’s February 2022 Report and Order and Declaratory Ruling adopting rules proscribing or conditioning certain practices by common carriers and multichannel video programming distributors (“MVPDs”) as they serve multiple tenant environments (“MTEs”) takes partial effect. The Report and Order and Declaratory Ruling complement earlier actions by the Commission taken more than fifteen years ago prohibiting telecommunications carriers from entering into or enforcing exclusivity contracts with MTE owners in both commercial and residential MTEs prohibiting certain MVPDs from entering into or enforcing exclusivity contracts with residential MTE owners. Generally, the new rules adopted this year prohibit providers from entering into certain types of revenue sharing agreements with MTE owners, and require affected providers to disclose the existence of exclusive marketing arrangements they have with MTE owners in simple, easy-to-understand language. With the March 28, 2022, publication of the Report and Order in the Federal Register, it generally goes into effect on April 27, but there are exceptions which delay the effectiveness of some of the key provisions which providers should be aware of, pushing out compliance of parts of the new rules to September 24, 2022, and possibly even later.

A few points regarding the scope of the new rules may be helpful. The term MTE includes both commercial and residential premises, such as apartment buildings, condominium buildings, shopping malls, or cooperatives occupied by multiple tenants, but, in the case of the proscriptions described here, MVPDs are affected only in residential MTEs whereas common carriers are affected in all MTEs.  MVPDs include cable operators, satellite cable programming vendors in which a cable operator has an attributable interest, or satellite broadcast programming vendors. Broadband-only providers that do not meet the definition of common carrier or MVPD are not subject to the new rules.

New Rules Proscribing Revenue Sharing and Compensation Arrangements

The rules amended in the Report and Order prohibit common carriers in all MTEs and MVPDs in residential MTEs from entering into or enforcing written or oral contracts that provide an MTE owner compensation on a graduated basis. Compensation is graduated, the Report and Order explains, where the provider pays the MTE owner a greater percentage of its revenues as its penetration in the MTE increases. The Report and Order also prohibits common carriers from entering into or enforcing written or oral contracts by which they receive exclusive rights to provide an MTE owner compensation in return for access to serve the tenants of the MTE.

Both of these proscriptions, to the extent they apply to common carrier and MVPDs, respectively, prevent entry into any new contracts of the sort described above as of April 27, 2022. However, if there are existing contracts of the types described entered into before this date, the proscription against enforcement takes effect on September 24, 2022.

New Disclosure Obligations Concerning Exclusive Marketing Rights

The Report and Order also mandates that a common carrier serving a commercial or residential MTE, or an MVPD that serves a residential MTE, disclose in its written marketing materials the existence of any contract or provision that provides it an exclusive right to market communications service in any particular way to tenants or prospective tenants of the MTE.  Any written or oral agreement provision that gives the provider, usually in exchange for some consideration, the exclusive right to certain means of marketing its service to tenants of the MTE will be subject to the new disclosure prohibition. The disclosures must be clear, conspicuous, and legible in all written marketing materials, whether electronic or in print, directed at tenants and prospective tenants of the affected MTE, identifying the existence of the contract, providing a plain-language description of the exclusive marketing arrangement, and explaining that its exclusive marketing right does not mean that the provider is the only entity that can provide such services in the MTE and that service from alternative provider may be available. Because this new rule requires disclosures, before it can take effect, the Office of Management and Budget (“OMB”) must first complete a review pursuant to the Paperwork Reduction Act. The OMB review commenced on March 25, 2022, and comments are due on May 24, 2022.

The disclosure requirement will apply immediately to new contracts or agreements with exclusive marketing rights that are entered into after the compliance date in the FCC’s notice that OMB has completed its review, which will be announced in the Federal Register.

However, for existing agreements or provisions that provide for some measure of exclusive marketing rights compliance with the disclosure requirements will be required 180 days after publication of the Report and Order in the Federal Register, September 24, 2022, or the date that OMB completes its review if that occurs after September 24, 2022, in which case the FCC will publish a compliance date in the Federal Register.

Declaratory Ruling Proscribing Cable Operators from Entering into Sale-and-Exclusive Leaseback Arrangements

The Report and Order was accompanied by a Declaratory Ruling that the Commission’s rules preclude sale-and-exclusive leaseback arrangements by incumbent cable operators in residential MTEs, meaning those operators that are already providing service in the MTE. The FCC described such arrangements as those whereby the incumbent provider conveys its inside wiring—typically both home and home run wiring—to a residential MTE owner and then leases it back on an exclusive basis. Among other things, the FCC found that an incumbent provider entering into such a sale-and-leaseback arrangement would fail to meet the affirmative duty under the Commission’s Rules to take “reasonable steps within [its] control to ensure that an alternative service provider has access to home wiring at the demarcation point” following a voluntary termination of service .

The Declaratory Ruling is effective on April 27, 2022. For purposes of this Declaratory Ruling, the Commission tried to provide some clarity as to its scope by explaining that the types of arrangements of concern do not include “contracts for the installation of new inside wiring and related facilities in which the MTE owner (or affiliate(s)) will have the sole ownership interest” or circumstances in which an MTE owner acquires the cable home wiring pursuant to section 76.802(a)(2) of the Rules “after the subscriber declines to purchase the wiring following their choice to terminate service.”

Closing

The application of the Report and Order and Declaratory Ruling in practice, while often clear, may in some circumstances be more nuanced that the above summary suggests. Common carriers and MVPDs would be well-served to continue to oversee their new contracts, contract amendments, and marketing activities against the background of the Commission’s orders – which may well continue to evolve – concerning services arrangements, revenue sharing, and other practices within MTEs.

Any party contemplating the filing of a petition for reconsideration of the Report and Order or Declaratory Ruling must do so by April 27, 2022.