President Joe Biden has asked the Federal Communications Commission to initiate a rulemaking to prevent landlords and internet service providers from striking deals that inhibit tenants' choices among broadband providers.
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Consumer advocates say large broadband companies have been skirting federal regulators' efforts to block landlords from signing exclusive agreements with internet service providers — and it is time for the government to take stronger action.
The U.S. Federal Communications Commission in September opened a proceeding seeking comments on how exclusivity agreements between building owners and internet service providers could be affecting competition in the industry. It is illegal for a building owner to sign a contract allowing only one provider to offer service to an entire building. Still, building owners can sign other types of agreements with ISPs that give both parties financial incentives to limit tenants to a single company.
Major ISPs argue that these agreements — including revenue sharing agreements, and exclusive wiring and marketing arrangements — reduce costs and thus benefit customers. But consumer advocates and smaller operators say these deals limit both competition and deployments, leading to higher prices and poorer service for consumers.
"This issue is preventing a lot of people from having affordable broadband access," Jenna Leventoff, senior policy counsel at Washington, D.C.-based public interest group Public Knowledge, said in an interview.
A White House fact sheet on broadband competition cited data showing that more than 200 million U.S. residents live in an area with only one or two reliable high-speed internet providers, leading to prices as much as five times higher in these markets than in markets with more options. In an executive order this summer, President Joe Biden asked the FCC to initiate a rulemaking to prevent landlords and internet service providers from inhibiting tenants' choices among broadband providers.
Landlords and incumbent providers have devised multiple ways to evade nonexclusivity requirements, Leventoff said.
"They are allowed to do sort of agreements that aren't technically exclusive. So one of them is ... profit sharing. The contract doesn't say that no other ISPs are excluded from the building. But in reality, the landlord just doesn't let any other ISPs into the building," Leventoff said.
Additionally, landlords will sometimes agree to only market services from a single ISP. "That's not saying that no other providers can enter the building, but they can't market. And if they can't advertise, maybe no one else knows that they're actually available," Leventoff said.
Starry Internet, a Boston-based ISP, has experienced this directly.
"[Multi-dwelling units] that we have worked with to provide Starry Internet service have received cease and desist letters from incumbent providers that overstate the legal restrictions in the marketing agreements, attempting to enforce them like exclusive access agreements. Unfortunately, these scare tactics are typical for the market," Starry wrote in a letter to the FCC on the issue.
A new kind of regulation
Rather than prohibiting specific types of agreements, the FCC should mandate open access to multitenant environments, according to Sonic, a California-based internet, phone and TV provider.
"Mandatory access rules requiring property owners to grant providers access to their buildings if requested by a tenant would benefit consumers. We look forward to a resolution on this matter," Stephen Bradley, director of consumer sales and marketing at Sonic, said in an email to Market Intelligence.
Previously, Sonic told the FCC that it tried unsuccessfully for three years to provide service in a building owned by a prominent real estate company. Sonic did not provide specifics but said it had tried to access apartment buildings in San Francisco and Oakland but had been thwarted by exclusivity agreements with incumbents
"Despite documenting to the owner that 50 percent of tenants in a 30-unit building had placed orders for Sonic fiber broadband ... the building owner has refused, deciding instead to protect an exclusive service agreement with the incumbent," Sonic said in a filing with the commission.
A case for exclusivity
While smaller rivals fight against agreements that limit competition, larger players say exclusive marketing agreements and bulk billing make initial deployments to a building more attractive and thus actually benefit tenants.
These agreements can help "ensure that state-of-the-art wiring will be deployed in [multitenant environments] to the benefit of consumers," Mary Beth Murphy, vice president and deputy general counsel at NCTA - The Internet & Television Association, wrote in a letter to the FCC.
The NCTA, an industry group that represents large cable and telco broadband providers, declined to comment on this story. However, the group — along with Comcast Corp., Cox Communications Inc. and Charter Communications Inc. — met with the FCC's Wireline Competition Bureau and Media Bureau last month to discuss broadband competition policy, Murphy's letter states.
Comcast, Cox and Charter did not respond to a request for comment
Building owners will likely continue developing ways to increase their earnings by working around the law, Chris Shipley, an attorney at INCOMPAS, a trade association advocating for competition policy in the tech industry, told Market Intelligence. He said INCOMPAS plans to continue monitoring industry competition and alerting the FCC to anything that may inhibit a fair competitive environment.
"It's time for the commission to take a more holistic approach and look at some of these exclusive agreements and how they are erecting barriers to entry, even though the commission thought that it had kind of settled this issue several years ago," Shipley said.