Rebuffing Cable Lobby, FCC Bans Deals That Block Competition In Apartments

from ars technica

The Federal Communications Commission has voted to ban the exclusive revenue-sharing deals between landlords and Internet service providers that prevent broadband competition in apartment buildings and other multi-tenant environments. The new ban and other rule changes were adopted in a 4-0 vote announced yesterday.

Although the FCC “has long banned Internet service providers from entering into sweetheart deals with landlords that guarantee they are the only provider in the building,” evidence submitted to the commission “made it clear that our existing rules are not doing enough and that we can do more to pry open the door for providers who want to offer competitive service in apartment buildings,” FCC Chairwoman Jessica Rosenworcel said in her statement on the vote. The broadband industry has sidestepped rules that already exist with “a complex web of agreements between incumbent service providers and landlords that keep out competitors and undermine choice,” she said.

With the new rules, “we ban exclusive revenue sharing agreements, where the provider agrees with the building that only it and no other provider can give the building owner a cut of the revenue from the building. We also ban graduated revenue sharing agreements, which increase the percentage of revenue that the broadband provider directs to the landlord as the number of tenants served by the provider go up,” Rosenworcel said. Rosenworcel had circulated the proposal to commissioners in late January.

More here.

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  1. The Federal Communications Commission has taken the decision to ban exclusive and graduate deals between landlords and Internet service providers within apartment buildings. Revenue sharing agreements in which buildings owners receive a percentage of the revenue have also been prohibited. Special marketing agreements are still allowed but broadband providers are required to these agreements to residents living within the apartments. Furthermore, the organization made clear that sale and leaseback agreements are an explicit violation of current rules. The FCC was motivated to carry out these actions in response to service providers avoiding prior rules and blocking competitive service in apartment buildings. The proposal was distributed to commissioners in January and the changes were adopted in a 4-0 favorable vote. The FCC implementation will aid in advancing consumer choice and for apartment dwellers to have full power to obtain prime communications services.
    The initiative from FCC to support consumer choice and to encourage competitive access prompts me about a similar organization named the FTC (Federal Trade Commission). The mission of FTC is to protect consumers and competition from unfair and improper business practices. In addition, the FTC administers a wide variety of regulations and pursues productive law enforcement. Furthermore, the commission publishes reports and provides expert opinions to Congress about matters regarding the welfare of the economy. The reputable agency was given authority by Congress In 1975 to adopt industry trade rules.
    One of the key insights associated with FTC is that they stop business practices that keep prices high and block completion. Mallinckrodt, a pharmaceutical company was forced to pay $100 million to settle Federal Trade Commission charges in violation of antitrust laws. The firm was developing an essential drug (Acthar) that is used to treat a rare seizure disorder among babies. The company illegally acquired the rights to develop a competing drug, Synacthen Depot. This generated a monopolistic industry for ACTH drugs and allowed the firm to maintain extremely high prices for the drug Acthar. The price for a single vial was $41 in 2001 which has drastically increased to more than $34,000 per vial today. The competitor, Synacthen Depot is a successful enterprise in many countries outside the United States and provides their drug for a fraction of the price. Mallinckrodt eliminated the possibility of competition and took advantage to produce immense amounts of profit. Since the business benefitted from obtaining rights of potential competition and maintaining a monopoly, they were compelled to a $100 million monetary payment and an order to permit a license to develop Synacthen Depot. This was one of many major achievements of the Federal Trade Commission.
    The FTC and FCC are both organizations that strive to reach the goal of consumer protection and competitive industries.

  2. Broadband providers are constantly trying to incorporate marketing schemes and deals into their business model to give them a competitive advantage against their peers. The Broadband space is a highly competitive market. Growth in the industry is quite difficult as everybody already has an internet provider. It is close to impossible to win market share in the broadband sector. This lack of growth leads companies to exercise questionable tactics to win over customers. Such tactics include a profit-sharing deal broadband providers have made with building owners. These deals force tenants, who reside in these apartments, to use the broadband provider for internet. Tenants are not allowed to choose other internet providers under their lease. Luckily the FCC has made a stop to this, as they have voted on a ban against landlords entering a revenue-sharing deal with internet providers. Revenue sharing deals are incredibly detrimental to tenants as they are forced to accept any pricing that the internet providers give them. I live in a building and at one point tenants of my building were forced to use Verizon.
    For 8 years leading up to 2015, my building was in a contract with Verizon that forced tenants to use Verizon as their internet provider. My father was paying marked-up prices compared to Optimum. Optimum operates in the tri-state area as its primary market. They have better prices for New Jersey-New York area. A complete internet plus cable package came out to $180 a month with Verizon, while Optimum’s similar package came out to $130 a month. Luckily, the tenants that lived in my building became unrested and complained to the building owner enough that it was disbanded in 2015. This incident showed clear anti-competitiveness coming from Verizon. The act is monopolistic in nature and is rightfully banned. Andrew Jay Schwartzman, senior counselor at the Benton Institute for Broadband & Society said it himself, “tenants lost the benefits of competitive pricing and choice of Internet providers. This order is a very good thing.” The order he is referring to is the ban of revenue-sharing deals between broadband providers and building owners.

  3. By a 4-0 vote the Federal Communications Committee banned the exclusive revenue-sharing deals between landlords and Internet service providers that prevent broadband competition in apartment buildings and other multi-tenant environments. This gives the tenants of these landlords the choice of what internet service provider they want. These internet service providers signing these sweetheart deals with the landlords took the right of the tenant to decide away from them. The way the landlord profited from these deals is unethical and disrespectful to the tenants. Recently, my family changed the internet service provider we use in our house. The previous provider was very slow and almost unbearable. If we were stuck into a contract with that provider for multiple years, that would’ve been a very big problem.

  4. I believe that it is a good thing that the FCC banned “exclusive revenue sharing agreements.” These agreements were ensuring that the occupants of a building were only allowed to use the internet service providers that were under contract. There were certain internet providers that were signing contracts with the owners of buildings and the landlords had to enforce that the tenets were only using certain internet providers. The FCC banned any contracts that have this because they deemed it not fair for the consumers. I feel that a contract that limits a consumer’s choice to certain products or services is wrong and it is a good thing that the FCC stepped in. This is because if a building is able to deny its tenets from a particular service or product this can trickle down into other areas as well. What if a building that provides parking only allows the people living in the buildings to drive a certain brand of car? Or if the building only allows the tenets to have a particular brand of furniture? These may seem like a stretch but it can start somewhere. It is ultimately important because blocking a contract like this one will slow any attempt of a monopoly in the internet service provider industry. When it comes to internet there are high barriers to entry, this is because there is such a demand for internet that most people already have it so if someone makes their own company, they would have to steal the customers away from the already established companies. This means that the companies that already do exist need to be creative in getting customers. By signing a contract with buildings this will guarantee them customers if people go to those buildings. But this is again denying the rights of the consumers. It is a possibility that in the United States there will ultimately be one or two main internet providers and the rest will get bought out by the larger companies but that should at least happen in a capitalistic market not in a way that the rules are changed so only one company can provide services or products.

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