[Federal Register Volume 73, Number 4 (Monday, January 7, 2008)]
[Rules and Regulations]
[Pages 1080-1089]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-25349]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 76

[MB Docket No. 07-51; FCC 07-189]


Exclusive Service Contracts for Provision of Video Services in 
Multiple Dwelling Units and Other Real Estate Developments

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Commission's action concerns ``Multiple Dwelling Units'' 
such as apartment or condominium buildings and centrally managed 
residential real estate developments (collectively, ``MDUs''); cable 
operators that provide video service in MDUs; and agreements that grant 
them the exclusive right to provide video programming service in an 
MDU. The Commission finds that such agreements, in granting 
exclusivity, harm competition, the provision of programming to MDU 
residents, and broadband deployment. Thus, the Commission prohibits the 
enforcement of existing exclusivity clauses and the execution of new 
ones by cable operators (and a few others). This prohibition will 
materially advance the Communications Act's goals of enhancing 
competition, consumer choice in video service and programming, and 
broadband deployment.

DATES: Effective March 7, 2008.

ADDRESSES: Federal Communications Commission, 445 12th Street, SW., 
Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: For additional information on this 
proceeding, please contact John W. Berresford, (202) 418-1886, or Holly 
Saurer, (202) 418-7283, both of the Policy Division, Media Bureau.

SUPPLEMENTARY INFORMATION: This is a summary of the Federal 
Communications Commission's Report and Order in MB Docket No. 07-51, 
FCC 07-189, adopted October 31, 2007, and released November 13, 2007. 
The full text of this document is available for public inspection and 
copying during regular business hours in the FCC Reference Center, 
Federal Communications Commission, 445 12th Street, SW., CY-A257, 
Washington, DC 20554. These documents will also be available via ECFS 
(http://www.fcc.gov/cgb/ecfs/). (Documents will be available 
electronically in ASCII, Word 97, and/or Adobe Acrobat.) The complete 
text may be purchased from the Commission's copy contractor, 445 12th 
Street, SW., Room CY-B402, Washington, DC 20554. To request this 
document in accessible formats (computer diskettes, large print, audio 
recording, and Braille), send an e-mail to [email protected] or call the 
Commission's Consumer and Governmental Affairs Bureau at (202) 418-0530 
(voice), (202) 418-0432 (TTY).

Summary of the Report and Order

    1. The Notice of Proposed Rulemaking (``Notice'') in this 
proceeding solicited comment on the need to regulate contracts 
containing clauses granting one multichannel video programming 
distributor (an ``MVPD'') exclusive access for the provision of video 
services (``exclusivity clauses'') to multiple dwelling units 
(``MDUs'') and other real estate developments. Exclusive Service 
Contracts for Provision of Video Services in Multiple Dwelling Units & 
Other Real Estate Developments, Notice of Proposed Rulemaking, 22 FCC 
Rcd 5935 (2007). Approximately 30 percent of Americans live in MDUs, 
and their numbers are growing. In this Report and Order, we find that 
contractual agreements granting such exclusivity to cable operators 
harm competition and broadband deployment and that any benefits to 
consumers are outweighed by the harms of such clauses. Accordingly, we 
conclude that such clauses are proscribed by section 628 of the 
Communications Act of 1934, as amended. That section prohibits unfair 
methods of competition that have the purpose or effect of hindering 
significantly or preventing MVPDs from providing ``satellite cable'' 
and/or ``satellite broadcast'' programming to subscribers and 
consumers. Thus, in this Order we prohibit the enforcement of existing 
exclusivity clauses and the execution of new ones by cable operators 
and others subject to the relevant statutory provisions. This 
prohibition will materially advance the Act's goals of enhancing 
competition and broadband deployment.
    2. The record in this proceeding does not contain much information 
regarding the use of exclusivity clauses by providers of Direct 
Broadcast Satellite (``DBS'') or other MVPDs that are not cable 
operators subject to section 628 of the Act. In the interests of 
developing a fuller record, and in the interests of regulatory parity, 
we also issue a Further Notice of Proposed Rulemaking (``Further 
Notice'') concerning MVPDs not subject to section 628. In this Further 
Notice, we also seek comment on whether the Commission should prohibit 
exclusive marketing and bulk billing arrangements.

I. Background

    3. This section reviews the history of this proceeding and makes 
several important findings of fact. Among these findings are that a 
large and growing number of Americans live in MDUs and that a 
significant number of those MDUs are subject to exclusivity clauses. 
The beneficiaries of most of those clauses are incumbent cable 
operators. Although Commission rules ensure that many residents of MDUs 
and other real estate developments may receive satellite-based video 
service, exclusivity clauses protect cable operators from competition 
in MDUs from new entrants into the MVPD business, chiefly incumbent 
local exchange carriers (``LECs'') and other wire-based MVPDs that 
bring satellite cable and satellite broadcast programming to their 
subscribers. We also find that the entry of incumbent LECs into the 
MVPD business has led incumbent cable operators to increase their use 
of exclusivity clauses in order to bar or deter the new entrants.
    4. These practices are reached primarily by our authority under 
section 628. That section, in brief, makes it unlawful for cable 
operators to engage in certain unfair acts and methods of competition. 
Specifically, section 628(b) prohibits cable operators from engaging in 
unfair practices that have the purpose or effect of hindering 
significantly or preventing their competitors from providing satellite 
cable programming or satellite broadcast programming to subscribers or 
consumers. Such video programming is made for broadcast or cable 
systems and is delivered by satellite to MVPDs, who in turn deliver it 
to their subscribers. Section 628

[[Page 1081]]

concerns two kinds of programming in particular. One is ``satellite 
cable programming,'' which is video programming (not including 
satellite broadcast programming) that is transmitted by satellite to 
cable operators for retransmission to cable subscribers. See 47 U.S.C. 
548(i)(1), 605(d)(1). The other is ``satellite broadcast programming,'' 
which is broadcast video programming that is retransmitted by satellite 
by an entity other than the broadcaster or an entity under the 
broadcaster's control. See 47 U.S.C. 548(i)(3). This programming 
comprises the substantial majority of programming carried by MVPDs. In 
section III below, we conclude that clauses that grant cable operators 
exclusive access to MDUs and other real estate developments fall within 
the scope of section 628(b), because those clauses effectively prohibit 
new entrants into the MVPD market from providing satellite-delivered 
programming to consumers who live in MDUs and other real estate 
developments.
    5. The Commission last considered issues concerning exclusivity 
clauses in its 2003 Inside Wiring Order. At that time, the Commission 
decided that exclusivity clauses had both pro-competitive and anti-
competitive effects, and that the record before the Commission made it 
unclear what their net effect was. The Commission therefore decided to 
take no action regarding exclusivity clauses at that time, but it did 
not close the door to action if new circumstances arose in which such 
clauses had new anti-competitive effects. The Notice of March 2007 re-
opened the issue and prompted the submission of much new evidence. The 
Notice raised several questions concerning exclusivity clauses. These 
included the Commission's legal authority to regulate such clauses; the 
prevalence of such clauses; the possible increase in their number and 
scope at the instigation of incumbent cable operators with the 
impending entry of LECs into the MVPD marketplace; the benefits and 
harms to competition and consumers of exclusivity clauses; and the 
extent of any prohibition of such clauses, and other remedial action, 
that we should impose.
    6. The Notice attracted filings from large and small cable 
operators and LECs, other providers of MVPD services (including so-
called private cable operators or ``PCOs''), builders and managers of 
MDUs and other dwellings, elected officials, two state government 
entities and many local governments, academic institutions, consumer 
groups, labor unions, and subscribers to MVPD and other services. (PCOs 
are also known as Satellite Master Antenna Television providers or 
``SMATVs.'' They are video distribution facilities that use closed 
transmission paths without using any public right-of-way. PCOs acquire 
video programming and distribute it via terrestrial wiring in urban and 
suburban MDUs and commercial multiple tenant units such as hotels and 
office buildings. They are small compared to major incumbent cable 
operators and incumbent LECs.)
    7. For purposes of this Report and Order, we define the term 
``MDU'' to include the kinds of dwellings that we have defined as being 
MDUs in past decisions implementing the Act. That is, MDUs include 
apartment, cooperative, and condominium buildings. For purposes of this 
Report and Order, we adopt this definition but expand it to include 
other centrally managed real estate developments. Thus, the term MDUs, 
for purposes of this Report and Order, also includes gated communities, 
mobile home parks, garden apartments, and other centrally managed 
residential real estate developments. All of these are collections of 
private individual households with residents remaining for lengthy, 
indefinite periods of time, each in a dwelling space that is distinctly 
separate but shares some common spaces requiring central management. 
For purposes of this proceeding, MDUs do not include time share units, 
academic campuses and dormitories, military bases, hotels, rooming 
houses, jails, prisons, halfway houses, hospitals, nursing and other 
assisted living places, and other group quarters characterized by 
institutional living, high transience and, in some cases, a high need 
for security. These latter institutions do not have most of the key 
defining attributes of MDUs that we have just described, including 
voluntary long-term residency and significant control by the resident 
over uses of the private dwelling space. These attributes give the 
resident a strong interest in making his or her own choice of a MVPD 
provider and thus warrant regulatory action to preserve the resident's 
ability to do so.
    8. The record in this proceeding indicates that approximately 30 
percent of Americans live in MDUs and that this percentage is growing. 
The percentage of minorities living in MDUs is larger than that of the 
general population. The majority of incumbent MVPDs serving MDUs 
pursuant to exclusivity clauses are incumbent providers of cable 
television service to the surrounding local community. A few of the 
incumbent MVPDs that have executed contracts with exclusivity clauses 
are PCOs or small providers of fiber-based communications services. 
Some incumbent LECs have requested exclusivity clauses from MDUs. There 
is no evidence in the record that providers of DBS service use 
exclusivity clauses.
    9. Exclusivity clauses that run in favor of cable operators 
typically are a complete bar to entry into MDUs by fiber-deploying LECs 
such as Verizon, AT&T, and Qwest, as well as PCOs. These competitors in 
the MVPD marketplace receive much of their programming, both cable and 
broadcast, via satellite for retransmission directly to their 
subscribers. Although exclusivity clauses do not prevent MDU residents 
from installing receiving dishes and receiving DBS service where the 
Commission's ``Over the Air Reception Devices'' rules apply, they bar 
new wire-based competitors from MDUs.
    10. The record herein reveals that exclusivity clauses are 
widespread in agreements between MVPDs and MDU owners, and that the 
overwhelming majority of them grant exclusive access to incumbent cable 
operators. Exclusivity clauses between MVPDs and MDU owners have the 
clear effect of barring new entry into MDUs by wire-based MVPDs. The 
evidence before us shows that this effect occurs on a large scale. 
Verizon provided examples of exclusivity clauses, most of them in favor 
of incumbent cable operators, that provoked requests to cease and 
desist the marketing of its FiOS cable service. Verizon has 
``repeatedly encountered exclusive access arrangements which have 
prevented it from providing cable services to significant numbers of 
residents.'' Early in its offering of FiOS, Verizon encountered 
exclusivity clauses running in favor of incumbent cable operators, 
which barred it from serving more than 3,000 residential units in the 
Dallas, Texas, area and many other places, all totaling ``tens of 
thousands of units in five separate states.'' Other examples of 
exclusion, again mostly involving incumbent cable operators, are in the 
record from would-be MVPDs, a local government, and a MDU owner who 
agreed to exclusivity clauses in the past and now is prohibited from 
offering its residents new and improved communications services. AT&T 
states that ``efforts to lock-up MDUs have occurred in California, 
Texas, and virtually every market where AT&T has begun to enter the 
video service market''--efforts that are ``plainly intended to block 
competition and * * * not designed to address aesthetics or congestion 
in a MDU's common areas.'' The exclusivity clauses that AT&T has 
recently encountered typically last between five and 15 years, often 
with automatic renewal, or are

[[Page 1082]]

perpetual. Hargray CATV Inc., an affiliate of the incumbent LEC in 
Hilton Head, South Carolina, began to provide cable service there as a 
new entrant. It was forced to stop serving or marketing to 20,000 of 
the 25,000 homes in the community, however, due to exclusivity clauses 
entered into by real estate developers and the incumbent cable operator 
(originally Adelphia, whose systems later were acquired by Time 
Warner), decades ago in some cases.
    11. Consumer groups are also concerned about exclusive agreements. 
As noted by several consumer groups, a disproportionately large number 
of communities of color live within MDUs. Consumer groups are concerned 
that these residents are unable to enjoy the benefits of competition in 
the video marketplace, and ask that the Commission act to ensure that 
all consumers can reap the benefits of competition.
    12. The record indicates that the evidence before us understates 
the frequency of exclusivity clauses because many MDU owners are 
unwilling or legally unable to make public the contracts containing 
them. Also, many exclusivity clauses date from the time when cable 
operators had a de facto or de jure monopoly on wire-based MVPD 
service. In those market conditions, a MDU owner might have thought 
that agreeing to exclusivity was not giving the cable operator anything 
of significance. Some commenters state that a MDU owner can bargain for 
good service, low prices, and other concessions in exchange for 
exclusives. But the owner had no such bargaining power when the first 
cable operator was ``the only game in town.''
    13. More recent developments were not part of the record the 
Commission compiled in the proceeding that culminated in the 2003 
Inside Wiring Order. Significantly, LECs and other wire-based providers 
have begun entering the video service business on a large scale. In 
this environment, exclusivity clauses executed by incumbent cable 
operators are causing an important loss of potential competition within 
MDUs and thereby depriving MDU residents of recognized benefits 
generated by competition in the form of price and service options. 
Exclusivity clauses may also be deterring new entry into the MVPD 
market in many areas because they put a significant number of new 
customers off limits to new entrants.
    14. Moreover, AT&T, Lafayette Utilities in Louisiana, United States 
Telecom Association, and Verizon report that, with the imminent entry 
of LECs into the multichannel video marketplace, incumbent cable 
operators have increased the use of exclusivity clauses in their 
agreements with MDU owners. As one commenter noted, ``[i]ncumbent 
providers commonly engage in a flurry of activity to lock up MDUs and 
other real estate developments in exclusive arrangements as soon as it 
becomes clear that a new entrant will be coming to town.'' Sometimes 
these clauses are inserted in fine print, in ``legalese,'' and without 
adequate notice to the MDU owner.
    15. In sum, the record demonstrates that exclusivity clauses bar 
entry into MDUs by new providers of multichannel video service. It also 
shows that, in reaction to the recent competitive challenge posed by 
LEC entry into the video marketplace, incumbent providers (chiefly 
incumbent cable operators) are increasingly using exclusivity clauses 
in new agreements with MDU owners to bar the entry of their new rivals 
and potential rivals. These developments constitute a substantial 
change to the record the Commission compiled in the period leading up 
to the 2003 Inside Wiring Order.

II. Discussion

A. Harms and Benefits of Exclusivity Clauses

    16. In this section, we first describe the harms and benefits of 
exclusivity clauses. We conclude that the harms significantly outweigh 
the benefits in ways they did not at the time of the Commission's 2003 
Inside Wiring Order. Specifically, they bar new entry and competition 
for both MVPD services and the so-called ``triple play'' of voice, 
video, and broadband Internet access services. They also discourage the 
deployment of broadband facilities to American consumers. This, in 
turn, has the effect of significantly hindering or preventing new MVPDs 
from providing to MDU residents video programming services that are 
within the scope of section 628(b). Section 628(b) of the Act makes it 
unlawful for cable operators and their vertically integrated 
programmers to engage in certain practices that hinder or prevent MVPDs 
from providing ``satellite cable programming'' or ``satellite broadcast 
programming'' to subscribers. ``Satellite cable programming'' is video 
programming (not including satellite broadcast programming) that is 
transmitted by satellite to cable operators for retransmission to cable 
subscribers. ``Satellite broadcast programming'' is broadcast video 
programming that is retransmitted by satellite by an entity other than 
the broadcaster or an entity under the broadcaster's control. We 
therefore conclude that cable operators' use of exclusivity clauses in 
contracts for the provision of video services to MDUs constitutes an 
unfair method of competition or an unfair act or practice proscribed by 
section 628(b).
    17. Harms Caused by Exclusivity Clauses. By far the greatest harm 
that exclusivity clauses cause residents of MDUs is that they deny 
those residents another choice of MVPD service and thus deny them the 
benefits of increased competition. Congress and the Commission have 
repeatedly found, and few parties dispute here, that entry by LECs and 
other providers of wire-based video service into various segments of 
the multichannel video marketplace will produce major benefits for 
consumers. A significant increase in multichannel competition usually 
results in lower prices, more channels, and a greater diversity of 
information and entertainment from more sources. Notably, our most 
recent Cable Price Survey Reports show that the presence of a second 
wire-based MVPD competitor clearly holds prices down more effectively 
than is the case where DBS is the only alternative. The fact that an 
incumbent cable operator may face competitive pressures on its pricing 
in a franchise area surrounding or adjacent to a MDU does not mean that 
the residents of a MDU served by the same cable operator will reap the 
benefits of such competition, including the option to choose among 
competitive providers, some of which may provide a reduced-priced 
bundled package. This is particularly true when incumbent cable 
operators and MDU owners sign contracts before a competitive provider 
enters the market, a practice that the record in this proceeding 
indicates is quite common. Within the MDU, the incumbent, protected by 
its exclusivity clause from any competition it may face outside the 
MDU's boundaries, would have no incentive to hold down its prices 
within the MDU. The MDU's residents would also be denied the benefits 
of taking service from the new entrant, with potentially lower rates 
and better features than the incumbent's.
    18. In addition, a new provider of MVPD services such as a LEC is 
likely to bring into a MDU some satellite-delivered cable programming 
that the incumbent beneficiary of the exclusivity clause does not. 
Absent the new entrant, the MDU's residents who favor that programming 
will be denied the programming of their choice. This denial will fall 
disproportionately on minorities and low-income families

[[Page 1083]]

(and on programmers specializing in programming oriented to those 
groups), and all residents will be denied increased competition in 
programming among MVPD providers. We agree with Consumers Union that we 
should ensure that the ``no segment of the population is denied the 
benefits of video competition.''
    19. LEC entry is also likely to result in increased deployment of 
fiber to American homes at lower cost per residence, and a new 
competitor offering the ``triple play'' bundle of video, voice, and 
Internet access service. An exclusivity clause in a MDU's agreement 
with a MVPD denies all these benefits to the MDU's residents. Even if 
exclusivity clauses do not completely bar new entrants from the MVPD 
market everywhere, they foreclose new entrants from many millions of 
households, a significant part of the national marketplace. Such 
clauses could therefore deter new entrants from attempting to enter the 
market in many areas. More important, exclusivity clauses deny 
consumers in a part of the market the benefits that could flow to them, 
and exclusivity clauses confer few, if any, benefits on those 
consumers. These harms to consumers are greater than they were several 
years ago, when new entry by LECs had not begun on a large scale, the 
recent increase in fiber construction had not yet materialized, and the 
popularity of the triple play was unproven.
    20. The effect of exclusivity clauses on broadband deployment and 
``triple play'' services merits further discussion. We have stated that 
broadband deployment and entry into the MVPD business are 
``inextricably linked.'' One basis for this observation is the recent 
emergence of LECs, cable operators, and some other providers offering 
consumers a ``triple play'' of voice, MVPD, and broadband Internet 
access services. The offering of, and competition in, the triple play 
brings to consumers not just advanced telecommunications capability, 
but also a simplicity and efficiency that is proving to be highly 
attractive in the marketplace.
    21. In a MDU where an incumbent has the exclusive right to provide 
MVPD service, no other provider can offer residents the triple play 
today on its own facilities. Any new entrant that could offer all three 
parts of the triple play but for the existence of an exclusivity 
clause, which limits its offerings to voice and broadband Internet 
access, would find entry less attractive. The new entrant might not 
enter at all. Or, if the new entrant enters despite that handicap and 
provides MDU residents with only voice and Internet access services, 
leaving MVPD service to the beneficiary of an exclusivity clause, the 
new entrant's wire is inefficiently underutilized. Thus, exclusivity 
clauses reduce competition in the provision of triple play services and 
result in inefficient use of communications facilities.
    22. Exclusivity clauses can cause other harms to MDU residents. A 
MDU owner may grant exclusivity to one MVPD based on the available 
choice of service providers at a given time, and in doing so bar entry 
into the MDU by a more desirable but later-arriving MVPD. Or, the 
person who grants exclusivity to one MVPD may be the developer or 
builder of a MDU, who may grant exclusivity against the long-term 
interests of the residents and soon thereafter relinquish control of 
the MDU. In addition, exclusivity clauses can insulate the incumbent 
MVPD from any need to improve its service; Manatee County, Florida, 
aptly describes incumbent beneficiaries of exclusivity clauses as 
``sitting on these `fiefdoms.' ''
    23. Finally, the record indicates that exclusivity clauses are not 
always in the best interest of MDUs owners, either. Technologically 
advanced buildings are important for attracting and retaining 
residents, and a lack of competition for providing new communications 
services can negatively affect a residential development. A MDU owner 
may not see a benefit in an exclusivity clause that bars entry by new 
providers that were not in the market when the clause was written.
    24. Benefits of Exclusivity Clauses. When the Commission last 
considered issues concerning exclusivity clauses in its 2003 Inside 
Wiring Order, it determined that exclusivity clauses had some pro-
competitive effects. In some cases, exclusivity clauses, or at least 
those of a limited duration, may help a MVPD to obtain financing to 
wire an entire building for cable and other services and to recover its 
investment over the term of exclusivity. Similarly, some commenters 
claim that exclusivity clauses are especially necessary to attract 
investment in marginally attractive MDUs.
    25. Some commenters argue in support of the use of exclusivity 
clauses that, with the decline of LECs' and cable operators' 
traditional duty to serve all homes in an area, an exclusivity clause 
may be necessary to attract a MVPD into a new real estate development. 
Other commenters state that a MDU owner, needing to attract buyers or 
tenants, may be counted on to represent them and will agree to an 
exclusivity clause only if it is in their interests. The rational 
owner, these commenters claim, will give exclusive access to the one of 
several bidding MVPDs that offers the best mix of low price, quality 
service, promised improvements and in some cases, specialized program 
offerings. An exclusivity clause, in this view, substitutes competition 
for the MDU for competition for individual residents, and the resulting 
benefits may be passed on to the residents. In the same vein, some 
commenters deny that exclusivity clauses allow MVPDs to become 
complacent and provide inferior service; these entities believe that 
the high turnover in MDUs requires building owners to maintain and 
constantly improve their service so that the building or development 
will attract new residents who will become its subscribers.
    26. Conclusion. We conclude that exclusivity clauses cause 
significant harm to competition and consumers that the record did not 
reflect at the time of our 2003 Inside Wiring Order. We further find 
that although exclusivity clauses may in certain cases be beneficial, 
at least in the short term, to consumers, the harms of exclusivity 
clauses outweigh their benefits. The evidence described in the 
preceding paragraphs demonstrates that exclusivity clauses, especially 
when used in current market conditions by incumbent cable operators, 
are a barrier to new entry into the multichannel video marketplace and 
the provision of triple play offerings. Such exclusivity clauses 
inhibit competition in these markets and slow the deployment of 
broadband facilities. In doing so, exclusivity clauses deny MDU 
residents the benefits of increased competition, including lower prices 
and the availability of more channels with more diverse content, as 
well as access to alternative providers of broadband facilities and the 
triple play of communications services their facilities support. It is 
also noteworthy that there is no evidence in the record that MDU 
residents pay higher rates for MVPD services in states whose laws 
prohibit or limit exclusivity. These harms to consumers are traceable 
to the incumbent cable operators' practice, increased recently, of 
using exclusivity clauses, sometimes in fine print and without adequate 
notice to MDU owners, to forestall competition, particularly when new 
competitors are about to enter the market. We do not wish to deny MDU 
residents these benefits based on incumbents' alleged need to be 
shielded from additional competition, or to subject them to

[[Page 1084]]

something resembling the exclusive franchises of an earlier era.
    27. Moreover, we find that cable operators' use of exclusivity 
clauses in contracts for the provision of video services to MDUs 
constitutes an unfair method of competition or an unfair act or 
practice proscribed by section 628(b). Section 628 is designed to 
increase ``competition and diversity'' in the multichannel video 
marketplace, increase the availability of satellite cable and satellite 
broadcast programming to persons in ``areas not currently able to 
receive such programming,'' and ``spur the development of 
communications technologies.'' That provision specifically prohibits 
cable operators from engaging in unfair methods of competition or 
unfair acts or practices that have the purpose or effect of hindering 
significantly or preventing any MVPD from providing satellite cable 
programming or satellite broadcast programming to consumers. We have 
found above that a significant percentage of consumers live in MDUs. We 
also found that, with the increasing entry of wire-based competitors, 
such as LECs, into the MVPD marketplace, incumbent cable operators have 
increased their use of exclusivity clauses with MDU owners, 
particularly when new competitors are on the verge of entering a 
particular market. The record shows that these exclusivity clauses have 
the purpose or effect of preventing other MVPDs from providing the kind 
of programming covered by section 628--satellite cable and/or broadcast 
programming--to certain consumers; indeed, that is the intended and 
inevitable effect of exclusivity clauses. Exclusivity clauses prevent 
new entrant MVPDs from competing with entrenched incumbent providers on 
the basis of service offerings, including programming, and on price. 
Foreclosing competition in the MDU market in this way is unfair because 
it deprives consumers residing in MDUs of the opportunity to choose a 
MVPD provider. Cable operators' execution of exclusivity clauses, which 
foreclose the competitive provision of MVPD service, the triple play, 
broadband deployment, and satellite-delivered programming to MDUs, thus 
constitutes an unfair method of competition in violation of section 
628(b).
    28. We reject arguments that exclusivity clauses mostly work to the 
benefit of MDU owners and residents. First, as explained above, the 
person signing an exclusivity clause for a MDU may be a builder or 
manager whose interests do not coincide with those of the MDU's 
residents, especially after a few years. Second, the cable operator may 
have induced the MDU owner to accept an exclusivity clause before any 
wire-based competitor was on the horizon, in which case there was no 
``competition for the MDU'' at the time and no prospect of it in the 
future. Third, the exclusivity clause may be in ``legalese'' and in 
fine print and the MDU owner may be unaware of it. Fourth, the fact 
that a new entrant wants to serve the MDU undercuts any claim that only 
one wire-based provider can serve the building profitably--if new entry 
would be unprofitable, it is unlikely that the new entrant would want 
to enter. Fifth, there is no evidence in the record, other than 
generalities and anecdotes, that incumbent MVPD providers couple 
exclusivity clauses with significant new investments that they do not 
make elsewhere, such as in states whose laws prohibit exclusivity. 
Sixth, SureWest states that the triple play, which offers a provider 
revenue from three services, reduces any need for exclusivity that it 
may have had in the past, when MVPD revenue was the only way it could 
recover its investment. Finally, other agreements between incumbent 
MVPDs and MDU owners, perhaps providing for marketing exclusivity or 
bulk discounts, can provide benefits similar to those alleged for 
exclusivity clauses without causing the latter clauses' entry-
foreclosing harms to consumers. Therefore, although ``competition for 
the MDU'' may have some theoretical advantages in some cases over 
competition for individual consumers, it may not describe reality in 
many cases. Even if it does, in general we find that the best results 
for consumers come from preserving their ability to play an active role 
in making an individual choice rather than allowing cable operators 
using exclusivity clauses to foreclose individual choice. In addition, 
as noted above, exclusivity clauses tend to insulate the incumbent from 
any need to improve its service. Thus, we conclude that exclusivity 
clauses generally do not benefit MDU residents.
    29. The record contains claims that exclusivity clauses may lead to 
lower prices. Although we cannot rule out the possibility that those 
claims may be true in some cases, such assertions are outweighed by the 
numerous studies showing that a second wire-based MVPD lowers prices. 
We also reject arguments that ``exclusivity is not really a problem'' 
because many MDUs are not subject to exclusivity clauses and such 
clauses expire. A practice that harms a significant number of 
households in this country warrants remedial action even if it does not 
harm everyone.

B. Prohibition of Exclusivity Clauses

    30. For the reasons set forth above, we prohibit cable operators 
and other entities that are subject to section 628 from enforcing 
existing exclusivity clauses and executing contracts containing new 
ones. These other entities are LECs and open video systems and are 
discussed in section III below.
    31. Specifically, 60 days after publication of this Report and 
Order in the Federal Register, no cable operator or multichannel video 
programming distributor subject to section 628 of the Act shall enforce 
or execute any provision in a contract that grants it the exclusive 
right to provide any video programming service (alone or in combination 
with other services) to a MDU. Any such exclusivity clause shall be 
null and void.
    32. We fashion the prohibition pursuant to section 628 for several 
reasons. First, that provision is a basis of our statutory authority to 
regulate exclusivity clauses. Second, incumbent cable operators, which 
are subject to section 628, are the beneficiaries of the vast majority 
of exclusivity clauses. As described above, incumbent cable operators 
are primarily responsible for the recent increase in newly executed 
exclusivity clauses. Also, the evidence in the record indicates that 
incumbent cable operators are using them to impede the entry of new 
competitors into the MVPD market in many areas. Incumbent cable 
operators are still by far the dominant force in the MVPD business, 
with a market share most recently measured at 67 percent and the 
ability to impose steadily rising prices. Our prohibition is limited to 
those MVPDs covered by section 628(b). It does not reach PCOs or DBS 
providers because we do not have an adequate record on which to decide 
whether such a prohibition is warranted for non-cable operators. 
Nevertheless, we are adopting a Further Notice of Proposed Rulemaking 
in order to develop such a record and, based on it, evaluate whether 
action is called for.
    33. We put no time limit on the prohibition we adopt in the instant 
order and we do not exempt from it any kind of MDU or any geographic 
location. We do, however, limit our prohibition to those residential 
real estate developments that we define as MDUs as discussed above.
    34. The rule we adopt in this proceeding is consistent with the 
longstanding Congressional prohibition of exclusive franchises for 
cable service and the statement in our most recent Inside Wiring Order 
that ``[n]ew entrants

[[Page 1085]]

to the video services and telephony markets should not be foreclosed 
from competing for consumers in multi-unit buildings.''
    35. The rule we adopt in this proceeding prohibits both the 
enforcement of existing exclusivity clauses and the execution of new 
ones. Both have the same competition- and broadband-deterring effect 
that harms consumers. A rule that left exclusivity clauses in effect 
would allow the vast majority of the harms caused by such clauses to 
continue for years, and we believe that it is strongly in the public 
interest to prohibit such clauses from being enforced. Those harms 
would continue indefinitely in the cases of exclusivity clauses that 
last perpetually or contemplate automatic renewal upon the renewal of 
the incumbent cable operator's franchise.
    36. Our prohibition of the enforcement of existing exclusivity 
clauses does not disturb legitimate expectations of investors in MDUs 
and the video service providers affected by this Order. The lawfulness 
of exclusivity clauses has been under our active scrutiny for a decade, 
making the parties to them aware that such clauses may be prohibited. 
Although we have not prohibited enforcement of them until now, we had 
previously recognized the reasons for doing so but had lacked an 
adequate record on which to base such a decision. We have prohibited 
the enforcement of exclusivity clauses for satellite-delivered 
programming before. For example, the Commission prohibits, with respect 
to distribution to persons in areas served by cable operators and other 
MVPDs covered by section 628(b), exclusivity clauses for satellite 
cable programming and satellite broadcast programming between a cable 
operator and a vendor of such programming in which a cable operator has 
an attributable interest, unless the Commission determines that such 
contracts are in the public interest. Also, in the context of 
commercial telecommunications services, the Commission has prohibited 
the execution of exclusive access arrangements in multiple tenant 
environments and has sought comment on whether to prohibit the 
enforcement of existing exclusive access provisions. We recognize that 
the Commission has yet to address the issue raised in the Competitive 
Networks Further Notice of Proposed Rulemaking regarding the 
enforceability of exclusivity clauses for telecommunications services 
in residential MDUs. In light of the competitive parity implications, 
we will resolve that issue within the next two months. Some states have 
given some or all MVPD providers rights of access to MDUs.
    37. Moreover, incumbent cable operators will still be able to use 
their equipment in MDUs to provide service to residents who wish to 
continue to subscribe to their services. Finally, we note that the rule 
we adopt today does not require that any new entrant be given access to 
any MDU. A MDU owner still retains the rights it has under relevant 
state law to deny a particular provider the right to provide service to 
its property. We merely prohibit the enforcement of existing 
exclusivity clauses and the execution of new ones by cable operators. 
While this Order prohibits the enforcement of existing exclusivity 
clauses, it does not, on its own terms, purport to affect other 
provisions in contracts containing exclusivity clauses.
    38. We reject proposals that we should exempt contracts with 
exclusivity clauses from this prohibition on a case-by-case basis or 
that we should allow exclusivity clauses for small cable operators, 
cable operators in rural areas, MVPDs that are found to lack ``market 
power,'' MVPDs other than incumbent cable operators, ``planned 
communities,'' and new real estate developments. We are reluctant to 
deny any large class of MDU residents the benefits of increased 
competition or to allow any cable operator to engage in future harmful 
conduct. Finally, we wish to avoid the burden that would be imposed by 
numerous individual adjudications about whether market power or some 
other undesirable condition exists in an individual MDU or community, 
or whether a particular entity in an allegedly unique situation is 
exempted from the prohibition. In addition, as discussed in section III 
below, restrictions adopted pursuant to section 628(b) apply 
automatically to certain categories of MVPDs pursuant to sections 
602(7), 628(j), and 653(c)(1)(A).
    39. Some commenters have suggested that we allow exclusivity 
clauses for a period of years or that we put a time limit on our 
prohibition of them, such as a specific term of years, the end of the 
current franchise of the incumbent cable operator, until ``effective 
competition'' is found to exist in an area, or until some other measure 
of competition is shown. We decline these suggestions. We are reluctant 
to grant any communications companies an artificial period of immunity 
from pro-competitive regulation during which the recovery of their 
investment is guaranteed; companies in communications markets regularly 
invest billions of dollars without any such guarantees. Chiefly, we 
wish to avoid the burden of individualized adjudications and 
measurements because we believe that they would burden us and the 
industry, and we believe that the limited benefits that such clauses 
confer are outweighed by their deleterious long-term effects on the 
provision of competitive services to consumers.

III. Legal Authority

    40. Several sources afford the Commission ample authority to 
prohibit exclusivity clauses in contracts between cable operators and 
owners of MDUs. First, consistent with our tentative conclusion in the 
Notice, we conclude that we have authority under section 628(b) of the 
Act to adopt rules prohibiting cable operators from enforcing or 
executing contracts that give them the exclusive right to provide video 
programming services (alone or in combination with other services) to 
MDUs. Moreover, we conclude that pursuant to the Act the same 
prohibition will apply to common carriers or their affiliates that 
provide video programming directly to subscribers under section 628(j) 
of the Act and to operators of open video systems under section 
653(c)(1). Finally, we conclude that, even in the absence of this 
explicit statutory authority, we have ancillary authority to prohibit 
incumbent cable operators from entering into contracts that are for the 
provision of video services to MDUs and that contain exclusivity 
clauses.
    41. Turning first to cable operators, the plain language of the 
statute provides a solid legal foundation for the rule adopted today. 
Section 628(b) broadly states that:

    ``[i]t shall be unlawful for a cable operator * * * to engage in 
unfair methods of competition or unfair or deceptive acts or 
practices, the purpose or effect of which is to hinder significantly 
or to prevent any multichannel video programming distributor from 
providing satellite cable programming or satellite broadcast 
programming to subscribers or consumers.''

    42. Section 628(c)(1), in turn, directs the Commission, ``in order 
to promote the public interest, convenience, and necessity by 
increasing competition and diversity in the multichannel video 
programming market and the continuing development of communications 
technologies,'' to promulgate rules specifying the conduct prohibited 
by section 628(b).
    43. The plain language of section 628(b) encompasses the conduct at 
issue here. First, although we have never specifically defined what 
constitutes an ``unfair method of competition'' or

[[Page 1086]]

``unfair * * * act or practice'' beyond that conduct specifically 
proscribed in section 628(c)(2), we have recognized that there is 
additional conduct that could be proscribed under section 628(b). As 
discussed above, the use of an exclusivity clause by a cable operator 
to ``lock up'' a MDU owner is an unfair method of competition or unfair 
act or practice because it can be used to impede the entry of 
competitors into the market and foreclose competition based on the 
quality and price of competing service offerings. Moreover, as we have 
shown above, such a contract clearly has the effect of preventing a 
MVPD from providing satellite programming to consumers. Indeed, by its 
very nature, such an exclusivity clause prevents other MVPDs from 
providing service to the consumers who live in the MDU.
    44. We reject Advance/Newhouse Communications's suggestion that 
this interpretation of section 628(b) suffers a logical flaw--why would 
Congress only focus on ``satellite'' programming if it sought to vest 
the Commission with the authority to ``curb unfair practices in the 
cable industry generally.'' First, we are not finding that section 
628(b) vests the Commission with some unlimited authority to limit 
unfair practices in the cable industry. Rather, we are finding that the 
language of section 628(b) prohibits unfair methods of competition with 
the purpose or effect of hindering significantly or preventing MVPDs 
from providing satellite cable and broadcast programming to consumers. 
Moreover, we acknowledge that section 628 was primarily, but not 
exclusively, concerned about the vertical integration of cable 
operators and satellite programming vendors, and thus section 628 
significantly focuses on those relationships. In addition, we note that 
our decision to prohibit exclusivity clauses for the provision of video 
services to MDU owners is consistent with the focus on satellite 
programming because most programming is delivered via satellite. Thus, 
we have explicit authority under section 628(b) to prohibit cable 
operators from entering into exclusivity clauses with MDU owners.
    45. We note that the New Jersey Division of Rate Counsel raises a 
number of issues, including the argument that the Commission's 
regulation of exclusivity clauses for MDUs violates the Tenth Amendment 
of the U.S. Constitution, that hinge on its view that the Commission 
lacks any authority to adopt the prohibition on exclusivity clauses 
described herein. We need not address these tangential issues because, 
as explained herein, we find that we have specific statutory authority 
to adopt the prohibition.
    46. Contrary to commenters' suggestions, the Commission's authority 
under section 628(b) is not restricted to unfair methods of competition 
or unfair or deceptive practices that deny MVPDs access to programming. 
Section 628(b) is not so narrowly drawn. Anticompetitive practices can 
hinder or prevent MVPDs from providing programming to consumers either 
by blocking their access to programming or by blocking their access to 
consumers, and there is nothing in section 628(b) that suggests that 
the Commission's authority is limited to the former. Although NCTA 
argues that the language ``from providing satellite cable programming 
or satellite broadcast programming to subscribers or consumers'' 
indicates that section 628(b) was ``squarely directed at practices that 
unfairly denied MVPDs access to programming,'' the better reading is 
the one based on the clear and complete terms of the provision: any 
practices that unfairly deny MVPDs the ability to provide such 
programming to consumers are prohibited. Had Congress wanted section 
628(b) to proscribe only practices denying MVPDs access to programming, 
it could easily have done so by focusing that provision explicitly on 
conduct that impairs MVPDs' access to programming. Congress knew how to 
draft narrowly drawn provisions of that kind as evidenced by another 
subsection, section 628(c)(2), which proscribes specific conduct 
hindering MVPDs' access to programming. Thus, we believe that our 
interpretation of section 628(b) gives meaning to the broad, plain 
language of the statutory provision.
    47. We recognize, as commenters point out, that much of section 
628's legislative history focuses on MVPDs' access to programming. 
However, the legislative history indicates that a primary concern 
underlying section 628 was fostering competition among cable operators 
and enhancing consumer choice. For example, the Conference Report on 
section 628 reflects a concern that is broader than MVPDs' access to 
programming:

    ``[T]he conferees expect the Commission to address and resolve 
the problems of unreasonable cable industry practices, including 
restricting the availability of programming and charging 
discriminatory prices to non-cable technologies. The conferees 
intend that the Commission shall encourage arrangements which 
promote the development of new technologies providing facilities 
based competition to cable and extending programming to areas not 
served by cable.''

    48. Our adoption of a rule prohibiting exclusivity clauses 
addresses the Congressional concerns underlying section 628(b). The 
rule will prohibit the continuation and proliferation of an 
anticompetitive cable practice that has erected a barrier to the 
provision of competitive video services. It also will promote the 
development of new technologies that will provide facilities-based 
competition to existing cable operators, and thus serves the purposes 
set forth in section 628(a) (as well as other provisions of law, such 
as section 706 of the Telecommunications Act of 1996). As Verizon 
points out, fiber optic services and interactive video are new 
facilities-based technologies that competitors seek to deploy. 
Exclusivity clauses prevent competitive MVPDs from providing satellite 
cable and broadcast programming to consumers by means of such new 
technologies. SureWest similarly argues that, because the deployment of 
broadband networks and the provision of video service are intrinsically 
linked, exclusivity clauses that prevent it from providing video 
services compromise its ability to deploy other advanced 
telecommunications services, by inhibiting its ability to market a 
package of services that consumers demand and reducing the revenues it 
needs to support investment in new and innovative services.
    49. More broadly, prohibiting exclusivity clauses for the provision 
of video services will further the purposes of the 1992 Cable Act and 
the 1934 Act. As several commenters point out, the 1992 Cable Act 
sought to promote competition and consumer choice in cable 
communications. In addition, the purpose of the Communications Act of 
1934, as amended, is ``to make available, so far as possible, to all 
the people of the United States * * * a rapid, efficient, Nation-wide 
and world-wide wire and radio communication service with adequate 
facilities at reasonable charges.'' Moreover, section 706 of the 
Telecommunications Act of 1996 directs the Commission to ``encourage 
the deployment on a reasonable and timely basis of advanced 
telecommunications capability to all Americans * * * ''. Removing 
barriers to allow access to a broad segment of consumers in the 
multichannel video programming distribution market by prohibiting 
exclusivity clauses for the provision of video services will further 
these statutory purposes. As Verizon notes, once a MDU owner is 
``locked'' into an exclusivity clause, ``residents are prevented from 
choosing alternative services that they might prefer--on the

[[Page 1087]]

basis of price, quality, and innovative and technologically advanced 
service offerings.'' Thus, contrary to some commenters' arguments, our 
interpretation of section 628(b) to prohibit exclusivity clauses for 
the provision of video services is not only consistent with the plain 
language of that statutory provision and confirmed by that provision's 
legislative history, but also furthers the broader purposes of the Act. 
We also find that Congress's failure in 1984 to include a provision 
that would have mandated access to MDUs for cable service has no 
bearing on our interpretation of the subsequent legislation that became 
the 1992 Cable Act, particularly since there is no evidence that 
Congress's failure to act in 1984 is at all related to the action it 
did take in adopting section 628(b) in 1992.
    50. We disagree with those commenters who argue that the regulatory 
requirements outlined in section 628(c) circumscribe the Commission's 
authority to prohibit exclusivity clauses for the provision of video 
services. For example, Real Access Alliance (``RAA'') states that the 
specific provisions of sections 628(c)(2)(A), (B), (C), and (D) 
establish the full scope of the Commission's authority under section 
628. However, nothing in these provisions indicates that they were 
intended to establish the outer limits of the Commission's authority 
under section 628(b). In fact, the very title of section 628(c)(2), 
``Minimum Contents of Regulations,'' strongly suggests that the rules 
the Commission was required to implement had to cover the conduct 
described in sections 628(c)(2) at the least, but that the Commission's 
authority under section 628(b) was broader. The term ``minimum'' 
indicates that more could be covered since it is defined as ``the least 
quantity assignable, admissible, or possible.'' (Webster's New 
Collegiate Dictionary (1977).) This interpretation is confirmed by 
section 628(c)(1), which grants the Commission wide latitude to 
``specify particular conduct that is prohibited by [section 628(b)].'' 
Other commenters' suggestions along the same lines are unconvincing for 
the same reasons.
    51. As pointed out by several commenters, the Commission's 
implementation of this provision to date has focused on ensuring MVPD 
access to the programming they need to provide a viable and competitive 
multichannel alternative to consumers, i.e., on the regulations adopted 
pursuant to section 628(c)(2). In the decision initially implementing 
section 628, the Commission described the provision as ``intended to 
increase competition and diversity in the multichannel video 
programming market, as well as to foster the development of competition 
to traditional cable systems, by prescribing regulations that govern 
the access by competing multichannel systems to cable programming 
services.'' Nevertheless, the Commission stated:

    ``Neither the record of this proceeding nor the legislative 
history offer much insight into the types of practices that might 
constitute a violation of the statute with respect to the 
unspecified ``unfair practices'' prohibited by section 628(b) beyond 
those more specifically referenced in section 628(c). The objectives 
of the provision, however, are clearly to provide a mechanism for 
addressing those types of conduct, primarily associated with 
horizontal and vertical concentration within the cable and satellite 
cable programming field, that inhibit the development of 
multichannel video distribution competition. * * * [A]lthough the 
types of conduct more specifically referenced in the statute * * * 
appear to be the primary areas of congressional concern, section 
628(b) is a clear repository of Commission jurisdiction to adopt 
additional rules or to take additional actions to accomplish the 
statutory objectives should additional types of conduct emerge as 
barriers to competition and obstacles to the broader distribution of 
satellite cable and broadcast video programming.''

Viewing the implementation history as a whole, the Commission's early 
focus on program access is not surprising. It was shaped both by the 
specific provisions of section 628(c)(2)--since these regulations were 
statutorily required and thus appeared to be of the most pressing 
concern to Congress--and the policy goal in the 1992 Cable Act of 
``'rely[ing] on the marketplace, to the maximum extent feasible' in 
promoting the availability of programming to the public.'' But the 
Commission's prior attention to these requirements in no way precludes 
its exercise of clear statutory authority to regulate unfair practices, 
beyond program access, which have the purpose or effect of hindering 
significantly or preventing the provision of certain programming to 
subscribers or consumers. The Commission has imposed no such artificial 
limitation on the scope of its authority, and section 628(b) does not 
require it.
    52. The Commission has authority to delineate by rule conduct 
prohibited under section 628(b) in order to promote the public interest 
through increased competition and diversity in the MVPD market and 
continued development of communications technologies. We have explained 
how a rule prohibiting exclusivity clauses for the provision of video 
services promotes the public interest here because it will likely 
increase competition in the MVPD market and promote continued 
development of communications technologies. Thus, we find that we may 
by rule prohibit cable operators from executing exclusivity clauses for 
the provision of video services to MDUs.
    53. This prohibition necessarily also applies to common carriers 
and open video systems. Although section 628(b) extends only to cable 
operators, section 628(j) explicitly states that ``[a]ny provision that 
applies to a cable operator under this section shall apply to a common 
carrier or its affiliate that provides video programming by any means 
directly to subscribers.'' In addition, section 653(c)(1)(A) provides 
that ``[a]ny provision that applies to a cable operator under (A) 
section[ ] * * * 628 * * * of this title shall apply * * * to any 
operator of an open video system.'' Thus, pursuant to sections 628(j) 
and 653(c)(1)(A), our prohibition on exclusivity clauses for the 
provision of video services applies to both any common carrier or its 
affiliate and also to OVS operators to the extent that these entities 
provide video programming to subscribers or consumers.
    54. Although we believe that we have specific statutory authority 
to adopt this prohibition, as described above, we note that our 
ancillary authority, under titles I and III of the 1934 Act, also 
provides a sufficient basis to prohibit cable operators from enforcing 
or executing exclusivity clauses for the provision of video service to 
MDUs. Courts have long recognized that, even in the absence of explicit 
statutory authority, the Commission has authority to promulgate 
regulations to effectuate the goals and provisions of the Act if the 
regulations are ``reasonably ancillary to the effective performance of 
the Commission's various responsibilities'' under the Act. The Supreme 
Court has established a two-part ancillary jurisdiction test: (1) The 
regulation must cover interstate or foreign communication by wire or 
radio; and (2) the regulation must be reasonably ancillary to the 
Commission's statutory responsibilities. The prohibition we adopt here 
applies to ``interstate and foreign communication by wire or radio,'' 
advances the purposes of both the 1992 Cable Act and section 706 of the 
1996 Telecommunications Act, and serves the public interest.
    55. Title I confers on the Commission regulatory jurisdiction over 
all interstate radio and wire communication. The multichannel video 
services provided by cable operators are interstate in nature and are 
covered by the Act's definitions of ``radio communications'' and ``wire 
communication.'' In addition, these services fall within the definition

[[Page 1088]]

of ``cable service.'' Thus, cable services are within the scope of our 
subject matter jurisdiction granted in Title I.
    56. In addition, we find that applying the prohibition against 
exclusivity clauses for the provision of video services to cable 
operators is reasonably ancillary to our statutory responsibilities 
under the Act. As we have explained, prohibiting exclusivity clauses 
for the provision of video services to MDUs will prohibit an 
anticompetitive cable practice that has erected a barrier to the 
provision of competitive video services. It also will promote the 
development of new technologies that will provide facilities-based 
competition to existing cable operators, and thus serves the purposes 
set forth in section 628(a). In addition, for the same reasons 
explained above, applying this prohibition to cable operators will 
ensure the furtherance of the broad goals of the 1992 Cable Act and the 
1934 Act generally.
    57. Because several commenters raise concerns about the treatment 
of exclusivity clauses in existing MDU contracts, we take particular 
care to observe that the law affords us wide authority to prohibit the 
enforcement of such clauses where, as here, the public interest so 
requires. Indeed, as the Commission has previously stated, ``Congress 
intended that rules promulgated pursuant to implement section 628 
should be applied prospectively to existing contracts, except as 
specifically provided for in section 628(h).'' In addition, the Fifth 
Amendment's Takings Clause presents no obstacle to prohibiting the 
enforcement of existing exclusivity clauses. To begin with, such a step 
obviously does not involve the permanent condemnation of physical 
property and thus does not constitute a per se taking.
    58. Nor does the proposed rule represent a regulatory taking. The 
Supreme Court has outlined the framework for evaluating regulatory 
takings claims as follows: ``In all of these cases, we have eschewed 
the development of any set formula for identifying a `taking' forbidden 
by the Fifth Amendment, and have relied instead on ad hoc, factual 
inquiries into the circumstances of each particular case. To aid in 
this determination, however, we have identified three factors which 
have particular significance: (1) The economic impact of the regulation 
on the claimant; (2) the extent to which the regulation has interfered 
with distinct investment-backed expectations; and (3) the character of 
the governmental action.'' None of these factors counsels in favor of 
finding a regulatory taking here.
    59. First, prohibiting the enforcement of exclusivity clauses will 
have minimal adverse economic impact on affected MVPDs. Nothing in the 
rule precludes MVPDs from utilizing the wires they own to provide 
services to MDUs or requires them to jettison capitalized investments. 
Neither does it prohibit the enforcement of other types of agreements 
between MDUs or MVPDs, such as exclusive marketing agreements. The rule 
merely prohibits clauses that serve as a bar to other MVPDs that seek 
to provide services to a MDU. The record in this proceeding 
demonstrates that in some cases, exclusivity clauses in existing MDU 
contracts impose adverse and absolute impacts upon would-be competitors 
who are otherwise ready and able to provide customers the benefits of 
increased competition.
    60. Second, the rule does not improperly interfere with investment-
backed expectations. As previously stated, exclusivity clauses in MDU 
contracts have been under active scrutiny for over a decade, and the 
Commission has prohibited the enforcement of such clauses in similar 
contexts. States have also taken action to prohibit such clauses. 
Moreover, to the extent that MVPDs have used exclusivity clauses to 
``lock up'' MDUs in anticipation of competitive entry or to obstruct 
competition, as described above, any underlying investment-backed 
expectations are not sufficiently longstanding or pro-competitive in 
nature to warrant immunity from regulation.
    61. Finally, with respect to the character of governmental action, 
the rule's prohibition of the enforcement of exclusivity clauses in 
existing MDU contracts substantially advances the legitimate 
governmental interest in protecting consumers of programming from 
``unfair methods of competition or unfair acts or practices''--an 
interest Congress explicitly has recognized and protected by statute, 
see 47 U.S.C. 628(b), and commanded the Commission to vindicate by 
adopting appropriate regulations, see id. section 628(c)(1). The rule 
we adopt today is based upon the Commission's detailed analysis of the 
harms and benefits of exclusive MDU contracts, discussed above in 
section II, and is carefully calibrated to promote this interest. In 
short, the rule at issue here does not invoke Justice Holmes' 
observation that ``if regulation goes too far it will be recognized as 
a taking.''
    62. Because the prohibition that we adopt today applies only to 
cable operators, common carriers or their affiliates that provide video 
programming directly to subscribers, and operators of open video 
systems, and does not require MDU owners to provide access to all 
MVPDs, we do not address comments raising concerns about the 
Commission's authority to mandate such access. However, we reject 
arguments suggesting that the Commission has no authority to regulate 
such entities' contractual conduct because of the tangential effect of 
such regulation on MDU owners. As explained above, sections 628(b), 
628(j), and our ancillary jurisdiction provide ample bases for 
regulating these specific MVPDs. Moreover, sections 4(i), 201(b), and 
303(r) supply the Commission with strong authority to enforce the full 
scope of the Cable Act prohibition at issue.

IV. Further Notice of Proposed Rulemaking

    63. The Report and Order found that further inquiry and analysis 
was needed before the Commission would decide how, if at all, to 
regulate building exclusivity clauses that give exclusivity to DBS 
service providers and PCOs. The Commission also refrained, in the 
Report and Order, from regulating exclusive marketing arrangements 
(which allow one MVPD into a MDU or real estate development but 
constrain the ability of competitive MVPDs to market their services 
directly to MDU residents) and bulk billing arrangements (which may be 
exclusive but do not prohibit MDU residents from selecting a 
competitive MVPD provider). The Commission commenced a further 
rulemaking to inquire into these as-yet unresolved matters, and states 
that it would conclude this rulemaking and release an order within six 
months of publication of this Order.

V. Procedural Matters

A. Regulatory Flexibility Analysis

    64. Pursuant to the Regulatory Flexibility Act of 1980, as amended, 
the Commission has prepared a Final Regulatory Flexibility Analysis 
(``FRFA'') of the possible significant economic impact on small 
entities of the policies and rules addressed in this document. The FRFA 
is set forth in Appendix B to the Report and Order.

B. Paperwork Reduction Act Analysis

    65. The Report and Order does not contain new or modified 
information collection requirements subject to the paperwork Reduction 
Act of 1995 (PRA), Public Law 104-13. In addition, therefore, it does 
not contain any new or modified ``information collection

[[Page 1089]]

burdens for small business concerns with fewer than 25 employees,'' 
pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 
107-198, see 44 U.S.C. 3506(c)(4).

C. Congressional Review Act

    66. The Commission has sent a copy of the Report and Order, 
including the FRFA, in a report to be sent to Congress and the 
Government Accountability Office pursuant to the Congressional Review 
Act. In addition, the Commission has sent a copy of the Report and 
Order, including the FRFA, to the Chief Counsel for Advocacy of the 
Small Business Administration.

D. Additional Information

    67. For additional information on this proceeding, please contact 
John W. Berresford, (202) 418-1886, or Holly Saurer, (202) 418-7283, 
both of the Policy Division, Media Bureau.

VI. Ordering Clauses

    68. Accordingly, it is ordered that, pursuant to the authority 
contained in sections 1, 2(a), 4(i) 157 nt., 303(r), 335, 601(6), 
628(b,c), and 653(c)(1) of the Communications Act of 1934, as amended; 
47 U.S.C. 151, 152(a), 154(i), 157 nt., 303(r), 335, 521(6), 548(b,c), 
and 573(c)(1), this Report and Order is adopted.
    69. It is further ordered that, pursuant to the authority contained 
in sections 1, 2(a), 4(i) 157 nt., 303(r), 335, 601(6), 628(b,c), and 
653(c)(1) of the Communications Act of 1934, as amended, 47 U.S.C. 151, 
152(a), 154(i), 157 nt., 303(r), 335, 521(6), 548(b,c), and 573(c)(1), 
47 CFR part 76.2000 of the Commission's rules is amended, as set forth 
below. It is our intention in adopting these rule changes that, if any 
provision of the rules is held invalid by any court of competent 
jurisdiction, the remaining provisions shall remain in effect to the 
fullest extent permitted by law.
    70. It is further ordered that the following documents shall be 
made part of the record in this proceeding: (a) Letter from Leora 
Hochstein, Executive Director, Federal Regulatory, Verizon, to Marlene 
H. Dortch, Commission Secretary, MB Docket No. 05-311 (Aug. 9, 2006); 
(b) Letter from Ms. Hochstein to Ms. Dortch, MB Docket No. 05-311 (July 
6, 2006); (c) Comments of SureWest Communications in MM Docket No. 06-
189; (d) Comments of Manatee County, Florida, in MB Docket No. 05-311; 
and (e) the Comments of Cablevision and Comcast in MB Docket No. 07-29.
    71. It is further ordered that the rule contained herein shall 
become effective 60 days after publication of this report and order in 
the Federal Register.

List of Subjects in 47 CFR Part 76

    Cable television..

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rules

0
For the reasons discussed in the preamble, the Federal Communications 
Commission amends 47 CFR part 76 as follows:

PART 76--MULTICHANNEL VIDEO AND CABLE TELEVISION SERVICE

0
1. The authority citation for part 76 continues to read as follows:

    Authority: 47 U.S.C. 151, 152, 153, 154, 301, 302, 302a, 303, 
303a, 307, 308, 309, 312, 315, 317, 325, 339, 340, 341, 503, 521, 
522, 531, 532, 534, 535, 536, 537, 543, 544, 544a, 545, 548, 549, 
552, 554, 556, 558, 560, 561, 571, 572, 573.


0
2. Add subpart X to part 76 to read as follows:

Subpart X--Access to MDUs


Sec.  76.2000  Exclusive access to multiple dwelling units generally.

    (a) Prohibition. No cable operator or other provider of MVPD 
service subject to 47 U.S.C. 548 shall enforce or execute any provision 
in a contract that grants to it the exclusive right to provide any 
video programming service (alone or in combination with other services) 
to a MDU. All such exclusivity clauses are null and void.
    (b) Definition. For purposes of this rule, MDU shall include a 
multiple dwelling unit building (such as an apartment building, 
condominium building or cooperative) and any other centrally managed 
residential real estate development (such as a gated community, mobile 
home park, or garden apartment); provided however, that MDU shall not 
include time share units, academic campuses and dormitories, military 
bases, hotels, rooming houses, prisons, jails, halfway houses, 
hospitals, nursing homes or other assisted living facilities.

 [FR Doc. E7-25349 Filed 1-4-08; 8:45 am]
BILLING CODE 6712-01-P