In 1999, the 500-unit Worldgate condominium complex in Herndon, Va., decided to give its residents an alternative to the community's sole cable provider, Cox Communications. The association was eager to test the services of Bell Atlantic Video and lined up some homeowners to make the switch.
But when some Cox technicians visited the complex to prepare for the transfer, residents were left with something they didn't expect: a mess of tangled wire that ? according to an association executive ? were left behind deliberately by Cox.
?Instead of removing the wire,? condo association VP Victor Golowaty wrote in a February 2000 complaint to the FCC, ?Cox chose to ?push the wire? so that it remains in place but unusable.? The service box, says Golowaty was ?a mess?. This was done in spite.? Negotiations with Cox over the wiring likewise went nowhere, according to Golowaty. Cox spokesman Scott Broyles says the company ?denies those allegations? and continues to provide video and high-speed data services to other units at Worldgate.
The standoff between condo owners and Cox exposes a dispute common to the roughly 25 million multi-unit complexes across the country. The trouble arises when building owners sign easements, as in the Worldgate case, or exclusive access and marketing agreements with cable providers. The binding documents later turn the buildings into battlegrounds when dissatisfied residents seek a change of service providers or merely a choice.
The contracts are big business, affecting about one-third of the nation's 70 million cable subscribers. Their potential to stifle consumer choice explains why the FCC, since 1997, has been gathering input on the merits of exclusive contracts as well as perpetual contracts, which remain in force as long as the local cable provider renews its franchise agreement with the local municipality. Under the leadership of chairman Michael Powell, who has vowed to purge the agency's backlog of moribund proceedings, the agency is expected to issue a rulemaking on these matters shortly.
?It's something we're actively pursuing now,? says W. Kenneth Ferree, head of the commission's Cable Services Bureau. Prior to taking his job as the commission's cable point man, Ferree represented Optel Inc. before the commission on this very issue, a conflict that has forced him to recuse himself from the proceeding.
Although the commission is unlikely to proscribe exclusive contracts, it may place term limits on them, a tack that might precipitate bidding wars among competing providers. ?We seek comment on what would be a reasonable period of time for a provider to recoup its specific investments costs in a [complex],? said the FCC in its 1997 inquiry.
Cable operators of all sizes harp on the importance of exclusives to repay infrastructure investments in apartment complexes ? which real estate experts say can cost between $50,000 and $150,000 per complex. Establishment cable companies, like Time Warner Cable, which hold an untold number of exclusives, would be content to see the FCC leave the issue alone. Smaller companies and overbuilders, meanwhile, want the FCC's help in breaking the vise grip of big firms on apartment contracts so they can make their own bids for the business. Once they're in, though, they want the right to negotiate exclusive contracts for themselves.
The Independent Multi-Family Communications Council (IMCC), for instance, commissioned a study suggesting that the FCC limit the exclusives of franchise cable operators while allowing full exclusive privileges for smaller competitors.
?People are generally for them when they can get them, and against them when they can't,? says a prominent cable analyst.
The divergence of interests among cable firms has muted the usually strong lobbying voice of the flagship National Cable & Telecommunications Association (NCTA). In its filings on the FCC proceeding, NCTA has declined to take a stance on exclusive contracts, opting instead for a position that all cable companies should be treated equally under FCC regulations.
Real estate powerbrokers, however, are happy to fill the void left by the NCTA. Major national real estate trade associations have formed a coalition called the Real Access Alliance, which is pushing for a ?competitive market for telecommunications without undermining property rights,? according to coalition spokesperson Roger Platt of the National Realty Committee. In regulatory shorthand, that means preserving exclusive contracts.
And why wouldn't they? Property owners get paid well for picking their tenants' cable television provider.
Under one exclusive 16-year contract, the owners received a one-time ?door? fee of $100 for each of the 150 units in the building.
Other compensation formulas pay owners up to 10% of the cable revenues from buildings covered under exclusive contracts. Last year, for example, Chastain Properties of Columbus, Ga., received ?$75,000 and a small percentage of income? from MediaOne/AT&T Broadband for a property of 486 units, according to a document procured by Cable World.
Lyn Lansdale, vice president of AvalonBay Communities, which manages approximately 40,000 apartments around the country, says good cable service far outweighs payola considerations.
?Our average rents are in the $1,500 range,? says Lansdale. ?The average resident's cable bill is $35, and for us it's much more important that we protect the $1,500 in rent and don't lose a resident because of the $35 cable bill.?
What do cable operators get for their money? Under the 16-year contract examined by Cable World, the building owner ?will not, and will not permit other parties, including other service providers, to have access on or about property in order to promote, market or solicit for or sell services that compete with operator's exclusive services.? Also, the owner cannot ?take any action? to ?encourag[e] or facilitat[e] residents who choose another providers' services that compete with the exclusive services.?
Contracts like those often trap apartment residents in their dwellings with a cable provider they don't want. Esta Lee Belisle, who lives in a senior citizen complex in Oklahoma City, wrote to the FCC in May 2001 to complain about her building's exclusive contract with American Telecasting Inc.
?I can't get C-SPAN, and I can't get Court TV,? says Belisle, 67, who has lobbied her landlords for a switch to Cox. ?I'm a thinking type of person, or I like to say that, anyway.?
Also hurt are broadband upstarts and overbuilders, who can't even get to prospective customers' front doors. ?I've always used the Pizza Hut analogy,? says Christopher Rozycki, government affairs director for Carolina Broadband. ?Consider yourself an apartment resident, and you call Pizza Hut for a pepperoni pizza. Then you give them your address, and they say, ?Sorry, that's a Domino's building.??
Carolina Broadband says that Time Warner uses exclusive agreements to control ?virtually all? multiple-unit buildings in North Carolina, including 150,000 such customers in Raleigh and Charlotte.
Time Warner declined to discuss its dealings with apartment buildings. However, in a filing with the FCC, the cable giant characterized exclusives as an outgrowth of fierce competition. ?Given that [apartment building owners] have for a long time faced no shortage of bidders to offer [video] service to their residents, and?owners readily admit that the ability of all [video providers] to offer exclusive contracts has helped foster this highly competitive environment, there is no reason why the Commission must now interfere with the free hand of the marketplace,? reads the Time Warner Cable filing.
Apartment building owners complain that cable representatives will do anything to secure an exclusive, like shoving paperwork in front of low-level management officials and even forging the documents. ?We have that nonsense happen all the time,? says Larry Kessler, CEO of InteliCable, a firm that advises apartment buildings on communications infrastructure. ?Cable companies will find a property manager and say, ?Here, please sign this because we need it to go onto the property and upgrade the technology. They go signing the thing, and what they've just signed is a long-term or perpetual friggin? contract.?
One of Kessler's clients, Houston property owner T. David O'Brien, won a judgment in federal court last year against AT&T/TCI for forging a contract giving the company exclusive rights to service O'Brien's property, Meadow Park Apartments. The case dates back to 1996, when Kessler called TCI on behalf of O'Brien to verify that the company did not have exclusive rights to the property. The company responded that it did have such rights. When Kessler asked for a copy of the relevant contract, the company balked, saying it needed a faxed request signed by O'Brien.
O'Brien faxed his request to TCI, but he affixed a phony signature to the document. Shortly thereafter, TCI coughed up the so-called exclusive contract, complete with a signature that mimicked O'Brien's inauthentic scribbling.
O'Brien has a warning for other apartment building owners: ?These [cable] companies are out there operating as a pack, just like a pack of sharks and feeding on smaller people.?
Gregg Laswell, counsel for AT&T/TCI, admits that O'Brien's signature was indeed ?unauthorized? but lays responsibility for the forgery at the hands of a TCI contractor, not the company itself. ?We got bamboozled just like [O'Brien] did. The guy lied to us,? says Laswell.
Big cable companies appear to be leaning more and more on contractors to handle the sticky business of fetching exclusives for big cable companies. David Broderick, a former asset-management executive with Alliance Residential Management, says that Cox Communications last spring unleashed an aggressive agent from MDU Associates on a 160-unit property of his in Amarillo, Texas. According to Broderick, the contractor strong-armed a low-level property manager into signing a ten-year exclusive for the property. Broderick protested to Cox that managers have no authority to sign such agreements. But Cox, he said, stood by the document. ?I was stunned by their approach,? says Broderick, who has since left Alliance.
James Klay, a senior partner at MDU Associates, says the manager of the building ?told us she had authority from her boss?to execute the contract. We've gotten nearly 100 contracts executed for Cox, and this is the only one to my knowledge where there has been any problem.? Adds Klay: ?I realize that there are people out there who are reckless in getting contracts executed, and that is not what we do.?
John Price, Cox's strategist for multi-unit business, says that MDU Associates handled the contract properly. ?I don't remember anything coming of [the dispute],? says Price.
Ending exclusive agreements can be as traumatic as getting into them.
Last winter the managers of Wimberly Park Apartments in Duncanville, Texas, for example, wanted to switch to another provider, US Online, but it claimed that incumbent provider Charter Communications attempted to stop the switchover, allegedly making ?threats? to stop the apartment owners.
Negotiations to resolve the matter went poorly and reached a confrontational low point in March, when the apartment managers sent Charter a threatening letter of their own. ?Any Charter employees who attempt to enter the property after [April 29, 2001] will be trespassing,? read the Wimberly Park letter to then-Charter CEO Jerry Kent. ?This will result in a police response and full prosecution.? The landlord even tried to keep Charter from contacting Wimberly Park tenants.
Charter spokesman Andy Morgan says that negotiations with the apartment complex resolved the situation.
Back in October 1997, the FCC tried to head off the Charter-Wimberly clash and others like it. The agency issued regulations designed to facilitate the transition to new cable providers at apartment buildings. On paper, the rules make sense: Cable operators that lose their contracts with multi-unit buildings may either abandon the wiring, sell it to the building owner, or remove it. Somehow, though, the FCC's word hasn't filtered down to the 25 million multi-unit buildings in the country and the cable operators that serve them.
?Is bedlam more or less than chaos?? says IMCC executive director Bill Burhop when asked to characterize the marketplace for apartment building cable services.
Burhop says that well-funded legal departments at large cable companies force their will on apartment owners. ?All of that fighting leads to frustration on the part of [building owners], who eventually throw up their hands and say, ?Screw it, let the franchise guys do it,? which is exactly the result that franchise guys want to accomplish,? says Burhop.
Further FCC activity may calm the multi-unit marketplace. However, the nature of cable service in large, multi-unit complexes fosters problems, as operators will always have to partner with building managers at some level. That partnership will continue alienating apartment dwellers who feel powerless vis-à-vis those vested with the power to choose their cable providers. In a letter last year to the FCC, for instance, Florida resident William Alter claimed that he had unsuccessfully sought a credit on his bill for lapsed services from his cable provider, MediaOne/AT&T. ?I was told by Media One that the condo pockets the difference. So they could not give me a credit,? writes Alter.
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