The Exclusivity is Over

This is a matter that Technology Committees within Homeowners Associations should have reported already to community residents subscribing to cable video services (MVPDs). A new regulation by the FCC could benefit them favorably (both, owner and association) by opening the field to competition and consumer's choice.

The FCC approved on October 31, 2007 a "Report and Order (FCC 07-189)" banning the use of "exclusivity" clauses for the provision of video services to multiple dwelling units ("MDUs") or other real estate developments, by MVPDs subject to section 628 of the Communications Act.

In other words, a cable subscriber is now free to accept the services of a competitor cable company or Telco (offering FiOS for example) that uses its own infrastructure even if the current MVPD contract for that location established "exclusivity", which is prohibited after this regulation.

Here is the FCC document:
http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-277763A1.pdf

The order specifically addresses the following points:

• Exclusivity clauses that bar competitive entry harm competition and broadband deployment and can insulate the incumbent MVPD from any need to improve its service.
• Exclusivity clauses are widespread in agreements between MVPDs and MDU owners.
• Incumbent cable operators have increased the use of exclusivity clauses in their agreements with MDU owners with the entry of LECs into the video marketplace.
• The 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 under Section 628.

The FCC Speaks the Detail

After the document was officially released, I contacted the FCC's media representative related to this ruling to discuss the detail on this regulation.

I wanted to confirm how far this ruling would affect cable companies that have invested and installed expensive fiber-optic and coax infrastructures in large communities with the expectation of getting a return on their investment by means of long term contracts of guaranteed subscriptions with "exclusivity".

Although the regulation as approved prohibits now the "exclusivity" condition, a "Further Notice of the Proposed Rule Making" has been issued to seek comments regarding the possible application of the same ruling to DBS providers, other private cable operators, and other MVPDs not covered under Section 628.

In the conversation a comment was made that will also be discussed in the Further Notice: the issue of subscribers continuing their responsibility for some fees with the current provider, even after they switch to another video provider. A subscriber would most probably still be directly or indirectly contractually required to continue paying to the current MVPD some fixed fees, such as the basic cable service embedded within a HOA monthly fee, for example.

According to the FCC, the prohibition of "exclusivity" does not alter other obligations established within a contract that is still active and valid.

The Opportunity to a Subscriber

In theory, a non-exclusive service that is not releasing a subscriber from the current obligation could certainly discourage certain subscribers and not look for an alternate service because it could double up the cost of a basic video tier.

However, if the fee is not high, some consumers would take this event as a great opportunity to consider another service provider if more serious reasons are supporting the change, such as unacceptable service quality, deficient performance, insufficient HD channel lineup, slow growth, high equipment failure rate, unresponsive or inadequate customer service, etc. which are not uncommon within the cable industry.

The Opportunity of New HD Offerings

HD channel line-up has recently become more competitive among satellite and cable companies, which are constantly upgrading their HD tiers to attract new owners of HDTV sets.

These people are preparing themselves for the analog to digital switch the US government has mandated and planned for February 17, 2009, but are mainly interested in enjoying the higher quality images of HDTV (1080i and 720p), not just digital channels in standard definition (480i/p), the minimum requirement on the mandate.

Service providers are increasingly expanding their HD channel lineup and distribution infrastructures, and implementing more efficient compression algorithms (from MPEG-2 to MPEG-4 for example, to double up channel capacity), which generally requires the replacement of a subscriber's set-top-box, whether is leased or purchased.

In January 2007 at the International CES in Las Vegas, DirecTV announced 150+ HD channels to be ready by early 2008, and is in the process to meet that goal with a channel line-up recently expanded to over 70 HD channels, certainly several times any cable company is offering in HD.

Dish Network has also stepped up the effort to meet that challenge with their own HD channel line-up increase to remain competitive, and several nationally established cable companies felt the pressure and announced that they will have the capacity to carry 800 to 1000 digital channels, although some commented that capacity is not exactly a declared line-up of HD channels.

Cable Video is Changing

This new ruling opens the opportunity for a subscriber to pursue other options of receiving video services, not just changing the cable company.

Cable companies and Telcos are investing in IPTV, DOCSIS, Switched Digital Video, and other technical innovations to been able to increase their HD channel offerings with new distribution models.

New models of delivering video services can now grow with more flexibility if only the channel requested by the subscriber's set-top-box is delivered on the cable for viewing, rather than the current model of delivering all the available line-up of channels simultaneously for the subscriber to tune to only one in the home.

This method of delivery facilitates growth because it removes the capacity constraint of a commonly used coaxial cable that can only transport a limited number of channels to the home, a typical limitation of channel growth by all cable companies.

Telcos and companies using Fiber Optic infrastructures can also offer new models of video delivery, such as IPTV (Internet Protocol TV, not to be confused with video from the Internet), covered on these articles:

• IPTV Part 1 - Read the Fine Print
• IPTV Part 2 - The Groups, Forums and Statistics
• IPTV Part 3 - The Methods and a Working Technology
• IPTV Part 4 - The Good, the Bad and the Ugly
• IPTV Part 5 - Additional Implementations
• IPTV Part 6 - More Implementations and Final Thoughts

The new ruling would invite and permit competitors to build and deliver their own infrastructure to the homes of subscribers, at least to those that do not mind for their beautiful front lawns to be disturbed again, and open the consumer choices.

Who Could Have Interest on this Opportunity?

Many might find this opportunity attractive, even those that might still have to continue paying basic tier fees to the current cable company to comply with an existing contract.

Those subscribers could find more attractive to have a video supplier with a larger selection of premium HD video services, HBO and the like, HD VOD, HD PPV, etc, rather than receiving a small HD line-up from a monopoly type of company which exclusivity contract did not create the motivation (and the vision) to do anything else than receiving prolonged ROI from basic services, and add one or two HD channels a year, just to say they offer HD.

While it is too early to anticipate what type of subscriber/cable company conditions the next "Further Notice of the Proposed Rule Making" by the FCC would establish, it is easy to understand that a cable company that have invested multi-million dollars on a fiber-optic infrastructure in a community, in exchange for a commitment of long term contracts, would be in an unfair ground if the return on the investment disappears because a new regulation allows subscribers to migrate to alternative services and be released from all subscription fee responsibilities.

Therefore, I anticipate that the ruling would not release communities and subscribers from their current contractual fee obligations.

However, it is also important to recognize that subscribers from communities that are required to pay for such monopoly type of service might not be receiving the cable company's best effort when the company does not have any incentive because is not running the risk of loosing continuous revenue.

What is important now is that by prohibiting "exclusivity" two opportunities have been created, a) a subscriber could pursue better services (better economically, or in quality, or quantity, etc.), and b) a competitor cable/Telco company could expand its business to communities on which the "exclusivity" contractual condition of earlier investors would have made that unattainable.