Under the Federal Communications Commission's (FCC) recent Open Internet Order (OI Order) reclassifying broadband internet access service as a telecommunications service, stand-alone internet service providers (ISPs) will need to comply with the FCC's existing rules governing provision of telecommunications services that, among other things, prohibit exclusive access and service contracts in residential and commercial multi-tenant environments (MTEs, sometimes also referred to as "MDUs" for residences). As Commissioner Carr noted in his dissent, "the Order offers no examples of broadband-only ISPs exploiting their status to engage in anti-competitive behavior with respect to MTEs, much less any evidence of a widespread market failure attributable to the existing scope of the MTE regime." Nevertheless, unless the 6th Circuit further delays the effective date of the OI Order, the rules governing ISP contracts for exclusive service or access will become effective August 5, 2024. Broadband-only ISPs with pre-existing MTE agreements would then have an additional six months from the effective date to bring those contracts into compliance with the rules.
The key rules are summarized below.
Agreements for Exclusive Service or Exclusive Access Are Prohibited
The existing rules provide that no telecom provider may enforce any contract provision that restricts the right of any residential homeowners' association (HOA) or commercial landlord to allow another service provider to access the building and provide service to tenants. Contractual provisions that purport to give a service provider exclusive access to the property or the right to be the exclusive service provider are preempted and unenforceable.
Graduated Revenue Sharing is Prohibited
Separately, the FCC also prohibits telecom providers from entering into or enforcing contractual provisions that provide the HOA or landlord with compensation on an exclusive basis or a graduated basis. The FCC defines a "graduated basis" to mean "that the compensation a common carrier pays to a multiunit premise owner for each tenant served increases as the total number of tenants served by the common carrier in the multiunit premise increases." Agreements for the provider to pay the landlord a straight, unchanging percentage share of revenue are not prohibited because the amount per unit does not increase at any point.
Amendment of Existing Agreements
Besides not entering new agreements with prohibited provisions on exclusive service or access, or graduated revenue sharing, broadband providers are required to "bring their pre-existing contracts into compliance" with the newly applicable MTE rules. The most effective way to accomplish this is to amend any existing agreement with an HOA or landlord that gives the ISP rights to exclusive access, exclusive service, or "graduated compensation" to remove those provisions. In the event a provider has such an agreement, it should consider at minimum notifying the landlord or HOA that exclusive access and graduated payment provisions are no longer lawful and are not enforceable, even if the other party will not agree to an amendment. Typically, contracts include a severability clause that keeps the remaining lawful provisions of the agreement in place, with or without a formal amendment.
Bulk Billing Agreements Remain Lawful
Many service providers have agreements to deliver service to every unit of an MTE at a discounted "bulk" rate. The FCC in 2010 confirmed that bulk billing arrangements can benefit consumers and should remain lawful. Earlier in 2024, FCC Chair Rosenworcel issued a press release urging a new rulemaking to ban bulk billing, but her proposal generated significant public opposition and does not appear to have gained traction with her FCC colleagues. With the election now only a few months away, it appears less likely that there will be any FCC action on bulk billing this year.
Disclosures Necessary for Exclusive Marketing Agreements
Agreements that give one provider exclusive marketing rights within a multi-tenant property are permitted, but the operator must disclose the existence of any exclusive marketing agreements to affected residents on all written marketing materials (stating that an agreement for exclusive marketing on the property exists, that the exclusive marketing provision does not mean that the property can have only one service provider, and that other service providers might be available).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.