Article Courtesy of The Tampa Tribune

By RICHARD MULLINS

Published November 4, 2007

Every three months, the 614 homeowners of Chapel Pines subdivision in Pasco County write a $140 check for their association fee. Of that fee, $90 goes to Bright House Networks for a cable TV package, whether or not they subscribe to cable TV from Bright House.

The fee is mandatory. If any residents decide they want television from DishNetwork, DirecTV or Verizon FiOS, that's an extra cost.

'Every time there's an association meeting, there are always people who ask if we can get out of that cable deal,' said David Quinones, president of the Chapel Pines homeowners association.

So far, it looks like he can't break the deal, which lasts 15 years. 'I have Bright House and like them, but a good number of people prefer having the choice of another provider.'

On Wednesday, the Federal Communications Commission stepped into that issue, voting unanimously to block cable TV companies from signing or enforcing exclusive access deals that allow only one company to offer cable TV in apartments, condominiums or other private real estate developments.

By doing so, the FCC endeavors to crack long-standing deals by cable providers that all but guaranteed income from consumers insulated from competitive pressures.

The formal FCC rule is under development, but Verizon officials hope it includes homeowners associations like those so common in Florida housing developments. Tampa is one of the first cities to allow cable TV competition between traditional cable and telephone companies, so the ruling could trigger new rounds of competition in apartments and condos that hadn't seen it before.

'This is a tremendous day for consumers of all socio-economic levels and a great move by the FCC,' said Alan Ciamporcero, Verizon's Southeast region president, whose company has complained about their rivals' exclusive deals. Ciamporcero said if the vote truly opens up new areas, he will deploy more salespeople to knock on residents' doors.

In the Tampa Bay area, Verizon estimates that at least half the condos, apartments and subdivisions have such preferred or exclusive deals.

Likely no customer's bills would drop anytime soon from the FCC rule. The issue is likely to go to federal court as several cable TV companies, including Bright House, contest that potential action, claiming the FCC has no authority to cancel private contracts.

Exclusivity Offers Guaranteed Cash Flow

There are immense financial stakes for cable TV companies with such bulk deals because they all but guarantee future cash flow for any TV provider.

The Chapel Pines deal means each homeowner pays $360 per year in cable TV fees, generating $221,040 a year for Bright House, or about $3.3 million over the life of the deal.

Because residents pay for the basic level of service, they have an incentive to upgrade to a higher-tier service that offers more than the basic channels. Plus, the deal discourages residents from using another provider for telephone or Internet service because there would be fewer discounts from 'bundling' the services together.

Bright House officials said the action by the FCC wouldn't jeopardize their business. Bulk deals represent about 5 percent of the company's annual revenue, spokesman Joe Durkin said.

By contrast, those deals are a costly problem for Verizon. Regulations require Verizon to eventually build its fiber-optic network to nearly every home and residence across the region. So as Verizon encounters developments with pre-existing deals, Verizon could face all the costs of installing fiber-optic lines past each house, while homeowners there have less incentive to choose Verizon.

Verizon, meanwhile, often seeks its own form of bulk deals, though they are nonexclusive. The company has an internal sales division to win marketing deals that offer Verizon services at discount prices for condos and subdivisions. Verizon recently won deals for 'The Place' condo tower in Channelside and The Meadow Pointe phase IV development, with 1,700 homes in Pasco County.

Companies Sign Nonexclusive Deals

In past years, such special arrangements appealed to developers - they often got a cut of the revenue while also providing a discount cable TV deal for their residents.

That system worked well when there was one major cable TV provider. Now that the Bay area has at least two competitors, however, the rules of such a competitive game are leading to some unusual contracts.

In September, Verizon signed a deal with Walden Lake development in Plant City, guaranteeing that no one company would have an exclusive deal - meaning rival cable TV companies like Bright House also could provide cable TV to the 2,200 homes. The deal was akin to Pepsico signing a deal with a big office tower to make sure that the Coca-Cola Co. could also install Coke machines in the building.

'Verizon wanted to lay their fiber-optic lines into Walden Lake, and they were interested in not having any exclusive deals with anyone - so they didn't go through all that expense only to find out we were signing an exclusive deal with someone else,' said Tom Daramus, general manager of the homeowners association.

No money changed hands in the deal, Daramus said, and the development signed the deal to make sure residents had options in the future. 'It's a good deal for us too because we prefer to have the competition and everyone can get their choice.'

Commissioner Targets Homeowners Groups

Even if Wednesday's action by the FCC doesn't expressly include homeowner associations, they are the next target for at least one commissioner, Jonathan Adelstein.

In a statement Wednesday, Adelstein singled out 'centrally managed real estate developments' and called 'bulk billing' arrangements an 'insidious' form of deal because 'if a resident is fortunate to receive video service from a competitive video provider, the resident is sometimes forced to pay two separate subscription fees for video service.'

Whatever direction the FCC goes on the issue, there's likely to be litigation. Cable TV companies claim any move by the FCC to cancel contracts would be illegal and exceed the authority of the commission.

Several cable TV companies, including Bright House, challenged the basic right of the FCC to cancel terms of private contracts. All five commissioners voted in favor of the rule, but some had concerns.

Commissioner Robert M. McDowell noted in a statement that 'I am concerned about the legal sustainability of the Order ... I wish the Commission's appellate lawyers the best of luck.'