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FCC Rules and Revenue Sharing with Coops and Condos

The United States Federal Communications Commission (FCC) has adopted new rules to promote competition among broadband providers by barring multitenant environments (e.g. cooperative and condominium buildings termed in the FCC regulations to be MTE) as well as office buildings, rental apartment buildings, mobile home parks and public housing, among others, from entering into, enforcing or maintaining any revenue sharing, including wiring, agreements with broadband providers. The new FCC rules further require any MTE to disclose in simple language the terms of any agreement with any broadband provider.

 Since no later than 1996, by state and federal law (including the Telecommunications Act of 1996) managing agents and boards of MTEs have been prohibited from making exclusive sweetheart deals with broadband providers. Typically, these agreements would provide incentives to the decision makers and those with influence, such as board members or managing agent firms, with a share of revenue based on the penetration in the building of the selected provider. The unit owners or tenants would not be informed of the details, nor would they benefit in any way. But to get broadband service, the unit owner or tenant would have to use the sweetheart provider.

After the exclusive agreements were barred, many cooperative and condominium boards and managing agents used graduated agreements. Unit owners or tenants could choose a provider, but if they selected the favored provider then maybe appointments would be easier, insurance requirements would be looser, they might see other short-term advantages.

Revenue would have been shared or benefits conferred based on the level of penetration for the favored provider. The revenue or benefits might flow to the managing agent, the board members or both. The unit owners and tenants were ignorant and received no benefit.

During COVID-19, when many buildings were seeking new wiring for broadband services, it seems that the managing agents and board would enter into agreements with the broadband providers to internally wire the building. They then leased the wiring back to the provider to give the provider control over the use of the wiring by the unit owner or tenant. Under the new rules, tenants and unit owners control who may wire their units.

The current administration has directed federal agencies to promote competition and to protect consumers. In that spirit, the FCC has now banned the so-called wiring agreements and prohibited the graduated agreements for MTEs. The FCC has ruled that these agreements amount to sweetheart agreements.

Marketing agreements between MTE developers, managers or boards must be disclosed, regardless of whether it is in writing or merely a practice or policy. A marketing agreement gives the broadband provider access to the unit owners or tenant in an MTE. Typically, the broadband provider pays the manager, board members, developer or MTE for this access.

The disclosure of the marketing agreement must be written and provided to all current or prospective tenants or unit owners who are subject to the marketing arrangement. The disclosure must say that the provider has exclusive rights to market to the tenants or unit owners in the MTE, that the marketing provider is not an exclusive provider and that the tenant or unit owner may use another provider. The date for the issuance of these notices has not been set yet.

The broadband industry does not support these changes. Condo and cooperative boards must adapt to these new rules and policies. If such arrangements exist, the agreement and the practices must be reviewed to ensure that board and managing agent comply with the new FCC rules and policy. If there are agreements in place with broadband providers, the boards and their managing agents, with advice of counsel, must amend these agreements to comply with the new regulations. In addition, boards and managing agents, again with advice of counsel, need to ensure that appropriate disclosure forms are prepared, that the staff is directed not to interfere with the broadband choices of unit owners and tenants and that there is equal access to the building for all providers.

 The administration hopes changes will benefit consumers and reduce broadband costs.

This column presents a general discussion. This column does not provide legal advice. Consult your attorney for specific legal advice.

Carol A. Sigmond
Greenspoon Marder LLP
590 Madison Ave., Suite 1800
New York, NY 10022