How to Make an Incumbent Cable Operator Share All its Wire with an Overbuilder

By W. James Mac Naughton, Esq.

 

Incumbent franchised cable operators would, in the words of Billy Crystal, "rather eat lint" than share their wiring with competitors in multi-family properties. In response to this attitude, Congress directed the Federal Communications Commission (the "FCC") to adopt a series of rules known as the Cable Home Wiring rules that allow competitors to use existing cable plant in multi-family properties. The rules are, for the most part, based on the assumption that only one cable company will be serving a multifamily property. But they also work quite well at forcing an incumbent to share its wires with an overbuilder who competes head to head.

 

The rules are, for a variety of legal and political reasons, complex and esoteric. What the FCC wanted to say to an incumbent cable operator at a multifamily property was "You must turn your cable over to your competitor when your competitor wants to serve a subscriber." But such an explicit command means that the incumbent’s property is, in effect, confiscated. The FCC is not authorized by Congress to order such a "taking" of property.

 

So the FCC achieved the same end by giving the incumbent cable operator a Hobson’s Choice. The FCC told the incumbent "If you claim you own the wire, then you must take it out once you stop serving your subscriber. If you don’t take it out, you abandon it to the property owner." The cost of removing (and then reinstalling) the wire is exorbitant so no cable operator has ever exercised the dubious "right" to remove its wire. The effect is that the cable wiring in multifamily properties is literally being abandoned wholesale everyday to the property owners.

 

The Constitution does not prohibit the FCC from imposing this Hobson’s Choice. The government can regulate how you use your property so long as there is some economic use remaining at the end of the day. The cost of removing the cable may make the exercise of the "right" of removal a very stupid economic decision. But the scrap value of the cable after it is removed is enough for the courts to find that there has been no unconstitutional "taking" of property.

 

The inside wire rules cover two separate and distinct pieces of the internal cable wiring in a multifamily property. One of the pieces runs from the television set to the "Demarcation Point." This is called Cable Home Wiring. The second part runs from the "Demarcation Point" back to the taps. This is called Home Run Wiring. The Demarcation Point is generally 12" outside the unit unless that point is "physically inaccessible." What makes a point "physically inaccessible" is not entirely clear. On the one hand, cable imbedded in concrete is "physically inaccessible" while cable inside plastic hallway molding is "accessible." There are a number of circumstances in between where the distinctions get very blurry, such as drop ceilings.

 

The same basic Hobson’s Choice is presented for both Cable Home Wiring and Home Run Wiring – Remove It or Lose It. But there are some subtle differences between the rules that are opening the door for competitors to effectively overbuild an incumbent cable operator can compete head to head.

The Hobson’s Choice for Home Run Wiring does not really apply in mandatory access states. Incumbent franchised cable operator has the statutory right to serve subscribers in multifamily properties in those states so the threshold for invoking the Home Run Wiring rules – stop serving the subscriber – arguably never comes into play. (There is an unanswered legal question about whether and to what extent the incumbent can keep unused Home Run Wiring in place.)

 

But the Hobson’s Choice for Cable Home Wiring – the wiring that runs from the Demarcation Point to the television set – continues in effect even in mandatory access states. So even if the incumbent cable operator has the right to remain on the property, it still must either remove or abandon the Cable Home Wiring once the subscriber terminates service.

Because the Cable Home Wiring is never removed, it belongs – as a matter of law – to the property owner. And the property owner is not obligated to let anyone use the Cable Home Wiring, i.e., the wiring from the wall plate to the Demarcation Point. So the property owner alone decides who can use the Cable Home Wiring. This opens the door for competitors to come on to the property and provide service in direct head to head competition with the incumbent using all of the existing wiring on the property – even if the Home Run Wiring rules do not apply.

 

The Cable Home Wiring rules have been in effect for over four years now. There has never been any attempt by franchised cable operators to exercise their limited rights under the Cable Home Wiring rules. Since the turnover in most multifamily properties is quite high, it is a safe assumption that at least 90% of the Cable Home Wiring in multifamily properties in America now belongs to the property owner. That fact is very significant for anyone overbuilding an incumbent cable operator in a mandatory access state or other situation of direct head to head competition.

 

In the past, incumbent cable companies have taken the position that an overbuilder has to install its own complete and separate cable system from the head end all the way to the wall plate. Incumbent franchised cable operators have sued property owners and competitors in mandatory access states when the competitor uses any part of the incumbents’ facilities, including the Cable Home Wiring.

 

Now that the property owner owns the Cable Home Wiring, it can turn the tables on the incumbent cable operator by offering a variant on the FCC’s Hobson Choice. The property owner can say to the incumbent cable operator "If you truly insist on the construction of two separate and distinct cable systems at the property, then you will have to install new Cable Home Wiring. The existing Cable Home Wiring belongs to me and I am going to let the competitor use it. On the other hand, it would make sense for all concerned if only one set of wires runs from the junction box to the unit. So I will let you continue to use the existing Cable Home Wiring without charge if you let the competitor share your junction boxes and Home Run Wiring." It comes as no great surprise that when incumbent cable operators have been offered this Hobson’s Choice, they have agreed to share their wires with competitors.

 

In most states, where there is no mandatory cable access law, private cable operators and franchised cable operators have long relied on exclusive contracts to avoid direct head to head competition with each other. But direct head to head competition between private and franchised cable operators is a daily fact of life in mandatory access states. There have been a number of successful private cable operators in the head to head environment.

As the FCC moves closer to limiting exclusive contracts, head to head competition will eventually become the rule rather than the exception. And so long as the property owner owns and controls the Cable Home Wiring, new entrants to multifamily properties will have the opportunity to use all the existing wiring from the junction box to the wall plate without regard to any disputes over the location of the Demarcation Point or the application of the Home Run wiring rules.

 

 

About the Author

W. James Mac Naughton is an attorney with twenty-five years experience specializing in telecommunications, copyright, business law and litigation. He represents a wide range of clients in the telecommunications industry including major real estate developers, CLEC's, and video distributors. He has offices in Woodbridge, New Jersey and New York City. Mr. Mac Naughton is also a member of the editorial

advisory board to this magazine.

The author may be reached with questions or comments at

732-634-3700 or w.j.mac.naughton@att.net