Broadband Properties encourages associations actively involved with issues pertaining to real estate and technology to contact the publication so that their views can be communicated to our diverse readership.

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An IMCC Perspective: Problems and Opportunities
By Bill Burhop, IMCC

The Independent Multi-Family Communications Council (IMCC) is an association comprised of Private Communications Operators (PCOs), MDU/REIT owners/managers and the supporting industry. We all work together to benefit the residents in the various MDU environments. Our priorities are to influence public policy, to educate PCOs and MDUs about the benefits of alternative providers and to network so that more of us are informed about telecommunications priorities.

Both MDUs and PCOs confront problems more significant than in prior years. They are not easy to solve. This article reviews numerous matters the leadership of IMCC is confronting in Washington and elsewhere.

Financial Draught

Our foremost challenge is the lack of financing to build-out the infrastructure in MDUs when their owners want to sign service contracts with alternative providers, such as PCOs. Many MDU owners want alternatives to franchised cable. Their residents demand better products and service. Owners seek out an alternative such as a PCO. When they negotiate contracts with PCOs funds must be found to build-out the project infrastructure in order to begin service.

When the dot com and telecom sectors fell from grace on Wall Street, it set off a chain reaction that has severely impacted our industry. As major national financial institutions lost billions of dollars due to high tech failures, it put fear into local banks and investors. Traditionally, they have been the source of loans for PCOs to build-out MDUs when contracts were signed. When that source of financing dried-up, many MDU-PCO contracts were put on hold or the MDU was forced to sign a contract with the local franchised cable provider rather than the PCO.

For instance, in a typical 200 unit building, the infrastructure build-out cost could easily be in the range of $250 thousand dollars. Because PCOs are small businesses, rarely do they have these funds in reserve. If the local bank or investors cut them off due to the fear about a national telecom contraction or economic recession, the PCO must either borrow the funds from some other source or walk away from the MDU contract opportunity or enter into a joint venture with the MDU to accomplish the build-out. In the past two years, local bank lending has contracted and many MDUs are not willing to enter into joint venture arrangements.

Every week I am approached by MDUs and PCOs seeking funds so that alternative providers can serve buildings. It's very frustrating. There's no easy answer.

Unfortunately, there are many reports that this situation has allowed the dominant franchised providers to revert to their tactics of refusing to negotiate with MDU owners regarding contract terms. There also are slower rollouts of product and deteriorating service. Only if there are viable alternatives will MDU owners have negotiating leverage with providers to gain quality products and services for their residents. This, of course, influences occupancy rates, churn and the MDU bottom-line. If there is to be a market in which MDU owners have an alternative to the monopolistic franchised provider, this negative financial cycle must be broken.

IMCC has prepared a report to help educate MDUs and PCOs about the financial realities of seeking loans from lending institutions and providing useful information for decision makers in both industries about how to address this situation.

Public Policy

IMCC has led our MDU-PCO industry for five years in pushing the federal government to adopt policies to enhance competition and provide a more viable alternative to franchise cable. We laid several issues on the table at the FCC, some of which have been adopted, several of which are in final consideration.

An important FCC regulation addressing MDU Inside Wiring ownership was adopted at the end of 1997. It has facilitated many MDUs in their desire to bring an alternative provider onto their properties to benefit their residents. Those rules have flaws, which we have urged the regulators to address.

At the same time, we have been the organization which focused on perpetual easement contracts held by franchise cable companies which prevent MDU owners from ever changing to an alternative provider. Four years ago, IMCC's leaders urged the FCC to address these anticompetitive provisions. We stated that perpetual provisions govern some 30% of all MDU units in the United States. The FCC was impressed with our argument and began a rulemaking proceeding to address this problem.

Because MDUs and PCOs worked together and highlighted this problem, franchise companies have, reluctantly, renegotiated many of these contracts. Therefore, such provisions no longer control many of your units and residents. This has been a step in the right direction.

These renegotiations have taken place more frequently with large MDU owners and REITs, rather than the medium and small sized owners. Franchise cable companies are less inclined to renegotiate contracts with small MDU companies as opposed to the larger and more influential companies. Another factor is that smaller MDU owners are less likely to be aware of these contract provisions and their negative implications.

IMCC's leaders have also vigorously pursued the federal preemption of state mandatory access statutes. I hope that most folks in the MDU community understand how these state laws retard competition and your opportunity to have alternative providers of telecommunications services bring improvements to your residents.

The PCO provider and MDU user community has also presented significant evidence to the FCC that exclusive service contracts, of a limited duration, serve to enhance competition. Without them, PCOs and other alternatives to franchise cable would have less viability than they do today.

Each of these items is intended to help the MDU community provide better telecommunications services to its residents. If there are no viable alternatives to franchise cable, MDU owners will have virtually no negotiating leverage with the franchise companies. Without competition from alternative providers, without competition to franchised cable, MDU residents will have inferior telecommunication products. When this occurs MDU properties become less attractive, churn increases, occupancy rates diminish and the MDU's bottom line is affected.

In addition, IMCC is addressing program access rules which influence the availability of the channels which residents want and at what rate. The use of microwave transmission between MDU buildings, which keeps PCO costs lower and therefore contracts in those buildings at a cheaper rate, is a matter we have successfully addressed for the past three years.

Industry Alliances

Several organizations have reached out to cooperate and coordinate efforts with IMCC. We have a positive and constructive relationship with the Community Associations Institute (CAI), which represents the condominium and homeowners association industry. Our two organizations have conducted joint education sessions and we are working on a more detailed program.

The National Association of Real Estate Investment Trusts (NAREIT) and the Real Estate Roundtable are two national organizations which have been willing to share views and exchange information with IMCC. We hope this relationship will become even more productive in the future.

The National MultiHousing Council (NMHC) represents a coalition of real estate organizations and is supposed to be the lead lobbying group for MDUs in Washington, at the FCC and in Congress. For instance, NMHC had the primary responsibility for handling the OTARD-satellite dish rules at the FCC.

They do strongly support the IMCC view on exclusive service contracts, and that is appreciated. We had hoped they would also lobby at the FCC for the elimination of perpetual contracts, the elimination of state mandatory access statutes, meaningful improvements to the MDU inside wiring rules and strong program access rules. That is not their view. For instance, NMHC recently released a survey that indicates that perpetual easement provisions control less than 5% of MDU units nationwide. This has complicated an already difficult lobbying situation at the FCC. It throws into doubt a rulemaking that the IMCC thinks would be beneficial for MDUs and PCOs and which we have pursued for five years.

We hope that coordination and cooperation among all organizations trying to help our joint industries will be possible in the future.

The Future

This is a rough time for the national economy and the availability of competitive telecommunications in the MDU markets. We have been through rough times before. Our economic system is based on the principle that demand will produce supply. As long as MDU residents want quality products and services and owners work to provide the best they can, then there will be consumer demand. The market place will work. Residents will push owners, owners will push providers and providers will supply the products. Our job is to continue doing what we are doing and get better at it.

Visit www.IMCC-Online.org for more information.