It's getting dangerous in the telecommunications arena as telecom companies try to preserve their existing markets and scramble for possession of voice, video and data market share in apartments. For some combatants, it's a chance to score new goals. For others, it's like playing sudden-death overtime.
The current situation is reminiscent of the previous battles between the old Baby Bells, independent telephone carriers, franchise cable providers, and independent cable companies. And just as in the old days, there is a call for unlimited rights to provide various telecom services in a building without having to negotiate with the building owner. Bypassing the normal marketplace give-and-take with the building owner is the easiest way for a provider to gain market share and create a more competitive marketplace–or at least that's what proponents of "mandatory access" would like you to believe.
So, after being dormant for several years, the issue of exclusive contracts and mandatory access is back. Why? Because mandatory access allows a firm to quickly gain market share; bypass existing exclusive agreements; access wiring that is already installed; and access various rights-of-way without having to get permission from the property owner. As long as a provider followed various codes for installation of the wiring, that provider could not be stopped from doing so.
Telecom Hat Trick
The latest battles are fueled by rapid changes in technology, primarily the Internet. A decade ago it would have been hard to predict that the advent of voice over Internet protocol (often referred to as "voice over IP" or VOIP), video-on-demand, and video streaming would have such a profound impact on how we communicate with each other–and how telecom companies do business. Now, instead of fighting over just one market segment, providers are fighting to provide all three services: voice, video, and data. This new telecommunications environment can be a blessing or a curse for the apartment owner.
Take the phone companies. They see VOIP (or Internet-based phone calls) cutting into their traditional voice market, so they are seeking to replace their traditional copper wire networks with all-fiber broadband systems. This fiber-to-the-premises (also known as FTTP) effort will allow the phone company to control the wiring all the way to each apartment unit and expand into video and data services. (For more information, see "Got Fiber?" Multifamily Executive, July 2005, page 96.)
Meanwhile, the cable companies also want a slice of the market for data services (i.e., Internet access), and rooftop satellite dish providers want access to inside wiring. For some telecom companies, the fastest way to victory is to press state regulators and lawmakers for laws to give companies "mandatory access" to apartments without to the need to negotiate with a property owner.
Given this situation, apartment firms must be vigilant as these telecom providers duke it out for dominance.
One Bad Idea
Many people think mandatory access expands competition by allowing all firms access to properties. In practice, however, it actually stifles competition. Why? Because only the largest companies survive in a mandatory access environment. This effect has been seen time and time again. There are significantly fewer telecom providers operating in states such as Connecticut, New Jersey, New York, Pennsylvania, and the 11 other states with mandatory access laws. Conversely, states without mandatory access laws, such as Arizona, California, Florida, and Washington, have more telecom providers. For that reason, mandatory access is not only bad for the apartment owner, it is also bad for the apartment resident.
Smaller companies, which may also be more innovative, need to have an exclusive right to provide services in an apartment community for a reasonable period of time. This is necessary for them to recover their considerable upfront investment in wiring and equipment and earn a reasonable profit. It also ensures more competition in the market, which is good for apartment firms.
NMHC believes that residents also benefit from these contracts, because exclusive access agreements allow owners to negotiate the best possible price and level of service on behalf of their residents. Finally, these contracts typically require providers to adhere to strict service and performance requirements or risk losing the job. This provides a level of accountability that is missing in mandatory access laws.
At both the federal level and in more than 20 states, NMHC has said repeatedly that "exclusive" is not a bad word when it comes to multifamily property telecom service. Exclusivity can be bad if it prevails in a wide geographic area, but not if it is allowed on a property-by-property basis.
Proponents of mandatory access dislike exclusive contracts, arguing that residents should be entitled to choose to receive whatever service they want from whomever they want. They tell state legislatures and government agencies that, overall, exclusive contracts between a provider and an apartment community have "unfairly" restricted them from competing.
Luckily for apartment firms, this approach by telecom companies has not worked. It has been more than a decade since any state enacted a mandatory access statute giving providers unfettered rights to a property without the consent of the apartment owner. Nevertheless, the effort to gain access by legislative or regulatory efforts remains as big a threat as ever to multifamily companies.
Protect Your Rights
When it comes to these latest telecom wars, we say: "Let the providers fight it out for access and for market share." This is good for competition as well as apartment residents. But make these companies fight it out in an orderly market fashion through negotiations between service provider and apartment owner, not by regulatory end runs around multifamily firms. For more than a dozen years, NMHC has been fighting to protect the rights of apartment community owners to determine their own destiny when it comes to telephone, video, and Internet access for their apartments' residents. We have published several white papers on these subjects and discuss the issue annually at our technology conference.
As esoteric as it sometimes may sound, these are important issues with long-term consequences. Think back to the last mandatory access battle between the regional Bell companies and the independent providers in the mid-1990s. If mandatory access laws then had forced apartment owners to allow any and all telecommunications providers onto their properties, chances are good that many apartment communities would now be hamstrung by providers who have since gone bankrupt.
To stave off this latest push for mandatory access, apartment owners have a special responsibility to make sure they are contracting only with good and reputable providers and ensure that any exclusive contract with a provider is in the best interests of the residents. (No contract should ever be granted based on which telecommunications firm offers the most ancillary income to the apartment owner. No amount of telecom-related revenue will ever offset the impact of less than satisfactory service for your apartment residents.)
Finally, a strongly recommended word of advice for multifamily owners: Work with a good telecom lawyer to ensure decisions don't unintentionally circumvent exclusive contracts.