BLECs beware

FCC prohibits exclusive commercial contracts Carriers will be prohibited from signing contracts with commercial building owners that effectively exclude competition, the FCC ruled last week. The commission also laid the groundwork for even bigger decisions.

"Facilities-based competition in multi-unit buildings is crucial to promoting increased consumer choice and economic benefits for many Americans," said FCC Chairman William Kennard.

While most competitive local exchange carriers applauded the decision, it could most affect building LECs (BLECs), which wire buildings for bundled and high-speed services in an attempt to become the dominant provider for those properties.

The ruling will not affect practices much, said R. Stanley Allen, vice chairman for strategic initiatives at Atlanta-based BLEC Cypress Communications. Exclusive contracts have fallen out of favor with building owners, he said. In addition, while Cypress usually competes against other service providers in the buildings it wires, vigorous competition often is limited by building size and the number of tenants.

"Regardless of what provisions come out, there's a physical restraint to how many providers can be in these buildings," he said.

Still, given the carnage faced by competitive carriers in the local marketplace, a more competitive marketplace could put some of the more fragile BLECs out of business, said Andy Belt, executive vice president of Adventis, formerly Renaissance Strategy.

"There's limited room for those guys.... These are creative, inventive, dynamic companies, and they're scrappy, but I don't think they've got a lot of flexibility to re-invent themselves," he said.

Other serious questions in the multi-tenant unit space involve whether to require mandatory or forced access to buildings and whether the exclusive contract prohibition should extend to residential buildings.

FCC officials have been hesitant to force landlords to open their buildings to competition because such action could violate property rights. However, the FCC will consider what some call a "back door" to achieve the same purpose: prohibiting carriers from providing service to buildings whose owners create unreasonable barriers to competition.

"In my mind, there's a very interesting constitutional issue here as to whether the FCC could force a telephone company to stop serving a customer if the owner did not allow other providers on the premises," said Alan Fishel, a partner at Arent Fox, a Washington-based law firm.

Not surprisingly, building owners strongly oppose the concept of forced access.

"Mandatory access is unnecessary, it's unmanageable and it's unconstitutional," said Gerard Lederer, vice president of government and industry affairs of the Building Owners and Managers Association. He declined to speculate on the question of prohibiting carriers from providing service.

While last week's ruling only addresses commercial buildings, the FCC also will consider extending the ban on exclusive contracts to residential buildings, which could have a greater impact on the way carriers do business.

"Exclusive agreements are much more common on the residential side," Fishel said. "Really, the issue here is whether the FCC is going to stop here or go much further and have exclusivity applied to residential buildings."

FCC Chairman William Kennard last week talked tough about forcing TV broadcasters to vacate the 700 MHz band, but most industry observers doubt his recommendations are politically palatable.

During a speech in New York, Kennard blamed broadcasters for the slow deployment of digital TV in the U.S. Digital TV's success is critical to the wireless industry because if 85% of U.S. TV sets can receive digital TV signals by 2006, about 150 broadcasters - primarily UHF channels - must vacate the 700 MHz bands they currently use to supply analog signals. These airwaves are considered prime spectrum for delivering advanced mobile services such as 3G wireless technology.

Unless the spectrum is unencumbered, however, it has limited value to potential bidders and will not fetch maximum value at auction. It may be 2025 before digital TV reaches an 85% penetration level, Kennard said.

"Now, spectrum squatting may make great business sense for the broadcasters, but in terms of the public interest, it makes no sense at all," Kennard said.

Kennard will recommend that Congress consider three measures: Forcing broadcasters to vacate the spectrum in 2006; requiring that all new TVs be digital TV-ready, perhaps by 2003; and hitting broadcasters still using the 700 MHz spectrum with fees that escalate each year after 2006.

But the powerful broadcasting lobby should ensure that none of the measures are adopted, said Scott Cleland, CEO for The Precursor Group.

"It's difficult to get Congress to stand up to the broadcasters because the local broadcasters have a lot of clout over the coverage senators and representatives receive," Cleland said.