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Exclusive Service Contracts / Bulk Billing / Marketing Agreements

Right of Entry Agreements (ROE) are the contracts between an MDU owner or HOA and a PCO. They are contracts that include provisions defining and delineating the legal obligations between the parties.  These provisions govern the duration of service, the products to be delivered, the maintenance requirements, the financial agreements between the parties such as revenue sharing, et cetera.

A major provision defines under what conditions one or more providers may be on the property. Exclusivity means that only one provider can be on the property at any particular time.  Non-Exclusive means that more than one provider is allowed to provide service.

Since the inception of the PCO industry this issue has been at the core of the financial ability of a PCO to provide service.  This is the case because in order for a PCO to acquire financing to do the build-out and begin service it must guarantee a stream of revenue sufficient to warrant the lender to make the money available.  Without that assurance most lenders will not take the economic risk to make the loan. With that assurance the lender will provide capital and if the PCO then services that loan it can borrow additional funds to enter into ROEs for other MDU properties.

Some years ago, the duration of these provisions was frequently 15 years, or more.  As the marketplace has evolved the duration has been reduced substantially.

Another factor is that in the past most ROEs only addressed the provision of analog video.  Today ROEs frequently address the delivery of that product but also digital video, high-speed data connectivity and telephony, perhaps each with different ROE requirements.

Bulk Billing and Marketing Agreements

Bulk Billing is when and MDU and PCO include in the ROE a provision which allows the PCO to sell to the owner or HOA, rather than directly to the subscriber, a number of channels or package of product for a set amount of money.  The owner/HOA then provides those products to its residents as a part of the rent or association fee.  That package normally includes a basic and perhaps advanced tier.  In addition, the resident can purchase other products like digital channels, Internet connectivity or telephony service.

Marketing Agreements are when the owner/HOA and the PCO include in the ROE a provision which defines a set of marketing techniques that the parties will pursue together.  It is intended that those techniques will increase penetration and sales.  This is often intended to overcome the PCO disadvantage if it is competing against another provider on the property.  It also is used as a means by which the PCO can partially overcome the advantage of the MSO if the property is in a state that has a mandatory access/forced access statute.

Often bulk billing and marketing agreements are used in tandem.

Public Policy Influences

Although the marketplace may be the primary influence governing ROE provisions, public policy makers at the Federal and state levels have adopted laws and regulations which can and do determine what can and can not be included in ROEs.  The most important example of this can be seen in Exclusive Contracts, bulk billing and marketing agreements.

The FCC, in two separate regulatory proceedings, has examined the public policy benefits or disbenefits of Exclusive Contracts. In the first two of those proceedings the FCC determined that there was insufficient evidence that they cause damage to the subscriber so the FCC did not act, but said they may examine them again in the future.  In early 2008, the FCC adopted an R&O prohibiting MSOs and RBOCs/LECs from enforcing such provisions in existing ROEs or from entering into new contracts that include them. That prohibition did not apply to PCOs or the satellite companies. However, in that R&O a Further Notice of Proposed Rulemaking (FNPRM) was adopted which states that the FCC will examine further if PCOs should remain exempt from the prohibition.

That FNPRM also states that the examination will include bulk billing and marketing agreements.

As of this writing in November 2010, the FCC has acted on the FNPRM and voted for PCOs to be allowed to continue to enforce such provisions and to enter into new ROEs with such provisions.