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HOA’s Must Be Vigilant to Tactics of Telecoms – and be Aware of Their Own Rights

It was the 1990’s. Dotcoms were all the rage.  A thousand Internet flowers bloomed.  Most wilted.  Our lives forever changed.  But your access to the Internet is increasingly controlled by a few telecom behemoths.  Take charge of the defense of your HOA and understand your rights.

Who provides your Internet?

In 1974, American artist Nam June Paik coined the phrase “electronic super highways” which was later popularized by Vice-President Al Gore as an “information super highway.”  Today, the Internet does operate somewhat like a highway system, replete with fiber optic lanes, router traffic lights, and long driveways to the consumer’s living room.

Unlike I-5 and I-90, Internet roads are not owned by the US government, they are owned by many different entities – for profit companies, governments, schools and universities, and non-profits – who charge to use their segment, eventually trickling costs down to you.

The segment between the consumers and the first network operator on the Information Superhighway is called ‘the last mile.’  What makes this ‘last mile’ so special?

For most Washingtonians, the last mile is owned by only two or three corporate behemoths – the local cable and phone companies charging you to access the world’s data.

What happened to competitive markets?

Not long ago, there were many Internet service providers competing with each other.  In the 1990’s the local cable and phone companies realized they could be Internet service providers too, by using pre-existing coaxial cable and copper wire in their customer’s buildings to transmit data to residents.

They used their franchise monopoly power for cable and phone to get into data and ultimately dominate it.

Today, most people think of their Internet as coming through one of two pipes, either via coaxial cable or from the phone company via Digital Subscriber Line (DSL).  This is a classic duopoly.  According to a recent April 2010 study by ID Insight’s Broadband Scout, Washington ranked #29 among all states for broadband competitiveness – behind California, Oregon and Idaho.  A 2009 report by the City of Seattle showed that Comcast Cable and Qwest DSL have an 84% combined market share of Internet connectivity.

Today’s consumer is paying for this lack of choice.  Residential broadband costs continue to increase and broadband providers are slow to improve their networks.  The United States has dropped to 22^nd in world broadband speeds.  Every night around 7:00pm when other network subscribers are online, you may experience this network lag.

What can HOA’s do about it?

Be aware of the resources to which you can turn.  Local governments regulate cable and phone companies as utilities, but telecoms are also regulated by the State of Washington through the Washington Utilities and Transportation Commission (WUTC).  The Federal Communications Commission (FCC) regulates broadband services.

Today, the FCC is growing increasingly restless with these telecom giants and is moving towards more regulation of broadband providers. In the meantime, telecommunications agreements still remain tricky, so here are a few things you should know.

Three Kinds of Agreements

Before fighting the good fight, do some research.  Broadband service providers typically work out one or more different kinds of agreements with your HOA.  These are:  Access Agreements, Service Agreements, and Marketing Agreements.

1. Access Agreements allow the service provider to install, operate, maintain, dismantle, and repair the equipment used onsite to deliver service.  Be aware there are other ways than coaxial cable or copper wire DSL to get broadband to your residents.  Other technologies include:  fiber optic, satellite transmission, Wi-Fi or Wi-Max, or other wireless point-to-point – and many of these provide broadband speeds many times faster than your standard cable or DSL.
2. Service Agreements commit an Internet service provider to a certain amount of bandwidth to a customer.  This is akin to opening up a lane of traffic for a subscriber – you pay the ISP a certain amount of money, and they ensure you have an amount of dedicated access to the Internet.
3. Marketing Agreements usually only affect condos and apartments.  They govern how, what and when a provider can use the building’s common areas and resources (ie. bulletin board, building manager’s time) to deliver marketing materials to residents.

Seven Deadly Pitfalls

Now let’s look at seven issues you may wish to consider when dealing with telecom agreements.

1. Access:  Exclusivity – Scan your agreement for the term “exclusive.”  Immediately red-flag it.  In 2007 the FCC revoked exclusive access agreements for cable video providers.  Next year they revoked exclusive access agreements for broadband providers.  In 2009, the FCC Rule was upheld in Appellate Court.  Exclusive agreements block out competition and you should be wary of any provider who engages in it.
2. Access:  Easements versus Licenses – some telecoms try to get HOA’s to give up property rights they didn’t even know they had.  One pernicious tactic is requiring a permanent easement when a simple license would suffice.  Some easements run with the land and must be recorded on title – and some extend the easement into perpetuity.  Be extremely wary of providers who require a notice on title to provide service.
3. Access:  Termination – be aware most service providers make huge investments to wire up and equip your building.  Termination clauses should be balanced to allow the HOA to kick out a non-performing vendor, but preserve a chance for the provider to make back at least their initial investment.  Access agreements typically have automatic recurring terms to ensure volunteer boards don’t accidentally fail to renew their access agreements.  Be clear what triggers a termination in an agreement – and consider the reaction your residents would have if the vendor was forced out.
4. Access:  Liability – Make sure your vendor has a substantial amount of liability insurance – at least $1 million, depending on the value of your building.  Make sure they provide your HOA Board or property management firm with a certificate of insurance that names the Association as additional insured.
5. Access: Entry Fees – “door fees” are sometimes charged to raise revenue for the HOA or landlord.  But be aware that door fees will act as barriers to entry for smaller ISP’s, who cannot afford to pay the hefty costs, leaving only the remaining monopolists.  Balance the need between raising a few hundred bucks a month versus the headache of dealing with resident complaints about the lack of competitive broadband options.
6. Service:  Bulk Service or ‘Bulk Billing’ arrangements can often be very beneficial to communities, but can be hard to initiate.  By pooling resources, residents can get significant discounts from their service provider.  HOA’s and landlords can roll service costs into their homeowners’ dues or rents.  But bulk service keeps out competitors and makes it hard to get rid of a provider.
7. Marketing:  Exclusivity.   Exclusive marketing agreements can generate additional revenue for the HOA, but beware of the impact it will have on competition.  Determine whether the additional revenue is enough to offset resident complaints about lack of broadband options.  The FCC has maintained exclusive marketing arrangements are still legal.

Who owns what wiring?

The cabling inside a condo or apartment unit is called ‘cable inside wiring’ and is generally considered the property of the unit’s owner.  In 2006, the FCC extended the definition of ‘cable inside wiring’ to include cables from the unit to the nearest point it connects to the provider’s network if the cabling resides behind inaccessible material such as sheetrock.  This connection point is called the ‘demarcation point’ and is usually a telecom closet on the floor of the building or the main telecom room.  That FCC rule change greatly expanded the consumer’s reach of control over their wiring – but also conferred with it a greater responsibility for owners to undertake.

Consult your HOA Attorney Before Things Get Thorny

Negotiating telecom agreements are tricky affairs.  If you have any questions about the terms or legality of a contract, make sure you consult with your HOA’s legal counsel.  They are there to defend you and ferret out the bad players.  But doing a bit of research ahead of time can help your Board save a bundle in legal fees and point you in the right direction.