The Federal Communications Commission, hoping to reduce the spiraling cost of cable television, is preparing to strike down thousands of contracts this week that shut out competitors by giving individual cable companies exclusive rights to provide service to an apartment building, the agency’s chairman says.
The new rule could open markets across the country to competition. It would be a huge victory for Verizon Communications and AT&T, which have challenged the cable industry by offering video services. The two phone companies have lobbied aggressively for the provision. They have been supported in their fight by consumer groups, satellite television companies and small rivals to the big cable providers.
Commission officials and consumer groups said the rule could significantly lower cable prices for millions of subscribers who live in apartment buildings and have had no choice in selecting a company for paid television. Government and private studies show that when a second cable company enters a market, prices can drop as much as 30 percent.
The rule change could have a significant impact in Chicago, where cable companies have struck deals with individual landlords.
The change, which is set to be approved Wednesday, is expected to have a particular effect on prices for low-income and minority families. They have seen cable prices rise about three times the rate of inflation over the past decade. A quarter of American households live in apartment buildings housing 50 or more residents, but 40 percent of households headed by Hispanics and blacks live in such buildings.
“Exclusive contracts have been one of the most significant barriers to competition,” commission Chairman Kevin Martin said in a recent interview. Cable prices have risen “about 93 percent in the last 10 years,” he said. “This is a way to introduce additional competition, which will result in lower prices and greater innovation.”
The decision is the latest in a series of actions by the commission under Martin to put pressure on cable companies to lower their rates and make their markets more competitive.
In December, in a 3-2 decision, the commission approved a proposal by Martin to force municipalities to accelerate the local approval process for the telephone companies to enter new markets.
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The phone companies had asserted that many municipalities were delaying approvals, often in the face of cable industry lobbying.
Last month the commission approved a rule that requires the largest cable companies to provide programs produced by their affiliates to all of their rivals, including the phone companies and satellite television companies.
Martin also has pressed the cable companies to offer so-called a la carte plans that would permit subscribers to buy individual channels, or groups of channels, at lower rates than they now pay.
The new rule would shift the bargaining power over cable and broadband services to apartment residents from landlords and tenant associations. It has long been sought by consumer groups as part of a broader effort to cut prices for the roughly 100 million households that pay for access to television.
Commission officials said they had prohibited other exclusive contracts involving telecommunications, including those in commercial buildings, but trade groups representing cable companies and building owners have indicated they may challenge the commission’s move in court.
Commission officials said the rule aims to put an end to some common practices of landlords and tenant associations that have deprived tenants of choices. They said that in many communities there has been only one cable provider, and while landlords and tenant associations could select a satellite television provider, the competition from those companies has not led to reduced cable prices.
The cable companies also have managed to shut out competition by signing long-term exclusive deals. FCC officials said they hope opening the apartment doors to the telephone companies, which offer the same packages of television, broadband and phone services as the cable companies, will force the cable companies to cut their rates.
In Hilton Head, S.C., a small cable company, Hargray CATV, has been battling for two years with its larger rival, Time Warner, which claims to have an exclusive contract to provide service to more than 20,000 customers. Similar battles have been waged between other cable companies and rivals involving buildings throughout the country.
Consumer groups said the number of lengthy exclusive contracts appears to have increased in recent months as AT&T and Verizon have begun to expand their video services and the commission has indicated it might intervene to ban exclusive arrangements.
Consumer groups praised the new rule.
“For people in apartment buildings, this could be the most significant step toward bringing down cable prices,” said Gene Kimmelman, vice president for federal affairs at the Consumers Union.
But large cable companies, as well as associations representing building owners and tenant groups, said the change would fundamentally alter the economics of cable television in apartments in ways that would be harmful to consumers.