ARTICLES

Telecommunications And The Commercial Real Estate Market

Introduction

In 1996, Congress passed the Telecommunications Act of 1996 (the "1996 Act") which substantially amended the Communications Act of 1934 (the "1934 Act"). One of the goals in the 1996 Act is to promote innovation and investment by multiple market participants in order to stimulate competition for telecommunications services, including broadband telecommunications services.The Federal Communications Commission ("FCC") is charged with the responsibility to promulgate rules to implement the1996 Act and the 1934 Act.

Broadband telecommunications consist of "advanced telecommunications." Advanced telecommunications services are high speed switched broadband telecommunications that enable users to originate and receive high quality voice, data, graphics and video telecommunications using any technology. Broadband communications have the capability of supporting communication both from the provider to consumer and from the consumer to provider direction, at a transmission speed or bandwidth in excess of 200 Kbs per second in the last mile in the distribution of telecommunications services to consumer. The bandwidth speed of 200 Kbs per second is enough to provide the most popular forms of broadband services - - changing web pages as fast as one can flip the pages of a book and to transmit full motion video.In addition, standard telephone lines are considered broadband lines if they have been upgraded or otherwise altered in ways that make them capable of broadband speeds. For example, a standard telephone line, which can have a transmission speed of up to 56 Kbs per second, but has been conditioned so it is capable of more than 200 Kbs per second would constitute broadband lines.

Almost all electronic forms of communications are becoming digital. Broadband telecommunications make it possible to send and receive large amounts of digital information at high rates of speed. The demand for broadband telecommunications is rapidly growing and consumers access to broadband services is leading to innovations in new telecommunications services as well as improvements to existing services.

The Fcc's New Regulations And The Real Estate Market

Against this background, the FCC has assessed the availability of advanced telecommunications services, and has determined that the deployment of advanced telecommunications services is progressing based on the large investments which have been made in broadband technology since the passage of the 1996 Act. However, the FCC has recognized that existing barriers prevent competitive assess to broadband services in the commercial real estate market, and in particular, in the Multiple Tenant Environment ("MTE") segment of the commercial real estate market.

An MTE is any "contiguous premises under common ownership or control that contains two or more distinct units occupied by different tenants." MTEs include apartment buildings (rental, condominium or cooperative), office buildings, office parks, shopping centers, and manufactured housing communities. There are more than 750,000 office buildings and over 1,000,000 residential multiple dwelling units in the United States.

Thus, the FCC very recently adopted measures to promote competition in telecommunications services in the MTE segment of the commercial real estate market. These measures, in the form of new regulations, became effective March 12, 2001. These new regulations:

1. prohibit communications common carriers from entering into contracts that restrict owners and managers of commercial MTEs from allowing access by competing carriers;

2. clarify and modify the FCC's previous established rules governing control of wiring inside MTEs (and commercial buildings);

3. conclude that access to conduits and rights of way that are owned or controlled by "utility" within an MTE fall within the provisions of the FCC's authority to regulate the rates, terms and conditions for access to poles, ducts, conduits and rights-of-way owned or controlled by utilities under the 1934 Act; and

4. conclude that parties with direct or indirect ownership or a leasehold interest in property, including tenants in MTEs, should have the ability to place antennas used to receive or transmit any fixed wireless service in areas within their exclusive control, and prohibit most restrictions on their ability to do so.

The intent of these new regulations is to prevent incumbent local exchange carriers from obstructing competitors' access to MTEs or to engage in anti-competitive conduct with third parties in denying competitors access to MTEs.Neither the FCC nor its rules, however, regulate MTE owners or the commercial real estate market.

The commercial real estate industry has responded to the FCC's efforts to promote competition in the telecommunications segment of the commercial real estate market by committing to practices that propose policies against entering into exclusive contracts for building access and responding to tenant requests for service by a particular telecommunications carrier within 30 days of such requests.These practices may fall short of achieving the goal of competitive access to broadband services in MTEs.Accordingly, the FCC promulgated these new regulations. We summarize these new FCC regulations in more detail below:

Exclusive Contracts

The FCC recognizes that exclusive contracts exist between incumbent telecommunications carriers and MTE owners and managers. Thus, the FCC's new rules prohibit communications carriers, in commercial real estate settings only, which include government and nonprofit offices as well as commercial MTEs, from entering into future contracts that restrict property owners or their agents from granting access to their buildings to other telecommunications providers. This new rule applies to all communications carriers subject to regulation by the FCC, both incumbent and competitive local exchange carriers. The FCC has not extended this rule to residential MTEs, but intends to examine whether it may lawfully do so in the future.

Access to Wiring

In each MTE, there is a designated demarcation point which marks the division, or property line, between telecommunications network wiring under control of a communications carrier and wiring under the control of a building or end user. The wiring on the building side of a demarcation point is under control of the building manager or owner. In 1990, the FCC ruled that carriers were allowed to place demarcation points at the minimum point of entry ("MPOE") in a building. An MPOE is defined as either the closest practical point to where the building crosses a property line or the closest practical point to where the wiring enters into a multiunit building or buildings.

The FCC rules do not require uniform demarcation points and MPOEs because competitive carriers providing digital subscriber line ("DSL") service would be disadvantaged if they rely on leasing of unbundled loops or lines from incumbent carriers in buildings where the demarcation point is inside the MTE. Thus, competitive carriers, like DSL providers, that rely on access to unbundled loops from incumbent carriers would be forced to negotiate with incumbent carriers and building owners if demarcation points were moved to the MPOE. This consequence would increase the competitive carriers' costs and further delay deployment of broadband telecommunications services to end users and MTEs. Furthermore, moving the demarcation point in existing buildings would give rise to other legal issues and expenses.

Consequently, the FCC decided to give MTE owners or managers the power to decide whether to relocate demarcation points to MPOEs. Thus, MTE owners or managers can require communications carriers to move demarcation points to the MPOE. Moreover, communications carriers must conclude negotiations with MTE owners and managers over moving demarcation points in good faith within 45 days of a request to move the demarcation point to the MPOE. If the location of the demarcation point is unknown to the MTE owner or manager, the affected carrier must declare that location upon request. Finally, where MTE owners or managers decide to move a demarcation point to the MPOE, the installation and maintenance of the new demarcation point will be the responsibility of the carrier, but control, including the terms of access, will reside with the MTE owner.

Access to Conduits and Rights of Way

Section 224 of the 1934 Act provides that a "utility" shall provide a cable television system or any telecommunication carrier with nondiscriminatory access to any pole, duct, conduit, or right of way owned or controlled by it. Under Section 224, a utility means a local exchange carrier, or a electric, gas, water, steam or other public utility and who owns or controls, poles, ducts, conduits, or rights-of-way used, in whole or in part, for any wire communications (the "rights-of-way"). Incumbent local exchange carriers are considered utilities. Under this new rule, "utilities" must give competitors access to their rights-of-way. The FCC, however, has not ruled that MTEs are a utility within the meaning of Section 224.

The purpose of this new rule is to prevent anti-competitive behavior by incumbent local exchange carriers toward competitors by withholding of access to rights-of-way, thereby preventing competitive choice.

Under this FCC rule, incumbent carriers must be compensated by competitors to whom they give access to their rights of way. The compensation must be based on terms and conditions that are just and reasonable. Instead, the FCC's regulatory authority only applies to communication carriers that are subject to the 1934 Act, and to "utilities" which fall within the definition of that term used as in Section 224 of the 1934 Act. This new FCC rule, however, does not intend to override whatever authority MTE owners might have based on terms of its agreements with carriers or state law regarding ownership of rights-of-way. The important point to note is that MTE owners are not regulated by the FCC, and this new rule about making right-of-way available to competitive carriers does not apply to them.

Installation of Antennas in Areas Under Tenant Control

The FCC recognizes the right of tenants of MTE (both residential and commercial) to install over the air reception devices, receive television direct broadcast satellite and multi-channel, and multi-point distribution services. Thus, the FCC's regulations flatly prohibits, with few exceptions, any state or local law, regulation, private covenant, contract revision, lease provision, homeowners' association rule or similar restriction that impairs the installation, maintenance or use of certain antennas designed to receive video programming services on property or fixed wireless services with the exclusive control or use of the antenna user where the user has a direct or indirect ownership or leasehold interest in the property. Fixed Wireless signals consent of any commercial non-broadcast signals transmitted by means of wireless technology to and/or from a fixed customer locations. Fixed wireless signals do not include AM radio, FM radio, amateur (or ham) radio, citizen band radio, or digital audio radio signals.

The Telecommunications group offers a comprehensive telecommunications industry practice, with nationally and internationally recognized experts in the field of telecommunications relating to broadcasting, cable, wireline and wireless carriers as well as telecommunications mergers, financings, and acquisitions.

For more information call Michael L. Glaser at (303) 757-1600.

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