MDU developers and owners know they are on frontline of the broadband revolution.   During the pandemic, working from home with expansive of use of online conferencing is the new normal. With school starting across the country, online learning will place more demands on local broadband networks. E-commerce is booming as owners can attest by virtue of resident expectations for enhanced package receiving and storage capabilities. Even as the pandemic is controlled, elevated demand for higher speeds, particularly upload speeds (as compared to prior Covid-19 demand), likely will persist. Adding fuel to this fire are overpriced cable and satellite television programming packages and the popularity of online streaming services.

Owners whose properties lack adequate broadband connectivity are in an unenviable position, whether due to unavailable robust broadband service or limited property infrastructure such as inadequate risers, pathways, or lack of spare conduit to accommodate more than one service provider. Old copper telephone wire has limited utility.  In some instances, a saving grace is that other multi-family property owners in the area likely suffer from the same lack of robust broadband options.

Many developers and owners are not ready to “cut the cord” on linear video,  as they are not yet comfortable with providing a “streaming-only” video option for residents.[1] This is particularly true among operators of retirement communities. For new developments, retrofits, and when otherwise feasible, sophisticated MDU developers and owners are inviting multiple broadband service providers to extend their networks into their communities and offer 21^st century broadband services to their residents. [In many ways, this is the “next act” in the “play” that began 15-20 years ago when cable broadband offerings overwhelmed the local telephone companies that were wedded to DSL technology.]

Whether engaging with established triple-play providers or emerging broadband providers, developers and owners should frame their broadband strategies based on the following considerations:

1. Robust broadband service (and meaningful competition) is a challenge for MDU developers and owners outside of major urban areas. Substantial cable industry consolidation has occurred in recent years.  Charter acquired Time Warner and Bright House Networks in 2016. Altice acquired Cablevision the same year.   Unfortunately, these cable operators rarely compete against each other in the same market. In urban markets the major telephone companies, AT&T and Verizon, offer competitive (typically fiber-based) triple-play services and Century Link is building out fiber-based networks in some urban areas.  To date, new broadband-focused providers are concentrated in urban areas. In many 2^nd and 3^rd tier markets, the video and broadband offerings of the major telcos rely on aging in-place DSL technology; thus, the sole option is the local cable operator. Only in recent years is a semblance of competition emerging in 2^nd and 3^rd tier markets.[2]

a. The business and legal terms and conditions of the major service providers’ standard MDU access and marketing agreements range from unreasonable and a challenge to read to those that are reasonably balanced and comprehensible.  Competitive broadband providers’ agreements tend to be balanced and readable. These providers appear focused on reducing the “friction” in implementing relationships with MDUs.

2. Plan for the future. Properties should be constructed to support inbuilding wiring/facilities of multiple service providers (even if today there are no viable competitors to the local triple-play when the property is being built).

a. State and Federal laws and policies largely prohibit exclusive access arrangements, but exclusive of use of inside wiring by a single provider is the predominant regulatory policy and industry practice today.

3. Beware of exclusive marketing agreements with triple-play providers or other broadband providers. These agreements may discourage competitors from extending facilities and services to a development or community.

a. Franchise cable operators typically leverage their cable franchise to provide broadband service throughout their franchise service areas.

b. Except for rural broadband services providers that are recipients of Federal USF or RUS broadband funding or similar state programs, emerging broadband providers are not obligated to extend broadband service to MDU developments.

4. Critically evaluate bulk video service arrangements. Ten years ago, bulk linear video deals provided owners positive revenue streams while delivering a valued amenity for many prospective residents. The migration to online streaming and the rising costs of linear video programming (increasing programming fees, add-on fees, and annual price increases) are undercutting the value of bulk video arrangements in MDUs.

5. Triple-play and broadband-only agreements should not restrict developer/owner flexibility in selecting IoT services or IoT service providers. The Internet of Things (IoT) is the integration of wireless technology, remote sensing devices, and analytics that either monitor or control property-wide or unit-specific systems such as HVAC, access, video surveillance, and electricity or water usage or both. The applications and efficacy of these applications are evolving. Whether a property’s broadband service provider(s) can best deploy and manage these systems or whether focused IoT providers can do a better job remains to be determined.

6. Experienced consultants can bridge owners’ and developers’ knowledge gap in assessing services providers’ business offers. Excluding the largest REITs, most developers and owners do not enter into agreements with broadband providers on a continuing basis to develop a “sense of the market.” We have two thoughts regarding consultants. First, understand the roles/services the consultant will perform. Second, in our view, flat fee or hourly rate arrangements are preferable to “percentage of savings” compensation schemes. The latter can be challenging to define and can result in an unexpected case of “buyer’s remorse.”

[1] This entry is not intended to speak to the off-campus student housing segment of the MDU industry.

[2]In unserved rural markets (no broadband at 25/3 Mbps or higher or 10/1 Mbps or higher and no wireline voice), the FCC and the Rural Utility Service (RUS) of the United States Department of Agriculture are funding fiber-based and fixed wireless networks capable of providing up to 1 Gbps/500 Mbps to residential (including MDUs) and small business users. In October of this year, the FCC will make available up to $16.0 Billion over ten years for broadband deployments in unserved rural areas via a reverse auction.