Not sure how everyone else has been doing since my last post, but my world has been turned upside down!
“What happened?!” you say.
Let me share with you:
The FCC has decided to come up with (and will be releasing soon) new rules regarding Telecom Marketing Agreements….and dealing with Telecom agreements encompasses about 75% of my time.
The FCC addressed multiple issues, but this one has the biggest impact…… The FCC is banning “graduated” revenue share contracts retroactively (meaning current agreements in place are not grandfathered)!
“Ok, why is this such a big deal?” you ask.
Here’s why….If you are marketing a telecom provider’s services (AT&T, Comcast, Charter, Cox, Verizon, etc.) on an Exclusive or Non-Exclusive basis on your property (or in your portfolio) and the property is receiving revenue from the provider in exchange for promoting their services to the residents of the community (usually monthly or quarterly), the agreement in place that outlines how the community gets paid is most likely a graduated revenue share program (the agreement outlines that the amount/percentage paid to a property goes up as the provider’s subscriber take rate increases). This means that the payment the provider pays you is/will be illegal very soon (in approximately 6 months)!
“Does this mean the providers will stop paying us our revenue share?” you ask.
Unless you can work out an addendum with the provider to convert the compensation you get to a flat or fixed fee, the provider can (and most likely will) stop paying you, and you cannot force them to pay you.
“Well, we will just cancel the marketing agreement” you say.
Oops, in my haste, I forgot to mention that the graduated revenue share clause is the only thing that is banned, the FCC is allowing the rest of the marketing agreement to still be enforceable!
“We have a Bulk Agreement in place… is this type of agreement affected?” you ask.
Not right now, but since Bulk agreements usually have some “exclusive marketing” component in place, the provider will need to update any of their collateral material (electronic or printed) to include a disclosure clause which lets residents know about the existence of the contract they have at the community.
The disclosure will need to include a plain-language description of the arrangement (no compensation terms to be divulged, thank goodness), as well as language indicating that the provider has the right to exclusively market its services to your residents, that such a right does not mean that the provider is the only entity that can provide such services to your residents, and that service from an alternative provider may be available.
“What about Exclusive and/or Non-Exclusive Marketing Agreements…. are they still legal?” you ask.
Yes, Exclusive and Non-Exclusive Marketing Agreements are still legal, you just can’t have a compensation program that has a tiered or graduated revenue scale in place. In addition, as I mentioned above, providers will now have to disclose to residents the fact that an Exclusive Marketing Agreement is in place.
“What about Exclusive Use of Wire?” you ask.
You are ok as long as the agreement in place is not what is considered a “Sale and leaseback arrangement”. A sale and lease back is when the wiring was sold, conveyed, or transferred by the service provider to the Owner in the contract and then the contract gives exclusive usage rights of that wiring to the provider.
“What are you (at ASM) seeing/doing about this? you ask.
1) So far, many providers seem to be working on coming up with a fixed/flat fee to address this pending change (for new and existing agreements); However, due to the newness of this wrinkle, there is the possibility that many properties could see a dramatic drop in (or elimination of) the compensation they receive.
2) We are currently in a waiting game to see how each provider will be addressing the compensation component as it relates to existing and new agreements.
3) Every telecom agreement our Clients have will need to be reviewed to determine how the FCC rules impact each agreement and then determine a strategy on how to best address/amend each agreement.
4) In addition, many of my portfolio deals are now on hold due to the fact that the revised fixed rate offer providers are sending me are greatly reduced compared to revenue scale proposals I received before this new FCC ruling (as the portfolios I am working on had a mix of properties with high subscriber take rates and low subscriber take rates, therefore the providers are adjusting their offers to reflect the lower performing communities – Go figure).
I truly believe a solution will be reached, but it will take many months, and a lot of discussions with the providers…and then a lot of paperwork to get amendments in place on each telecom agreement affected before the clock runs out on all of us…It will be a crazy 6 months for me!
If you have any questions regarding these new rules, or will need help to correct your current agreements, please feel free contact me, Andrew Smith, at [email protected].