Telecom Lock Down

Below is an article about locking consumers into communications services followed by my reply to the author then followed by her reply and my intermixed comments. Very important issue:

Apr. 18--When residents move into new homes in the Lexington development in Virginia Beach, they won't have to bother ordering telephone, cable television or high-speed Internet services.
It is already done for them.
Many developers now take it upon themselves to purchase a full package of telecommunications services on behalf of new owners. They're making the arrangements not only in condominiums and apartments, as they have for years, but also increasingly in new subdivisions and in newly built groups of single-family homes.
The developer typically gives a single telecom provider exclusive access to run its wires through the development, guaranteeing it sales to all those homes, in some cases locking up hundreds of customers at once. In exchange, the developer receives a discount on the regular price of the service package and collects the monthly cost of the services through condo or homeowner association fees or apartment rent.
It's unclear whether the deals ultimately save residents money. While customers gain convenience, they lose the ability to shop around and choose the provider or the services they want.

The inclusion of telecom packages is a growing trend in housing development, said Chris Bridge, a community relations consultant for L.M. Sandler and Sons Inc., a Virginia Beach company developing Lexington and other residential projects across Hampton Roads. Residents looking at new construction have come to expect and demand it, she said.
"It's a tremendous advantage for the homeowner to be able to benefit from economies of scale," Bridge said. "Also, it reflects the increasing trend of the technology itself to include the digital services" for phone, cable and Internet access.

Developers consider it one more amenity -- along with installed security systems, groomed landscaping and easy-to-maintain materials -- to appeal to potential buyers. They tout the convenience to the homeowner, the savings of time and trouble they would otherwise spend researching, ordering and setting up their services.
"You don't have to think about it. It's already here," Bridge said.

L.M. Sandler has a contract with Cox Communications Inc., the region's dominant local cable company, to provide telecom packages for 418 condos in Lexington, at Independence Boulevard and Plaza Trail South, and homes in the New Port at Victory development in Portsmouth. Residential projects in Suffolk offer similar packages from Charter Communications Inc., Bridge said.

The Cox package includes the "preferred" level of high-speed Internet access, Digital Deluxe cable TV and the Nationwide Connections digital phone plan with unlimited local and long distance calling and five calling features, plus voice mail. Residents pay the development company $145 a month for the services through condo association dues or homeowners fees. The regular retail rate for that same service bundle for Virginia Beach residents is about $160 a month, including estimated taxes and fees . That's about 9 percent more.

Roseland Property Co. has set up such telecom services for its apartment buildings since 2001, said Josh Katz, vice president of development and technology for the company, based in Short Hills, N.J. Roseland has taken advantage of telecom competition in recent years, which has made underdog providers hungrier for business and more willing to discount rates to score large groups of customers.

"We could use our buying power at a rate that was advantageous to our residents," Katz said.
Roseland bundles high-speed Internet access, satellite TV service and a security system into the rent for The Myrtles at Olde Towne apartments in Portsmouth. Myrtles tenants pay about $85 for the services, and residents in most Roseland properties see costs at about 60 to 70 percent of the amount they would usually pay, Katz said.

Residents don't necessarily receive the full discount that developers secure through the bulk purchase. Developers can mark up that discounted rate and collect the difference as revenue, but neither they nor the telecom providers that routinely enter the bulk deals would discuss pricing strategies.

"What they end up offering to their clients is up to them," said Thom Prevette, a spokesman for Cox at its local headquarters in Chesapeake.
Even with discounts, the bulk arrangements don't always represent the lowest cost for consumers. The Lexington plan, for instance, includes rental of a modem for Internet service for an additional $10 per month. Homeowners can buy a modem from Cox for about one-third of that annual rental cost and would spend less than that for a compatible modem from a major electronics store .

The prearranged deals also lock residents into a range of services they might not need or want and otherwise wouldn't have paid for, said Irene Leech, president of Virginia Citizens Consumer Council and an associate professor of consumer affairs at Virginia Tech.
"The problem is, when it isn't a good deal, the consumer has nowhere to go," she said.
Leech has heard several of her students complain about frequent problems with telecom services they receive as a package built into their apartment rent. Once they sign long-term contracts, property owners and telecom companies have little incentive to provide a fast response or to address complaints, she said.

"They're stuck with whoever it is, and they get horrible service," Leech said of her students.
Roseland includes customer service requirements in its contracts with telecom providers, Katz said. They specify the maximum time the provider has to respond to complaints, to leave a customer waiting on the phone and to fix a problem.
Despite initial rate reductions, a long-term contract could allow the telecom provider to raise prices later, while restricting resident s' options to shop around for better deals, said William Irby, director of the communications division of the State Corporation Commission. If competition develops in TV service -- as telephone giant Verizon Communications Inc. has planned with a new fiber-optic system to deliver video signals -- a consumer living under a pre arranged deal would have limited ability to take advantage of it.

That's one reason Roseland has never bulked services for condo owners, Katz said. "For people who are investing long term in a community, for us to lock them long term into a service seemed a little unfair," he said.

Some developers' deals give residents the option to buy services from another provider but usually require them to continue paying the fee to cover the pre-arranged package. Not only would a consumer have to want another service enough to pay on top of those built-in costs, but the alternative provider also would have to see enough financial benefit to justify the investment in wiring a whole building or group of buildings to serve a mere fraction of residents there.
" In most cases, it's not worth it for them to do that," Irby said.

Residents do have the ultimate option to decide against buying or leasing a home that comes bundled with telecom services they dislike. Developers, though, hope residents will see the value of having their services working on move-in day.

"What we're trying to sell them," Katz said, "is the convenience and the value of making that choice for them."
* Reach Carolyn Shapiro at (757) 446-2270 or carolyn.shapiro@pilotonline.com.

Comments to Author: Sent: Tuesday, April 18, 2006 3:04 PM

Hello Carolyn,

Your article, quoted below, exposes something that should be completely illegal the way you explain it. Communications are a personal issue, how much if any and who. The FCC has laws about allowing consumer choice in communications providers. I would guess the practice below is illegal. In addition, communications, be it traditional telephone, IP telephone, Internet access, cable or satellite TV are all very fast changing services and technologies. To lock any person in to a bundle of services with no flexibility in their ability to vary what services they choose is criminal.

What happened to the developer or property owner / manager installing or having installed by companies who offer but do not force use of their services? Having cable, Ethernet, fiber or other cabling or wireless services installed for the benefit of their tenants or owners giving them the choice to buy services (perhaps with discounts being given directly to customers as incentives for them to sign on) is the fair way to provide services to consumers.

Verizon, AT&T, Comcast and other major national communications companies are investing billions of dollars installing technology to the door of homes all over the country. They are not making this investment with a gun to the head of the consumer forcing them to take the service or move. This is what your developers are doing in your article and it is about their profit and the profit of the provider only. This is wrong, illegal and I am glad you have exposed this practice because it is time it be specifically stopped NOW.

Author reply to comments and my reply intermixed:

In a message dated 4/24/2006 2:01:26 P.M. Eastern Standard Time, Carolyn.Shapiro@pilotonline.com writes:
Dear Patrick,

Thank you very much for your interest in and comments on the article. I did look into the legality of this practice among developers and did many interviews about that. I found that regulators generally see nothing illegal about it on its face.
"on its face" is not acceptable. Forcing a citizen / consumer / tenant or whatever to use a pre-contracted provider is wrong. Anyone who cannot see this is obviously a blind 9-5 worker who never had to run a business or procure telecommunications services that sustain their living.

First, the developer that owns the property at the outset does indeed have a choice in telecommunications providers. Developers can consider multiple options from the providers that would like access to their properties, so they can take advantage of competition where it exists and to the extent it is required by regulation.

My Reply: The developer ownership of the property in this case is NOT the same as owning a coffee shop where the customer can go to the next coffee shop to purchase services or products. These are developers that own residential properties they then sell or lease to citizens with rights. Developers can and should shop for the best access deals from telecommunications providers, however this is NOT the same as saying the citizen (consumer) that buys or rents from that developer should be forced into that contract. Period. Each person has different needs. To force a person to buy a package of communications and Internet services they don't need or do not suite their needs is wrong. The developer is developing housing not communications products.

Second, to your point about telecom services being a personal decision and the unfairness of locking in a consumer to a single option, the buyer or renter of a home that comes with pre-arranged telecom service does have the choice not to buy or lease that property. Anyone who dislikes the prospect of being locked into one service can pick a different place to live, if it's an important issue to that individual.

My Reply: This is not an option. If this practice becomes wide spread people all over the country will begin to be forced to use services provisioned by the developer or manager or whatever entity is controlling access into the building. This is wrong and it should not matter if this is a multi tenant building or a single family neighborhood street, the freedom to choose communications services should not be controlled at the outset. Period. Saying the person can move or not live there is absolutely ludicrous. We are talking about an area that some people do not have that kind of choice or flexibility. Where you live is not like which coffee shop you go to. What happens if all developers wether it be single family or multi family begin this practice? What of discrimination between those who live in single family verses multi family residences? What of town homes? Where does this stop? Most of the developed world outside of the US lives in multi family properties. Would you allow this practice there?

My Reply: Communications in this age = Freedom. Period. AT&T, Verizon and other communications providers are starting to understand this and they have proposed some frightening technology limitations for the future on their networks. Access to information = Freedom. Period. Our media companies control 40% of the information broadcast in a given market and this is going to increase with cross ownership of newspapers. Communications via telephone, cable, fiber, satellite or what ever other technology comes along is the fabric of what will allow our citizenry to advance technologically and individually. To deny full access and choice is to cripple the nation's future.

Third, if any resident wanted to seek the services of a provider other than the one under contract with the developer, he or she is able to do so, and a company with a state license to provide telephone service in Virginia could demand access to the rights of way to that property. The question is whether that alternative provider would choose to take the steps and expense necessary to pursue its access to the rights of way, which could involve action in court, and to build its facilities in that development with the expectation of serving perhaps just a handful of customers. So while the customer has the right to go to a different provider and that provider might have the right to serve that customer, the provider also has the right to decline to serve that customer -- as long as the customer does have access to telephone service through the contracted provider.

My Reply: This statement sounds as if it were provided to you directly from the legal team of one of the RBOC's. You seem to forget, this practice of contracting out a deal with a communications provider is separate from the freedom to choose whether to accept those services or be forced to accept them. The issue you lay out above is moot when new technologies such as WiMax and Broadband Cellular services and Satellite communications are taken in consideration. There is no infrastructure required in the building for these services and to be forced to subscribe to a land based service or forced to use a wireless based service for that matter is wrong and short sighted. I think you are missing the point. The RBOC's (Regional Bell Operating Companies) and Cable companies are likely paying fat commissions to developers to "lock" in their tenants to legacy technology often at elevated prices. The consumer's rights are being squashed here. Period.

Fourth, state and federal regulation of telecommunications and requirements for competition generally are limited to telephone services. In that case, the regulation generally applies to the extent to which the dominant phone provider -- which in this area is Verizon Communications Inc. -- has allowed use of its infrastructure to competing companies that want to provide service. As long as competing providers have the ability to compete for access to a particular property, which the developer allows them at the outset, that complies with the rules in most cases. For other telecom services, such as television and Internet, state and federal regulators have few rules.

My Reply: Once again. Telecommunications services should not be locked in to the tenant period. Your point that the "developer allows them at the outset" once again misses the point. The "developer allows the provider". Where is the consumer choice in this formula?


As far as your question about a home being wired for service but the resident not being forced to accept those services, I learned from my reporting that developers generally require residents to pay for the services because the developer has already promised to pay the telecom provider for service to each of those homes. The developers make this promise to gain, in exchange, a discounted bulk rate that they could pass on as a benefit to residents. Whether or not the residents see this as a worthwhile benefit depends on their points of view.

My Reply: When you say "you have learned" I am afraid you have learned right from the mouthpieces of the corporate entities (developers and providers) who stand to benefit directly by force feeding the consumer, citizen, tenant, owner a technology bundle at high cost (regardless if the bundle is a few % lower than purchased separately) they may not need, want or may need or choose otherwise.


I hope this provides some clarification for you. I do understand your points on this subject, and you certainly are entitled to your perspective. Feel free to get in touch with me if you have any other comments or questions.

My Reply: I am extremely disturbed by your inability to comprehend the possibility that citizens / consumers are guaranteed rights in this country and what the developers and providers are doing in this case is plain wrong. Your reply sounds as if it was written by the developers and providers. This is the biggest problem facing America right now. Even people in the media have forgotten that the US is a country of Citizens NOT just corporate entities. Our government has forgotten this for years now. Your writing and reply are evidence that as a member of the media, you represent your institution and your presentation of information above has demonstrated your institution's lost touch with this idea.

I do want to thank you for reporting the story in the first place. For even thought you know not what harm this kind of action would cause, your lack of understanding of the issue and it's impact may be the thing that allowed the story to be printed in the first place.