Apartment Residents Need a Strong Telecommunications Marketplace. AForced Access@ Creates Less Competition.

Testimony of

Jodi Case

Manager of Ancillary Services

AvalonBay Communities, Inc.

Alexandria, Virginia

before the

Commerce Committee of the U.S. House of Representatives

Subcommittee on Telecommunications, Trade and Consumer Protection

May 13, 1999

American Seniors National Multi National Apartment

Housing Association Housing Council Association

1850 M Street, N.W., # 540 1850 M Street, N.W., # 540 201 North Union Street, # 200

Washington, D.C. 20036 Washington, D.C. 20036 Alexandria, VA 22314

(202) 974-2300 (202) 974-2300 (703) 518-6141

E-mail: info@nmhc.org E-mail: info@nmhc.org E-mail: info@naahq.org

Apartment Residents Need a Strong Telecommunications

Marketplace. AForced Access@ Creates Less Competition.

Testimony of

American Seniors Housing Association

National Apartment Association

National Multi Housing Council

— The Nature of Apartment Communities

— Telecommunications and Apartments

— Forced Access Legislation will Actually Stifle Competition

— Forced Access Can Compromise Building Safety

— Will ANew@ Service Actually be Provided?

— Exclusive Contracts for a Limited Time Period Help Bring New Providers into a Market

Chairman Tauzin and Members of the Subcommittee:

I am Jodi Case, Manager of Ancillary Services for AvalonBay Communities, Inc. of Alexandria, Virginia. AvalonBay is a leading provider of quality, affordable apartment living. Our firm owns and manages more than 50,000 apartment units in 17 different states. We take great pride in providing Alegendary service@ to the people who live in AvalonBay communities.

I am here today on behalf of three principal trade associations representing the private apartment industry: the National Multi Housing Council (NMHC), its affiliate the American Seniors Housing Association (ASHA), and the National Apartment Association. The National Multi Housing Council represents the apartment industry=s largest and most prominent firms with the principal officers of these organizations serving as members. ASHA firms, similarly, are the leading providers of assisted living in the United States. The National Apartment Association is the largest national federation of state and local associations of apartment industry professionals, comprised of 150 affiliates which represent more than 25,000 professionals who own and/or manage more than 3.3 million apartments. NMHC, ASHA and NAA jointly operate a federal legislative program and provide a unified voice for the private apartment industry. Our combined memberships are engaged in all aspects of the development and operation of apartments, including ownership, construction, finance, and management.

The U.S. apartment industry provides homes for approximately 15 million families and individuals nationwide, representing the full spectrum of America=s population. Apartments account for about 15 percent of the entire housing stock, and they generate more than $75 billion annually in rental revenues and $16 billion in new construction value. Approximately 400,000 jobs are provided through apartment management and operation, while new apartment construction has created jobs for an additional 200,000 workers.

We are here today to talk about telecommunications and forced building access. While there are extremely important Constitutional and private property rights issues associated with implementing forced access for telecommunications providers, my comments will focus on the practical market and physical affects of such policies.

To understand the impact of forced access legislation on the apartments, one must first understand how the apartment industry operates. To begin with, apartment owners are very concerned about the viability of the telecommunications marketplace. Our residents have a wide selection of apartment communities from which to choose, and it is not unusual for 50 percent of our apartment residents to turnover in a given year. When choosing an apartment, most residents will demand the best available telecommunications at the level they can afford. They will not consider communities that do not have the telephone, video or Internet services they are seeking. As a result, apartment owners face a very dynamic and competitive environment, and telecommunications services are an important part of that market.

Telecommunications and Apartments

Until just recently, each new apartment community was routinely wired for phone, and if they were lucky, cable service by the local providers. Where cable wasn=t available, a satellite master antenna system was used. In the past few years, however, we have witnessed the advent of competing systems and rapid changes in the technologies that are available. Some telecommunications providers began seeking Aforced access@ to apartment properties in the name of Aopening the market.@ There are now approximately 15 states that have enacted forced access statutes in one form or another, although the pace of enactment by other states has slowed to a crawl. Just recently, legislatures in Florida, Georgia, Indiana, Iowa, and Virginia resisted the lobbying pressure of the telecommunications providers and rejected forced access proposals. Faced with defeat on a state level, some of these providers are turning their effort to aggressively pursuing either the state Public Service Commission route or asking the Federal government for help.

Why do the telecommunications providers say they need Aforced access?@ On the one hand, they complain to state and federal legislative and regulatory bodies that commercial property owners are blocking the use of new technologies. On the other hand, however, their own press releases trumpet the signing of one new customer after another.

We would ask why they simultaneously tell policymakers that they don=t have market entry and then tell their shareholders and potential new investors that the marketplace is gobbling up their product? It would appear that they believe that Aforced access@ would make the market for their products even better. The providers who are pushing forced access have also changed their materials to call for Aresident and consumer rights@ instead of Amandatory access,@ assuming that no one would be against Aresident rights.@ We say, don=t be fooled. Whatever you call it, mandatory or forced access will actually harm competition and the residents of our buildings by driving a number of new competitors out of the market.

Forced Access Legislation will Actually Stifle Competition

Basic economics says that monopolies are bad. And when it comes to granting a telecommunications provider a monopoly to serve a geographic region, traditional economics is right. Those types of monopolies are bad for competition. But, when you consider granting telecommunications providers exclusive rights for a limited time period to service a specific property, you actually help foster competition. These property-exclusive contracts enable new providers the time required to recoup the investment required to wire a property and expand their operations. When multiple telecommunications companies compete toe-to-toe on a single property, new competitors often lack the financial muscle to win. Apartment owners can also leverage exclusive contracts with telecommunications providers to ensure that residents receive good and reliable service.

The truth is that mandatory access states have, in many cases, unwittingly given the big incumbent service providers a competitive edge because the big incumbent provider can always threaten to come into a building that a small, new provider is trying to serve. This actual or implied threat has driven competition out of many markets.

If Forced Access C Why Not a Two-Way Street?

The dollar value of the telecommunications market is huge and growing everyday. At the

same time, the costs associated with providing service are also large and vary depending upon the service being provided, the affluence of the market being served, and the geographic area to be served. As a result, many telecommunications providers gravitate to the more lucrative areas and properties. This tendency to Acream@ the best of the market can severely limit the choices of more moderate income households.

If legislators are truly concerned with the rights of residents, why not make forced access a two-way street. That is, if you allow any telecommunications provider to service a given property without the owners consent, then telecommunications providers should also be required to offer service to any resident who requests it. Otherwise, telecommunications providers are receiving a special privilege without having the responsibility to provide service to those who request it. Some have argued that the incumbent provider, usually the Bell System, must be a provider of last resort, but that is not the same as requiring a two-way street for all providers.

Forced Access Can Compromise Building Safety

Apartment and seniors housing communities are designed and maintained to comply with very strict fire and safety codes to protect their residents. The constant wiring and rewiring of a property that occurs when forced access is granted to providers compromises the ability of the property manager to adequately address building safety and fire hazards.

Where do you start and where do you end with Aforced access@? Apartment property owners and managers have to be concerned with many different and competing priorities. It is simply not practical to allow numerous telecommunications providers to come and go from a property. Allowing several or more telecommunications competitors onto a given property will result in damage to the property and chaos as wiring is constantly installed and removed as residents move in and move out.

A recent rulemaking by the Federal Communications Commission has given rights to tenants to install a satellite dish receiver on their balcony without the prior approval of the apartment owner/manager. Under the mistaken doctrine that a resident has rights that go beyond a mutually agreed lease and heat, light, and power, the Commission has shrugged aside the practical implications of residents mounting a dish on a balcony railing. No credit is given to the fact that the dish might be mounted in an unsafe manner. No credit is given to the fact that it might be a high-rise building in a dangerously high-wind and storm location in the country. A satellite dish is Asimilar to a deck chair or a bicycle on a balcony,@ is what we have heard. We assure you, bicycles and deck chairs are not mounted on the top of balcony railings. When a high wind blows one of these dishes off onto a young child, we doubt that the FCC will be there to pay all of the legal and medical damages.

Will ANew@ Service Actually be Provided?

The ability of a telecommunications provider to assign a contract to another provider should be of great concern as you analyze the multi dwelling unit market. Many providers do not actually provide programming or service the properties with which they contract. Instead, they turn around and assign their recently acquired contracts to other providers. This transaction, which is encouraged by forced access laws, does not actually further the competitive process or create a more vibrant marketplace.

Conclusion

Apartment community owner/managers must be able to choose the best service for a given community from a broad array of reliable providers. Forced access actually creates less competition in the marketplace.

The telecommunications marketplace is highly competitive and innovative products are

coming along every day. Apartment communities are taking advantage of these new products whenever and wherever appropriate. But just as auto makers do not put new and untried products in cars, apartment owner/managers need to make sure that a given product will work and that the service will be there when the product breaks down. Just because someone claims to be a telecommunications provider does not mean that the products of that company should have an automatic license to come into a given apartment community in the name of Atenant rights.@

We repeat our previous statement which is based upon actual experience in the marketplace: exclusivity in a geographic area results in less competition. However, exclusive contracts for a given community actually work to the benefit of the resident because it allows an apartment community owner/manager to negotiate the best possible contract for both price and level of service and it enables new providers to economically enter a geographic market and compete with established providers.