The Federal Communications Commission will vote next month on whether to preempt a San Francisco city ordinance that was designed to promote broadband competition in multi-unit buildings.

San Francisco's Article 52, approved in December 2016, lets Internet service providers use the existing wiring inside multi-unit residential and commercial properties even if the wiring is already used by another ISP that serves the building. San Francisco's Board of Supervisors and then-Mayor Ed Lee approved it in order to spur competition in multi-unit buildings where occupants often have only one option for Internet service.

The ordinance only applies when the inside wiring belongs to the property owner. Under the rule, property owners who have outfitted their buildings with Internet wiring cannot deny access to ISPs, making it harder for them to strike exclusive deals with Internet providers.

FCC Chairman Ajit Pai's new proposal would preempt San Francisco's rule to the extent that it requires sharing of in-use wiring in multi-tenant buildings and complexes. Pai claimed in a blog post Tuesday that the city's rule "deters broadband deployment" and has scheduled the preemption for a vote at the FCC's July 10 meeting.

Despite its primary goal of eliminating a rule that gives ISPs access to multi-unit buildings, Pai's proposal is titled, "Improving Competitive Broadband Access to Multi-Tenant Environments." In addition to immediately preempting the San Francisco ordinance, the proposal seeks public comment on other "actions the Commission could take to accelerate the deployment of next-generation networks and services within" multi-tenant complexes. Any further rule changes coming from this proceeding likely wouldn't involve sharing of infrastructure, as the Pai plan argues that ISPs "are less likely to invest in deployment" if they know they have to share network components with other providers.

SF said rule “closed loopholes” in federal law

"People pay $40 a month for gigabit fiber service here, and we have a small handful of not-Comcast/AT&T ISPs that compete for customers thanks to the SF ordinance. That's the 'problem' the FCC is trying to fix," Electronic Frontier Foundation (EFF) Legislative Counsel Ernesto Falcon, who frequently writes about broadband competition, wrote on Twitter.

When San Francisco passed its rule, the city argued that property owners were sidestepping a federal law that "bans property owners, landlords, and property managers from entering into exclusive agreements with service providers."

Despite that federal law, "local ISPs estimate that approximately 500 multi-dwelling unit buildings, representing more than 50,000 units, have limitations in place that effectively deny them the opportunity to provide Internet access," the city's Board of Supervisors said at the time. The new ordinance was written to "clos[e] these glaring loopholes... and establish parameters and requirements for how and when qualified ISPs can provide service to multi-unit buildings."

An ISP called Monkeybrains said it has "expanded our network to thousands of residents from the ordinance."

ISP trade group sought FCC’s help

The FCC's decision to preempt the rule comes in response to a February 2017 petition from the Multifamily Broadband Council (MBC), a trade group for ISPs that serve multi-tenant properties.

The MBC argued that Article 52 makes it harder for small ISPs to get financing from lenders. "Typically, such providers must give their lenders indicators of likely success, such as an agreement granting the provider undisturbed use of inside wiring owned by the property owners, or a bulk billing arrangement under which the property owner purchases service and provides it as an amenity for all tenants at a steep discount off of regular retail pricing," the MBC told the FCC.

San Francisco's Article 52 "would effectively nullify such arrangements and afford an undue advantage to larger providers who do not need financing—particularly Google, whose subsidiary Webpass was, not coincidentally, Article 52's primary proponent," the trade group said. (Webpass sells wireless Internet service in San Francisco and other cities.)

While granting the MBC's wiring request, Pai's plan says the FCC will—for now—deny the MBC's other requests, such as one that "seeks preemption of the sharing of unused wiring." Pai's plan said the FCC will "proceed incrementally" by denying the rest of the MBC's petition without prejudice, leaving open the possibility that the FCC can "go further with the benefit of a more developed record" later on.

FCC says rule intrudes on its authority

Pai's proposal says the San Francisco rule should be preempted because it "infringes on the Commission's regulation of cable inside wiring and intrudes on the Commission's authority over cable signal quality and technical standards." The San Francisco rule "is the only mandatory access law in the country that requires that building owners provide new communications providers access to existing home-run and cable home wiring," his proposal said.

Under the San Francisco rule, "Those who wish to make use of a building owner's wiring know that they have a regulatory right to share the facility, so they do not need to offer the building owner the same compensation for use that they would otherwise need to in the absence of a regulatory mandate," Pai's proposal says. "Thus, the building owner is deprived of compensation, which it may not be able to otherwise recover. Consequently, Article 52 reduces the value of wiring to a building owner, and therefore the building owner has less incentive to invest in deploying new, additional, or upgraded wiring."

The FCC argues that preempting the rule won't prevent competition, noting that the ISP Sonic has competed for customers by running its own wires into buildings.

"Numerous building owners who oppose Article 52's wire-sharing requirement have commented that they have installed multiple sets of wiring and made conduit available to many providers and that multiple providers in fact serve their buildings in San Francisco," the FCC proposal also says.

SF fights to save ordinance

San Francisco opposed the MBC preemption request, not surprisingly. The city told the FCC that its rule doesn't conflict with FCC regulation because it only applies to wiring owned by a property owner.

"Article 52 does not impose any obligation to share existing wiring owned by a cable television provider or telecommunications provider, nor does it allow a communications provider to access any UNEs [unbundled network elements] owned by a telecommunications provider," San Francisco said. San Francisco also said the FCC's priority in this case should not be to "protect the business model favored by MBC's members."

"Rather than conflicting with federal law, as set forth in various Commission regulations, orders, and decisions, Article 52 supports the Commission's policy to ensure that all consumers have access to high-quality broadband services at competitive prices," San Francisco told the FCC.

Other city governments such as Boston and Portland, Oregon, supported San Francisco, urging the FCC to "protect local laws that promote competitive broadband access" in multi-unit buildings.

After next month's vote, San Francisco could sue the FCC to block the preemption. The FCC is already facing a lawsuit from more than 20 states including California because it's trying to preempt state net neutrality rules. We contacted San Francisco Mayor London Breed's office about the FCC preemption proposal on Tuesday but haven't heard back.