Industry reacts to FCC's wiring proposal.

Constitutional issue seen over opening buildings

At the crossroads of real estate and technology, a storm is brewing.

Critics charge that landlords and developers conspire unfairly against certain telecommunications carriers by denying them access to their tenants. Along these lines, the thinking goes, they repeatedly fail -- as gate-keepers - to promote competitive environments within their buildings out of vested financial interests in particular carriers.

The real estate community wholeheartedly begs to differ. They aren't alone, either, in the wake of a Federal Communications Commission announcement addressing these claims.

It should be noted, however, that the FCC announcement is nothing more than a speculative agenda at this point -- no action has been taken, yet. There are substantial legal and political hurdles involved in seeing these measures through.

At a time when the real estate and telecom sectors are increasingly joining forces, the reality is not so simple. But the FCC apparently aims to end this practice in a high-principled, idealistic fashion.

The FCC announcement -- issued via press release on Oct. 12 [see the FCC website for details) would require commercial landlords to open their buildings to all telecoms that seek access to their tenants.

At the heart of the matter is a rat's nest of wires and switches and where to put it. Levels of service require variable degrees of riser and basement space, depending on the carrier, and the FCC's announcement hints that these areas could become common space. It sounds easier in theory than in practice.

Take the basement and riser space of one hypothetical building. Open it up to every competing telecom in the area.

The ensuing drama would bear an uncanny resemblance to a Saturday night at Studio 54, circa 1977, in two ways: There is no way that everyone will get inside, and everyone who's inside is already wired.

That is obvious enough to some telecom firms.

"I would not even approach a building if there were already five caniers in their basement," said Peter Fisher, the president of NetLink Corporation, an Internet service provider that competes with Verizon and other giants.

Fisher's statement discounts a cornerstone of the real estate community's criticism of the access issue. Mainly, that scores of telecoms would indeed try to enter these buildings, thereby making the process convoluted and chaotic for the developer or landlord.

Any and all carriers could therefore compete in any given building. The announcement was hazy on the finer points but still caustic enough to elicit a collective shudder from the real estate community.

It will ostensibly prevent exclusive deals between developers and carriers. Since many developers have financial stakes in telecom firms, exclusive deals are not uncommon. So a developer can single-handedly help a young telecom while supplying tenants with service. If the carriers were given free reign in these buildings, would the FCC pay the landlord to subsidize an all-access climate?

"The building owners believe that they should be able to collect a fee from these carriers," said Gregg Popkin, the executive director of property managementat Insignia/ESG.

"These telecoms are building infrastructure and that requires space. Space, as we know, isn't free."

Popkin said that building owners should "have a right to decide who is the most reliable and credit-worthy telecom." Otherwise "your tenants aren't happy." He stressed that the reaction from building owners will be "very negative," in his view, and that "open access will continue to be an issue for a while."

Insignia has a financial stake in RexOffice, a recently formed telecom.

The smaller telecoms embraced the news as a step in the right direction. Peter Fisher, whose agency also provides Bell Atlantic services, stressed how important new markets are for smaller firms such as NetLink.

"This is a good thing for us, clearly. I've lost business because of these exclusive contracts," he said.

Fisher maintained that the issue is "a gate-keeping concern," then rhetorically asked, "Whatever happened to deregulation?"

A valid question, and one that comes four years after the Telecommunications Act set out to increase competition in local markets. The telecom climate in New York City is still dominated by giants such as Verizon and SBC Communications, while upstart dot-coms emerge frequently then vanish soon after their stock plateaus. If the FCC carries out its stated goals, the smaller firms will gain access to markets once restricted to them.

"Most sophisticated landlords have not been using exclusive agreements," said David Bronston, a partner with the law firm Wolf, Block, Schorr & SolisCohen.

"New York City is already a very competitive market. You have to remember that the tenant is the real client here who needs attention. A landlord cannot prevent a tenant from installing a Winstar system as long as it does not take up common space in a building, said Bronston.

The FCC will have a "lot of issues to deal with," added Bronston, since the concept of common space and the restrictions it involves have yet to be spelled out explicitly for access purposes.

Regardless of the specifics, the real estate community is certainly opposed to any new rulings.

"We're talking about a Constitutional issue here. Going in and saying that a building is open is just morally wrong," said Nick LaPorte, the executive director of the Association of Building Owners.

"These tenants are only renting their space. If you want to be able to pick and choose who does the wiring, buy the property. Then you have a right to choose.

LaPorte emphasized that a landlord's vested interest in their building goes beyond any tenants concerns. He said that if it does become law, it "will be a horrendous breach of justice."

For a company such as Barnes Wentworth, a technical engineering outfit that specializes in real estate, any ruling would be a windfall though the issue is far from one-sided.

"Everyone wins if we get mandatory access. But the access issue is important -- companies should not be able to take over riser space for free," said Barnes Wentworth CEO Herb Hauser.

Hauser used the analogy of a newsstand in the lobby of an office building. This newsstand must rent out that lucrative space -- it is not allowed to occupy that space gratis.

He diagnosed the real problem as the FCC trying to subsidize struggling dotcom telecoms.

"A lot of these telecoms have yet to demonstrate that they can run a business. So why doesn't Bill Kennard [the FCC's chairman] encourage these telecoms to shape up?"

Hauser's point is obvious enough given the growing number of struggling telecom firms. These include, among others, Cypress Communications (CYCO) and Allied Riser Communications (ARCC). Cypress' IPO last February was for 17; it closed at $3 a share on Oct. 19. ARCC went public in October 1999 at $18. A year later, it too closes at around $3 a share.

Given the volatile environment, allowing a young dot-corn to wire your building is a gamble for developers and landlords, especially when larger, proven carriers exist.

Hauser believed that the timing of this announcement -- almost five years after the Telecom Act passed -- is Kennard's indirect admission that "we haven't seen the fruits of success from deregulation.

"Bell Atlantic still has the run of this town."

The two sides of the argument -- the rights of the landlord or the tenant -- have created two distinct camps. The real estate community identifies the potential ruling as infringing on property rights, not consumer rights. But the smaller telecoms reason that a once-forbidden market is now open to them. With a presidential election in less than two weeks, some have speculated how the issue could play out depending on the next administration.

"If it is Gore, that will have a major effect on this issue. The democratic leadership supports these measures," said Joe Strasborg, president of the Rent Stabilization Association.

"But I don't see the Supreme Court supporting these rules," said Strasborg. He cited the 1996 Telecom Act as an example of what these new measures will accomplish.

"What were the changes from that Act? None," said Strasborg. "My cable bills have gotten worse over the past few years, not better."