OpenBand Challenged on Several Fronts

For OpenBand Communications, a small communications startup by government contractor M.C. Dean, the hill ahead appears high to the casual observer.

Two of the company’s main clients have filed federal lawsuits against it for alleged “self-dealing,” a franchise renewal with Loudoun County remains long overdue and the people charged with renewing that franchise agreement recently asked the Virginia Attorney General to investigate OpenBand for possible antitrust violations.

Company spokeswoman Sharon Hawkins declined to talk about the legal issues, but she reiterated OpenBand’s intent to serve communities in Loudoun. She said there’s been little change in the franchise agreement status since July; the Loudoun Board of Supervisors did not meet in August [The franchise agreement item is on the board’s Sept. 7 agenda].

“OpenBand is committed to working with the county to reach agreeable terms in the new franchise agreement,” she said. “We’re committed to the customers.”

Some question the sincerity of such statements.

“The last time our homeowners association met with OpenBand was November 2010,” said Erika Hodell Cotti, president of the Southern Walk Board of Directors, calling Hawkins’ statement “disingenuous if not untruthful. They have made no attempts or accepted any meetings with the association.”

Southern Walk, created as a sub-HOA of Broadlands, and Lansdowne on the Potomac have decided the federal courts offer a better option than continued negotiation. Southern Walk has led the charge against OpenBand, starting with criticism of the company’s service and ultimately leading to charges of malfeasance. Both communities have lawsuits filed in the U.S. General District Court.

The Southern Walk suit describes the various agreements that set the scenario in place as a “complex web” that “precludes any other wire-based video provider from gaining access” to the community.

“When the board makes your decision to either approve or deny OpenBand’s franchise, the SWHOA believes it is critical for the members of this board of supervisors to strongly consider the fact that OpenBand now has two active federal lawsuits filed against them,” Cotti stated in a letter to the board of supervisors.

When OpenBand began offering video, Internet and telephone service to communities in Loudoun, options were slim. The former Adelphia service was taken over by Comcast. Verizon had not yet launched FiOS in Loudoun. OpenBand’s service appeared to be the easy choice.

“At that time, the competitors were not offering fiber,” said Supervisor Lori Waters (R-Broad Run), who lives in Lansdowne. But things have changed. “Now you have real competition,” Waters said.

Over the years, many customers have found OpenBand’s service lacking while Comcast and Verizon beefed up their offerings. Those companies surpassed OpenBand I terms of high-definition channels and are expanding 3D options, while OpenBand continues to bring its HD video service up to par. As the boards of directors for the Lansdowne and Southern Walk homeowners associations examined service options, the HOA boards found they were locked into a 25-year agreement, including a series of 10-year renew options at OpenBand’s discretion that could last up to 65 years. Through the agreement, each resident must pay for the company’s video, Internet and telephone service, whether they use it or not.

In one response to Southern Walk suit, OpenBand argued that it offered a fair service for a fair price to the community.

“Indeed, the terms of the TSA are equitable and abundantly fair to the HOA and its members: They provide for services at a discounted rate and establish a procedure for homeowners to challenge those rates,” the company stated in a legal brief that also indicated Southern Walk residents received a 10 percent discount on service.

Many residents experiencing problems with their video and Internet services – video problems vary, while the Internet problems appear primarily to impact those with high capacity demands – decided to simply pay for another service in addition to OpenBand. That worked for anyone satisfied with satellite television service.

However, residents who attempted to obtain wire-based service from local competitors Verizon and Comcast discovered that those companies did not have permission to run cable lines to their homes because of exclusive easements held by OpenBand’s partners.

OpenBand had partnered with Lansdowne Community Development and Van Metre Homes – the developers of Lansdowne and Southern Walk, respectively, as well as the holders of the exclusive access easements. For every dollar residents spend on OpenBand service, the developers received a percentage of the revenue related to their respective communities. Premium services, at least in the case of Southern Walk, result in a slightly higher percentage going to the developer.

Open Band points out that it is not the holder of the easements, but rather the developers control the LLCs that hold the easements. Therefore, OpenBand argues in court documents, its telecommunications service agreement, or TSA, does not violate Federal Communications Commission regulations.

“Those easements are not part of the TSA and the grantor of those easements is not a party to this litigation,” OpenBand state. In fact, Van Metre is not named in the case. “To the extent that exclusivity arises out of something other than an agreement between the parties, such as an easement over private property, that circumstance would be beyond the scope of the FCC’s authority granted to it by Congress in the Communications Act of 1934 as amended and could not be prohibited by the FCC.”

Southern Walk’s suit cites several instances, as recently as earlier this year, in which representatives from Comcast and Verizon told the community’s HOA that the companies would not be able to extend fiber cable into the community because of OpenBand’s “exclusive easements.” Those company representatives indicated OpenBand would sue them if service lines were extended into Southern Walk. Lansdowne’s suit speaks of similar difficulties.

“In fact, on provider has stated that it would provide services to the Lansdowne community provide the Lansdowne HOA granted it an easement to do so; however, because of the scheme implemented by the Defendants, the Lansdowne HOA cannot grant the requested access,” states the Lansdowne lawsuit.

Complicating the matter were a series of LLCs used by OpenBand and the developers with similar names that performed separate functions.

Furthermore, the cases argue, the agreements that set the scenario in place were made when the respective developers controlled the community HOAs. Developers typically hold the majority of seats on an HOA board when communities first open, turning over power when a certain number of residents move in. The contracts with OpenBand were signed while the developers controlled the HOA boards of Southern Walk and Lansdowne. With renewal solely in the hands of OpenBand, the communities have little power other than to negotiate better service rates.

In what the lawsuits depict as an exchange for maintaining the easements, the developers were promised a percentage of OpenBand’s revenue from those communities in perpetuity.

“The defendants have largely achieved the goals of the conspiracy,” according to the Lansdowne lawsuit.

In June, supervisors postponed a decision about OpenBand’s franchise agreement and asked Virginia Attorney General Ken Cuccinelli to investigate the company for possible antitrust violations. Cotti said in a letter to supervisors that the HOA had contacted the AG’s office and an investigator requested documents from Southern Walk.

Cotti said the county should deny the franchise.

Some fear that could leave many residents with no option for video, Internet and telephone services because the only company holding rights to serve those communities would not be allowed to operate.

“That doesn’t resolve the issue,” Waters said, adding that adequate video, Internet and phone service in the goal. “The central issue still stands. The franchise is only one piece of it.”

Waters said even with a denial of the franchise, OpenBand would still have several months to find an alternative provider.

Supervisor Stevens Miller (D-Dulles) offered similar comments about the effect of denying the franchise agreement.

“To get the services to those customers, you have to be able to lay some cable down on land that OpenBand has the exclusive right to,” he said. “With the exclusive easements, if we deny the franchise, nobody else, OpenBand says, can provide the service. We certainly don’t want to deprive anybody of service.”

However, Miller said he sees some value in considering other legal issues before reaching agreement on the franchise.

“I’m not sure they have to be treated in total isolation,” he said.

The two lawsuits filed by Lansdowne and Southern Walk represent 3,405 of OpenBand’s approximately 4,500 customers. That’s about the same number of people who work for M.C. Dean, of which OpenBand is a subsidiary.

Supervisors could vote on the item Wednesday or defer it again. Some fear the decision may be kicked to the next board, candidates of which have accepted money from M.C. Dean, Lansdowne Community Development or Van Metre. OpenBand has not contributed to a campaign since 2007 when it donated to a supervisor who lost reelection. M.C. Dean contributed to three candidates in 2011 who do not currently hold office, while giving to two other candidates in past elections who remain on the board.

LCD has contributed under more than one variation of its name over the years.

For the campaign, it has contributed to one sitting board member and one candidate.