New Homes, Condo Now More Likely to Have Telecom Bundle

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New homes, condos now more likely to have telecom bundle

By CAROLYN SHAPIRO, The Virginian-Pilot
� April 18, 2006

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."