Notice of Breach

OpenBand at Broadlands, LLC

c/o OpenBand SPEII, LLC

3725 Concorde Parkway, Suite 100

P.O. Box 220870

Chantilly, VA 20153

RE:       Breach Notice Pursuant to Section 6.2 of the Agreement

to Obtain Telecommunications Services dated November 16, 2001

To Whom It May Concern:

Pursuant to Sections 6.2 and 8.1 of the services agreement between the Southern Walk at Broadlands Homeowners Association, Inc.  (“SW HOA”) and Open Band at Broadlands, LLC (“OBB”) for telecommunications, Internet, and Open Video System services (the “Services Agreement”), this document is intended as a Breach Notice to OBB that the SW HOA deems OBB to be in breach of the terms of the Services Agreement.

Background

OBB has two members:  Broadlands Communications, LLC and OpenBand SPEII, LLC. The parent company of Broadlands Communications, LLC is the developer, Broadlands Associates.  The parent company of OpenBand SPEII, LLC is M.C. Dean, Inc.

When the Southern Walk at Broadlands (the “Southern Walk”) development was under construction beginning in 2001, marketing materials advertised the Southern Walk as a Smart Neighborhood ® with the goal of delivering “the most advanced residential communications technologies available today, while our network stands ready to support tomorrow’s.”  See Advertising Materials, dated circa 2002 – 2003. To that end, OBB and the SW HOA entered into a Services Agreement dated November 16, 2001, by which OBB is to provide Smart Neighborhood ® services to the homeowners of the SW HOA.

With respect to the OVS services, the codified ordinances of Loudoun County provide:

No person may construct or operate an Open Video System (“OVS”) in the County without a franchise granted by the County. No person shall be granted a franchise without having entered into a franchise agreement with the County pursuant to this chapter. (Emphasis added.)

Id. at §809.04 (c). In order to provide OVS services to developments in Loudoun County, including the Southern Walk at Broadlands (“the “Southern Walk”), OBB entered into a MultiMedia Services Agreement with OpenBand  MultiMedia, LLC (“OpenBand”)  and OpenBand Virginia, LLC.  OpenBand entered into a franchise agreement dated

December 2005 with Loudoun County for the provision of OVS services (the “Franchise Agreement”).  See Franchise Agreement, Section 2.2. In addition to the authority to operate an OVS, the Sections 4 and 5 of the Franchise Agreement sets forth System Construction and Customer Service standards that are to be followed by OpenBand.

Section 3 of the Franchise Agreement provides that the “Franchise shall have a term of seven (7) years, beginning on the effective date of the OVS Ordinance.” The effective date of the OVS Ordinance is June 17, 2002, meaning that the Franchise Agreement expired on June 17, 2009. According to Section 13 of the Franchise Agreement:

The Franchise shall terminate upon the expiration of the Term Specified in Section 3, unless the parties agree to the terms of a new Agreement on or before that date. If Grantee wishes to renew the Franchise, the Franchisee shall notify the County at least 12 months before the expiration date. (Emphasis added.)In similar manner, Section 11.1 of the Franchise Agreement provides:

The Grantee [OpenBand] understands and agrees that failure to comply with any time and performance requirements as stipulated in this Franchise Agreement, the OVS Ordinance, or the applicable provisions of the Cable Ordinance, will result in damage to the County, . . . therefore the parties hereby agree that the County may impose the liquidated damages specified . . . .

According to the Franchise Agreement, Section 11.1 (16), noncompliance with any material provision of the Franchise Agreement subjects OpenBand to a $500 fine per day, from the date of non compliance, payable to Loudoun County.

Expiration of the Franchise Agreement as Breach of the Services Agreement.

The SW HOA is informed that (i) the Franchise Agreement between OBB and Loudoun County expired on or about June 17, 2009; (ii) no notice of intent to renew the Franchise Agreement was filed as required twelve (12) months in advance of the expiration; and (iii) the Franchise Agreement has not been renewed.

In Section 7.1(c) of the SW HOA and OBB Services Agreement, OBB represents that:

There exists no event or circumstance within the control of OBB or to the knowledge of OBB which precludes or prohibits OBB from performing its obligations pursuant to this Agreement.

The SW HOA deems that renewal of the Franchise Agreement an event or circumstance within the control of OBB and therefore, considers the expiration of the Franchise Agreement a material breach of the Services Agreement, which precludes OBB from performing its obligations to the SW HOA.

SW HOA is an intended beneficiary of the Franchise Agreement and the expiration of the Franchise Agreement puts OBB in violation of the codified ordinances of Loudoun County found in the Loudoun County Business and Taxation Code §§809.01 et seq. Due to the expiration of the Franchise Agreement, OBB faces potential fines upwards of $182,500 since June 17, 2009, the liability for which is likely to further jeopardize the ability of OpenBand to fulfill its requirements under the Franchise Agreement and the ability of OBB to provide OVS services to SW HOA under the Services Agreement.

With the expiration of the Franchise Agreement, OBB is now operating in violation of state and county law, even though services are being provided and paid for under the terms of the Services Agreement during the Franchise Agreement transition period. Because the Franchise Agreement has expired, there is no guarantee that the franchise will be renewed or that a new agreement will be approved by Loudoun County. The SW HOA further concludes that due to the time necessary for the process of renewing and/or entering into a new franchise agreement with Loudoun County, OBB’s default will not be curable within 45 days of receipt of this Notice of Default, according to Services Agreement.

Defaults in Customer Service.

Section 3.1 of the Services Agreement provides that the Platform Services, consisting of the telephone, Internet and OVS services, “shall be at a level taken as a whole which level is not consistently and substantially below the overall technical quality of service provided by the comparable providers providing services under comparable rate plans (“Service Quality”).” Of the Platform Services, the SW HOA asserts that opinion surveys demonstrate a general dissatisfaction with the OVS Service Quality.

OVS in the Southern Walk receives average to poor marks from homeowners due to fewer programming options and service quality issues. Fewer program options are due to OVS being a second entrant or “overbuilder” in the cable TV market; overbuilders are challenged to secure good programming.  The Southern Walk homeowners perceive OVS as lacking service quality because many, if not most, have experience with state of the art “fiber to the home” and other high-bandwidth digital video and other applications which are available through other cable service providers.

Defaults in Platform Services Pricing.

Section 5.7(a) of the Services Agreement provides that “[d]uring the term of this Agreement, the costs of each of the Platform Service shall not exceed an amount equal to ninety percent (90%) of the rate charged by the comparable provider for similar video and ILEC telephone services of equal quality as required under this agreement (excluding short-term and promotional pricing) determined once a year at the time OBB announces its annual rate structure.” The SW HOA asserts that Platform Services Pricing exceeds the pricing thresholds as provided in the Services Agreement and that annual comparisons performed by OBB fail to consider a number of factors relevant to pricing:

The number and selection of analog, digital and high definition (“HD”) television channels provided by comparable providers at the same price as the OVS services;

The local telephone service area is significantly restricted due to the distance between the Southern Walk and the telephone service central exchange, resulting in calls, which would otherwise be local, being treated as long distance, and therefore, homeowners must pay unnecessary long distance and/or other provider fees;

For several years OBB compared its Platform Services to the comparable provider services as if the comparable services were purchased a la carte, even though other service providers offer bundled services at less (sometimes substantially so) than the bundle of services that OBB provides to the SW HOA. For example, in 2004, Verizon offered 225 TV channels, 55 pay per view and HD TV, local and long distance telephone service, and Internet for a total monthly price of $87.94, while OBB charged $144.95 with no long distance telephone option and only 126 TV channels;

More recently, OBB has compared its bundled services to comparable providers’ bundled service offerings that are not truly comparable. For example, when comparing High Speed Internet Services for 2005 pricing, OBB used Verizon Business Class DSL, which skewed the overall comparable rates to a higher average. In October 2009, the “Right-Sizing Bundles for Comparison” used the comparable providers’ bundles then added premium Internet services to the comparables, which resulted in the comparable rates exceeding OBB pricing by almost 17%.

Notice of Breach.

In summary, the SW HOA deems OBB in breach of the Services Agreement for the following reasons:

The Franchise Agreement between OBB and Loudoun County is expired, and OBB risks not only being fined but unable to renew its license to provide OVS to the Southern Walk;

Customer satisfaction surveys indicate a trend of general dissatisfaction in the quality of the OVS; and

Customer surveys demonstrate a trend of dissatisfaction in the pricing of the Platform Services – telephone, Internet and OVS – as not comparable and as higher than similar services offered by comparable service providers.

The SW HOA does not believe that these breaches are curable within 45 days as provided in the Services Agreement, and therefore, believes these issues will be subject to further dispute resolution.

Yours truly,

Constance J. Miller

for Southern Walk HOA

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