CABLE PRICES RISE MORE THAN OTHER GOODS AND SERVICES—AGAIN
Since Telecom Act, cable rates have risen 35.7% while consumer prices for all other goods and services as measured by Consumer Price Index have risen 14.5%, according to data from Bureau of Labor Statistics. Asked why prices have risen 21.2% more than inflation, industry representatives said programming costs have gotten out of control and consumers are getting more channels and choices for their money. That doesn’t appease consumer groups, especially as many people are seeing their prices for basic or expanded basic service rise roughly 5% this month. Jan. typically is time of year when MSOs institute any price increases.
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Among top 10 MSOs: (1) AT&T Broadband is raising rates average of 5.5% in markets such as Atlanta, Boston, Chicago, Dallas. (2) Time Warner Cable, with systems in central Florida, Houston and N.Y.C., among other places, 5%. (3) Comcast declined to release national figures but acknowledged rates were increasing in some of its biggest markets, specifically 5.5% in Washington, D.C., and almost 6.4% in Baltimore. (4) Charter has 5% increase but could be as high as 10% where systems have been upgraded and company is trying to recoup those costs. For example, 20,000 customers in Port Orchard, Wash., will see 7.2% increase for expanded basic, to $43.94 per month from $40.99, and 31,000 in Redding, Cal., 7.6% for expanded basic, to $41.45 from $38.50. (5) Cox customers in New Orleans and Santa Barbara, 5.3%. (6) Adelphia corporate didn’t return repeated phone calls, but gen. mgr. of system in Anaheim, Cal., said rate boost hadn’t been determined yet. (7) Cablevision Systems customers in N.Y. metropolitan area, 5.5%.
(8) Mediacom Vp-mktg. John Pascarelli said rates would jump 5%-7%. (9) Insight spokeswoman said company hadn’t finalized 2002 rates for any of its systems. (10) Cable One, collection of small systems, didn’t return phone calls at corporate level, but Scott Geston, gen. mgr., Fargo, N.D., said his system was planning increase of less than 5% this year. John Humphries, gen. mgr. of Cable One system in Biloxi, Miss., said increase was expected, with percentage to be determined in next month or 2.
FCC Cable Bureau’s last annual report on rates found competitive operators increased average monthly prices for basic service tier 5.8% July 1999-July 2000 and 4.5% for prior 12-month period. In its annual report on competition in video programming, released Mon., Cable Bureau reported prices rose 4.24%, compared with 3.25% for CPI between June 2000 and June 2001. However, report noted that capital expenditures for upgrading cable facilities increased to $15.5 billion during 2000, representing 45.9% increase over $10.6 billion spent in 1999. Report also said number of video and non-video services offered increased.
Most companies stressed that rates varied from system to system, and some customers would have no increases. However, they also defended rises where they were being instituted. AT&T Broadband, when it announced increase in Nov., said: “Everyday costs such as putting gas in field trucks and paying competitive wages to customer care personnel and technicians have increased.” It said programming costs were expected to go up 15% this year, led by sports programming at 20%.
NCTA spokesman said that since March 1999, when Telecom Act took effect and cable prices were deregulated, industry had only been about 3% above rate of inflation but programming costs had increased 22%. “We have been able to insulate the true increase in our programming costs from our consumers,” NCTA spokesman said. He said that until March 1999, cable rates were regulated and therefore were approved by FCC.
Weak ad market has hurt industry that already was feeling sting of Catch-22 with Madison Ave. agencies: While more people are watching cable than ever before, advertisers have been reluctant to pay large sums to run ads on channels that delivered niche audiences. For example, company that sells toasters might be better off advertising to 200,000 viewers on Food Network rather than 4 million watching NBC’s Friends. But NCTA spokesman said that principle hadn’t resonated yet with many advertisers who wanted widest audience possible. Another factor, he said, is that new digital upgrades and systems that support Internet and other services require more educated work force that demands higher salaries. But most of what customers are seeing in their bills comes back to cost of programming, he said. Creative content and sports aren’t static products, spokesman said, but volatile assets that affect prices.
Consumers Union (CU) claimed reason for price rises was lack of competition. It said its research found 95% of all communities across country were served by single cable company. And among 5% with head-to-head competition, rates are 12%-20% lower than national average, CU spokesman said. Satellite currently isn’t providing alternative, he said, because up-front cost of satellite dish and other equipment can be prohibitive, $200-$300, and not all consumers have clear view of southern sky required to receive satellite service. Spokesman discounted industry claims blaming programming costs, saying increased ad revenue and fees for new pay services such as high-speed data more than adequately covered programming cost increases. “Cable companies can’t have it both ways,” CU spokesman said. “They like to brag to Wall St. investors how profitable cable is, but then say they must raise rates. It’s difficult to see how they can argue that.”