Expanded Basic Cable Costs About $50 Monthly in Many Cities

Prices will rise by a smaller amount in 2007 - averaging 5.38% for customers of Charter, Comcast, Cox, RCN and Time Warner Cable (TWC) in 19 towns and the state of Wash., according to cities, industry figures and local media reports. The survey included cable systems in 14 of the top 100 TV markets and in cities with more than 13 million residents. Most rate hikes involve increasing the fee for the expanded portion of cable packages, while basic rates remain steady. Basic rates were unchanged last year in Philadelphia; they rose 3.7% in Boston.

If representative of all systems, the survey data could buttress industry claims that subscribers are doing better even without widespread Bell video competition. FCC Chmn. Martin, a cable rate critic, will unveil a 2005 Commission price survey at today’s (Wed.) FCC meeting (CD Dec 4 p2). An order speeding telco entry into video also is set for a vote, though last-minute 8th-floor negotiations may delay it, said agency and industry officials.

Boston and Philadelphia cable rates are typical. In Boston, a Comcast customer paid $49.40 monthly in 2006 for an expanded cable package; some Philadelphia residents paid $48.16, according to those cities’ cable offices. In 2006, TWC, exiting the market through the Adelphia deal, charged $49.10 monthly. Comcast is taking over those systems. Annual rises lead to rates hovering near $50 -- not a concerted attempt to set a nationwide rate -- said analyst and former Continental Cablevision executive Bruce Leichtman: “I don’t think it is a magic number… That’s just where it has come up to over the years.” A $99 benchmark has been set by Cablevision, Comcast and others for those who sign up for digital cable, VoIP and broadband in a “triple play” package. Rates usually rise when the introductory offers expire.

One area seeing plenty of variance is annual cable rate increases. In recent years, many San Francisco area residents rode a rate roller coaster. Comcast San Jose rates fell 7.2% in 2005, then rose 11% this year to $49.25. In 2005, Comcast prices fell 1.7% to $45.40 in nearby Millbrae, and rose less than 1% in Alameda, figures from San Bruno’s municipal cable operator show. The price changes likely came as the company standardized rates in cities in the Bay Area, where it got systems in Nov. 2002 when it bought AT&T Broadband, said San Bruno Municipal Cable Dir. Tenzin Gyaltsen. Basic rates fell in the 3 cities. Comcast, TWC and others wouldn’t comment on prices in specific markets.

The average Comcast customer’s video bills will rise 4.5% in 2007, said a spokeswoman. In Jan., rates for a standard package of 70 channels, similar to expanded basic in other cities, will rise 5.9% to $51.15 in Sacramento and 5.5% to $52.45 in Richmond, Va. Comcast’s standard rate will rise 6.8% to $48.27 monthly in the state of Wash. Average rates will rise 5.4% in 7 cities served by Comcast and included in our survey. They'll go up 6.8% in the state of Wash.

TWC prices will rise an average of 4.8% in Cincinnati, Dayton, Milwaukee, Raleigh and San Antonio. Charter will hike rates an average of 5.17% for 2007 in 6 cities including Madison, Wis., Kalamazoo, Mich., and St. Louis. Most of those increases take effect Dec. 27. RCN’s decision to raise rates 8% Jan. 1 drew a rebuke from Boston Mayor Thomas Menino (D), who asked the company to roll back the increase. RCN blamed rising programming costs and said it’s raising rates an average of 4%. That’s a smaller amount than such expenses are increasing, it said.

Bills won’t rise at all for customers in some of TWC’s 28 geographic divisions, said a spokeswoman. Deals for customers look even better when VoIP and broadband prices are factored into cable bills, since prices for those services aren’t going up while download speeds and calling features improve, said 3 cable officials. Some consumer activists say cable isn’t a good deal, no matter how prices are calculated. Martin has attacked a 92% surge in cable bills, to an average of $43.04, in the 10 years ending in 2005. That figure doesn’t measure an increasing number of channels or other features. Inflation rose 25% in that period.

Bell prices are rising, too. Verizon will raise rates for its most popular FiOS TV service, Premier TV, by 7.6% to $42.99 per month for new customers (CD Nov 21 p10). In areas where the company plans to sell FiOS, including Boston and Philadelphia, cable rates this year rose slightly less than the national average -- though too few cities are included to be statistically representative. In San Antonio, one of 2 Tex. cities where AT&T sells IPTV on a limited basis, TWC raised rates 5.1% on Dec. 1.

Rising Programming Costs

Municipal cable operators are seeing programming costs rise, too, though for now rate increases tend to be less than at investor-owned companies. The Frankfort, Ky., city-owned system has raised rates about $1 annually since 2001, said Superintendent John Higginbotham. Rates went up 3.5% earlier this year to $29.45 a month. Small hikes may be a thing of the past due to higher programming costs, Higginbotham said: “My dollar increase means less each year… It’s prevented us from adding a lot of new programming. I don’t have a regional sports network. I can forget about [the] Disney” Channel.

Large cable operators have a better handle on programming costs, if customer bills are a guide, said Wall St. analysts. Operators have benefitted from ESPN costs rising by a smaller percentage, said Miller Tabak’s David Joyce: “One of the big culprits of programming expense increases has been ESPN. That was growing 20% a year, for years.” ESPN increases are down to about 10%, he said. The channel is believed to cost cable operators about $2.50 a month. ESPN doesn’t provide figures but has moderated its rate increases, a spokeswoman said. Cable operator profit margins have stayed steady, meaning companies aren’t hiking rates to fatten their bottom line, said Joyce. “You're still typically seeing increases that are slightly in excess of inflation,” said Janco’s Matthew Harrigan, adding that recent increases “aren’t obscene… But it’s a perennial political hot potato, in part because the telcos are trying to influence the agenda and hurt cable.” Inflation was at an annual rate of 2.6% last month, excluding volatile food and energy costs, said the Labor Dept.

Cable firms usually don’t tout rate hikes to prospects or the public. To get a price estimate, people often must call a cable operator. But under FCC rules cable operators must tell existing customers of coming price rises, said a Commission official -- though there’s no rule demanding companies make data easily accessible. “It’s in their interest to make it difficult to find out information which is embarrassing,” said Media Access Project Pres. and cable critic Andrew Schwartzman: “Ten years after direct broadcast satellite started to become a serious player in the [video] market, price competition has not emerged.”

Cable bills aren’t coming down more because DBS isn’t a strong enough competitor, say some consumer advocates. DirecTV and EchoStar don’t widely sell broadband and VoIP, which cable executives and analysts say puts DBS at a disadvantage. “Only competition from a second cable provider has a downward impact on prices,” Martin told Georgetown U. students Nov. 30. Cable, DBS and satellite radio prices rose 3.4% this year through Nov., Bureau of Labor Statistics data show. Inflation rose about 2.6%. “It seems to me we have the same problem we've always had with inflated cable pricing and satellite not doing anything to discipline and prevent the cable rate increases,” said Consumers Union Vp Gene Kimmelman.

Cities also don’t typically publicize cable rate information. Asked about rate increases in recent years, officials in Chicago, L.A. and other large cities said they couldn’t immediately provide that material. One reason cities may not publicize such data is the Telecom Act largely took away that responsibility and put it in the hands of the FCC, said Libby Beaty, National Assn. of Telecom Officers & Advisors exec. dir.: “Most local governments can’t afford to be regulating areas… where they don’t have authority,” she said. Towns can’t regulate expanded basic rates and can only set prices for a basic service in areas where the FCC hasn’t determined are subject to effective competition, she said.

Price Survey Criticism

Some cable officials say price surveys have little point because it’s hard to account for improved customer service, more VoD content and other factors. Comparing expanded basic rates one year to the next provides a “misleading” picture, said a TWC spokeswoman. NCTA said a triple play package that sold for about $100 in 1996 included 46 channels, 28 kbps dial-up Web access and phone service. Today, that bundle has download speeds of 5-15 Mbps and 75-plus channels. “There’s been a deacceleration of increases in the last few years,” said NCTA Pres. Kyle McSlarrow (see separate story). He said cable rates as measured by the FCC are “analogous to buying a car at sticker price. No one does it.”

Cable rate surveys don’t weigh intangible improvements, said McSlarrow and other industry officials. Comcast has hired thousands of customer service workers to narrow appointment windows and let customers schedule service calls outside business hours, a spokeswoman said. Digital subscribers get access to more than 8,000 VoD titles each month, almost all free, she said: “The percent of the increase is coming down and we are continuing to add more value and features…. We've doubled the amount of on demand content available. We've boosted our Internet speeds.”

The FCC methods used to gauge cable rate hikes generate almost as much controversy as prices. The FCC annual cable rate survey is criticized by the industry for tracking total cable rates and prices per channel without accounting for other benefits. Martin wanted to wait until today to release the rate survey to bolster his argument for franchise reform to speed the process for telcos to win agreements from cities to sell video, said an FCC official in another office. The official said the survey has been complete for some time; The FCC cable figures are current as of Jan. 2005. “There’s no good reason why it’s taken so long for this to come out,” said Schwartzman. McSlarrow fumed at the report, saying: “It’s unclear to me why a report that was clearly finished at the beginning of this year was kept under wraps,” with “selective leaks” by FCC officials.

The Commission report studies rates required by Congress

- namely, prices for “basic cable services,” said an agency official. Basic and expanded basic costs are representative because most customers get those services, said the official. McSlarrow said about 1/2 of all cable subscribers get digital cable. Responding to complaints on the timing of the report’s release, the FCC official said: “Different things take a different [amount] time at the Commission.” It’s unclear how releasing the report earlier would be a benefit, the official said, because, “as far as we're aware, cable prices rose in 2006 and are expected to rise in 2007 as well.”

NCTA wants the annual cable report junked. “Issuing reports about cable prices should have been eliminated once rate regulation was lifted as part of the 1996 Telecom Act,” a spokesman said: “The actual price for these products is lower than it was ten years ago, and the services are dramatically better.”