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Increases in Cable Rates Outpace Consumer Price Gains, FCC Report Shows

Posted on: Tuesday, 8 July 2003, 06:00 CDT

Jul. 9--It's not your imagination.

Increases in cable rates have outstripped gains in consumer prices in the past five years, according to the Federal Communications Commission's new annual report on pricing and competition in the cable industry.

From July 1997 through July 2002, cable rates have risen an average 7.1 percent per year.

Yet the consumer price index, calculated by the U.S. Bureau of Labor Statistics, rose 2.3 percent.

Cable rates sprinted ahead in the past year. From July 2001 through July 2002, cable rates shot up 8.2 percent, while consumer prices slowed their increases, just 1.5 percent in the same time.

The average monthly bill for cable services and equipment stood at $40.11 in June 2002, compared with $37.06 in July 2001 and $34.44 in July 2000.

According to data published earlier this year by The Herald, most South Florida cable subscribers have seen their rates climb between 5 percent and 13.8 percent a year since 1999.

Comcast, the dominant cable operator in South Florida, raised its rates an average 5.9 percent at the beginning of the year, said Spero Canton, a spokesman for the company.

Canton said Comcast is trying to standardize its pricing throughout the region. Now, some pricing varies from franchise from franchise because the AT&T Broadband systems it acquired last fall were cobbled together from local acquisitions done previously by AT&T.

In a survey published in January, the Consumer Federation of America and the Consumers Union found that most cable companies began 2003 with rate increases.

For instance, Time Warner Cable in Orlando and San Antonio, Texas, raised standard rates by 7 percent. Cablevision in Long Island, N.Y., raised standard cable TV rates by 10 percent at the start of the year.

Alan Goldberg, a policy analyst with the Consumers Union, the nonprofit organization of Consumer Reports, said in a phone interview that "most cable operators have a monopoly and use that monopoly power to charge rates that far exceed their costs."

Goldberg, who lives in the Washington, D.C., area, knows all too well about cable price increases. He says Comcast, the operator in his neighborhood, has raised rates twice so far this year.

Goldberg contends that cable companies have ample revenues to cover the higher expenses they're seeing in programming costs and system upgrades, the two reasons the operators usually cite to justify their rate increases.

Canton noted that Comcast's annual expense for programming, about $4 billion, is the company's biggest cost. It tops the company's payroll for 55,000 employees nationwide. Some of the popular cable programming has gone up as much as 20 percent a year.

Comcast also expects to spend money upgrading its systems in South Florida, a factor mentioned Tuesday before the Miami-Dade County Commission renewed Comcast's license.

The company told the county that it expects to have all of the systems upgraded by early 2005 so it can provide advanced services such as high-speed Internet access and video-on-demand.

Comcast will spend about $150 million to $175 million on its system upgrades in South Florida over the next two years, Canton said.

Nationwide, Comcast is spending $2 billion on system upgrades.

In most markets, Comcast and other cable providers face little competition to temper price increases. And sometimes where large companies are concerned, competition doesn't seem to have a major effect on prices.

The FCC report shows that only 5 percent of U.S. households have the ability to choose between two cable operators. In areas with two large cable companies competing, price differential was just 3.4 percent compared to a region with only one operator.

The difference was more striking when the competing cable companies were small -- 16.4 percent was the difference in average monthly rates.

Also, satellite broadcast television has been aggressive with pricing and programming to win customers. But it's not a viable alternative for a large number of consumers, said Consumers Union's Goldberg.

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(c) 2003, The Miami Herald. Distributed by Knight Ridder/Tribune Business News.

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