Consumer Groups Blast Increasing Cable Costs

Rising rates in the cable television industry will soon have consumers paying through the nose for basic services, consumer groups warned Wednesday as they urged Congress to step in and protect American viewers.

Cable industry representatives dismissed such claims as "misleading and factually inaccurate," and said consumer group lobbyists haven’t taken into full account the huge investments cable operators have made to upgrade their networks and provide viewers with better services.

Cable TV companies are raising basic cable rates nationwide this month. This continues an upward trend that's seen the industry's profits soar, according to a report on price increases and their consequences released Wednesday by the Washington-based Consumer Federation of America and Consumers Union.

For example, as of Jan. 1 of this year, Cablevision in Long Island, N.Y., raised standard cable rates by 10 percent; Comcast in Washington, D.C., spiked standard rates by 9 percent; Time Warner Cable in Orlando, Fla., and San Antonio, Texas, increased standard rates by 7 percent; and AT&T Broadband cable systems in St. Paul, Minn., Chicago, Ill., and Boston, Mass., raised standard rates by 7 percent.

According to the report, the operating margins of cable companies reached $18.8 billion last year, up from over $7 billion in 1997. A Federal Communications Commission study released last week showed that monthly basic cable rates have increased $8.50 a month while operating revenue per subscriber has increased $5.50.

The FCC study showed that between June 2001 and June 2002, cable prices rose 6.3 percent.

Consumer groups charge that cable companies can get away with such price increases because of the monopolistic character of their industry.

"Cable companies would not be able to raise prices nearly as much if they did not have monopoly power," said Mark Cooper, research director for CFA and the report’s author.

About 40 percent of the top cable channels, which command the highest prices, are owned entirely, or in part, by cable operators or companies that have large ownership stake in cable companies, the report notes.

But the National Cable and Telecommunications Association — the Washington-based trade group representing cable operators — counters that consumer advocates conveniently forget the choice of services that cable customers enjoy. Thanks to competition from satellite television and due to the availability of numerous multi-channel providers, including DirectTV, Dish Network and local cable operators, consumers have benefited by getting more and better services.

"This competition has spurred new investment by cable, leading to the introduction of exciting new services like digital cable, high-speed Internet and cable telephone, all to the benefit of consumers," said NCTA spokesman Rob Stoddard. "The consumer lobbyists’ regulatory agenda seems to blind them to this reality."

Consumer groups, however, say pointing to satellite as a true example of competition working to consumers’ advantage is misleading. They argue that satellite has yet to pose a serious competitive threat to cable and is still very limited in the services it can provide.

Consumer groups have long argued that cable-ownership rules must change so consumers are not shortchanged. They've also criticized the FCC for not doing enough to encourage competition in the cable and satellite markets, and for not protecting consumers from abusive pricing.

In its report, the FCC said that pricing decisions by cable operators may be affected by direct competition. It said existing evidence indicates that when an incumbent cable operator faces "effective competition," it responds several ways, including lowering prices, adding channels without changing the monthly rate, and improving customer service.

The Telecommunications Act of 1996 initiated the deregulation of the cable industry. Since then consumer groups have found cable rates increasing 45 percent, nearly three times the rate of inflation.

The cable industry says that since the 1996 act, cable operators have invested more than $70 billion — or $1,000 per customer — in network improvements.

NCTA noted that in 2002 alone, capital expenditures averaged more than $200 per customer.

Stoddard charges that consumer lobbyists are minimizing the double-digit programming cost increases cable operators have endured, and the labor costs incurred to provide customers with better service.

Since the FCC no longer regulates cable rates, consumer groups want Congress to overhaul the law to ensure competition and make sure prices stay reasonable.

Giving state governments more power over cable companies and allowing them to treat the cable industry the same way telephone monopolies are treated can help the situation, they say.

"If Congress restores state power to prevent cable price gouging, it can correct its mistake of allowing cable monopolies to abuse consumers and thwart the growth of video competition," said Gene Kimmelman, senior director of public policy and advocacy for the Consumers Union.

The Senate Commerce, Science and Transportation Committee, which has jurisdiction over the industry, has scheduled a hearing next week to review the state of competition in the telecommunications market, and will focus on pricing of services. To date, the House Energy and Commerce Committee has no plans for a review.