Thursday, January 22, 2004

Cable prices moving higher


Annual hikes far outpace rate of inflation

By James Pilcher
The Cincinnati Enquirer

INFOGRAPHIC
How local rates have gone up
Cable television customers in Southwest Ohio can expect a New Year sticker shock as their bills jump almost three times the rate of inflation, on average.

And while some customers say they are resigned to what has become an annual rate ritual, they still say they prefer the offerings of local cable service to its increasingly popular rival, satellite-TV.

"I've got to say that I really don't mind the cost, but the programming is terrible," said Bill Attwood, a sales manager from Symmes Township, whose monthly Time Warner Cable bill is going up by about $2. "I can walk and talk like John Wayne because of all the repeats of his movies now."

Cable providers justify the higher costs - rates for standard cable are going up by anywhere from $1.50 to $4 a month in this area - by saying they offer a different, better product than satellite services.

The local increases mirror national rates that have been climbing at a faster-than-inflation pace. National cable rates have risen about 7.1 percent a year in each of the last five years by one estimate. An Enquirer analysis of local cable rates for 2004 shows an average 5.5 percent hike, compared with the 2003 inflation rate of 1.9 percent.

"We try to look at ourselves differently than some of the other providers in the arena," said Jennifer Mooney, vice president of public affairs for Time Warner Cable's Cincinnati division, the largest provider in Greater Cincinnati.

"We've put in a lot of new infrastructure to handle voice and video data as well as high-definition television and more digital channels, and we can get all the bells and whistles, including a wireless network in your house for about $100. And for the service and lack of contracts you get from our company, we still feel we provide a good value for the money."

Time Warner Cable and Adelphia Communications say the rate increases stem in part from higher costs for programming charged by cable networks such as ESPN, CNN and HGTV, higher gasoline prices for service trucks and system improvements to deliver better digital and high-definition service as well as cable Internet capability.

"We just completed an $8 million upgrade to our Delhi Township system alone," said Art Loescher, general manager for Adelphia's Cincinnati area systems, which include Delhi, Amelia and other suburban communities. "So you will see about a 10 percent increase in February, but what we'll be able to offer will be so much better."

2 big players

The rates for standard cable and more expensive and expansive digital service are rising anywhere from $1.50 to almost $6 a month locally, depending on the community and the service. Standard cable (the cost of lifeline and standard service) now is about $45 a month including equipment rentals in Southwest Ohio, and first-tier digital goes for above $50 a month including rentals. Time Warner Cable says about 40 percent of its subscribers are on digital service.

Time Warner Cable and Adelphia Communications reach a combined 400,000 subscribers in 14 counties and almost 150 communities.

Time Warner's rates changed Jan. 1, with basic cable (usually a bare-bones service) going down in most towns and cities and standard and digital going up. Adelphia's new rates go into effect in February.

Insight Communication provides cable service for Northern Kentucky, and is still contemplating rate changes that would go into effect in March. Officials for that company would not comment on their rate plans.

For 2004, the cost of basic or lifeline cable, typically about 10 to 15 channels, went down in most areas.

But the biggest area of complaint from local customers and national advocates alike is that they are changing how the companies charge, grouping different services into new packages.

"That's the biggest issue I have with them, is that you have to buy a whole bunch of stuff you don't want to get stuff that you do want," said Jack Jacobs, an Indian Hill lawyer who is seeing his monthly bill go from about $76 to more than $80.

"I will say that the quality and service has been fine. But I just cut a bunch of stuff out to try and save some money, and it looks like I might be cutting again."

Nationwide trend

The rate increases follow a nationwide trend noted by the Federal Communications Commission last summer. In its annual report on cable rates, the commission reported that standard cable had gone up an average of 8.2 percent to $40.26 in cities where there was no competition for the year ending July 2002.

A basic rate for each level of service for each community is set by a formula created by the FCC based on per-capita income in that community, among other factors.

Individual providers can then decide to go up to that maximum rate or price below it, depending on competitive situations, and they also might have a "legacy" rate based on the rates previously set by another company that may have been bought out.

Last year's FCC report noted that the average number of channels offered on standard cable actually went up to 62.5, dropping the average per-channel price.

Still, the 2002 increase was more than the national five-year average annual increase of 7.1 percent.

"They are overcharging consumers by $4 billion to $6 billion a year now, and it has beaten the rate of inflation by nearly 8 percent," said Mark Cooper, director of research for the Consumer Federation of America, a Washington-based advocacy group. "The industry is exercising its market power and no one has been able to discipline them. They say that their costs are going up, but all they are doing is adding new stuff and new equipment."

National and local cable rates still are higher than most prices offered by satellite services such as DirecTV and The Dish Network.

Those companies were aggressive over the holidays, offering three rooms and installation for free along with gift cards from several major retailers as incentives, and second-tier service along with local channels for about $45 a month.

Consumer advocates, however, note that satellite competition has done little so far to curb cable rate hikes.

Despite the rise in prices, Time Warner Cable's Mooney and other cable providers say they are remaining competitive by providing a better value.

"If you look at us on an actual cost basis, including all the local service we provide, we still feel that we are the low-risk option to the customer," Mooney said.

E-mail jpilcher@enquirer.com




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