FCC Jabs Cable Costs, Pricing Policies

The FCC is challenging not only cable's recent price hikes but the way that the cable industry charges for its programming

Alan Breznick, Cable/Video Practice Leader, Light Reading

December 28, 2006

4 Min Read
FCC Jabs Cable Costs, Pricing Policies

Taking a much more aggressive posture than in the past, the Federal Communications Commission (FCC) is challenging not only cable's recent price hikes but the way that the cable industry charges for its programming.

In its latest annual cable pricing study, released Wednesday, the Commission takes the cable industry to task for jacking up its overall monthly rates by 5.2 percent in 2004, the last year for which data is available. That widely reported increase contrasts with the 3.0 percent rise in the general inflation rate for the same period.

But the new FCC pricing survey doesn't stop there. The study also stresses that the industry's monthly rates for expanded basic service, the package that most cable subscribers take, climbed by an even higher 6.2 percent over that period.

In addition, the new regulatory study emphasizes that cable prices soared 92.6 percent between 1995 and 2005, or more than three times as much as the Consumer Price Index (CPI) over that decade. FCC Chairman Kevin Martin notes that cable rates shot up at the same time that wireless service rates plummeted 80 percent and interstate telephone rates fell almost 40 percent.

"In 1996, Congress passed a comprehensive statute that embraced the idea that competition was preferable to regulation," Martin said in a prepared statement. "Since then, the price for every service the Commission regulates has decreased – except for cable."

Seeking to buttress the FCC's new telco-friendly video franchising rules, the pricing study promotes wireline competition as the best way to curb further cable price hikes. It plays up the fact that cable rates run 17 percent lower in markets where a second provider competes with the incumbent operator.

"Cable does face some competition from DBS, but our report reveals that DBS and cable do not seem to compete in price," Martin said. "Significantly, however, where a second cable operator is present, cable prices are significantly lower."

The new FCC pricing report also takes dead aim at the cable industry's tried-and-true strategy of adding new channels to programming packages and then hiking the prices of those packages. It disputes the notion that cable providers automatically add value to their programming lineups when they load up their packages with new networks.

Specifically, the FCC veers away from its usual approach of calculating monthly cable rates on a per-channel basis, arguing that "the use of the average rate per channel as a proxy implies that recently added channels are of equal value to previously existing channels." For years, the cable industry has cited flat or decreasing per-channel rates to fend off charges of price-gouging consumers.

"This data is not included in the 2005 price survey report because of the weakness associated with using it," the report states. "The average rate per channel does not reflect the prices offered to consumers because cable operators do not permit consumers to purchase channels included in the expanded basic package on an individual basis, nor do they provide refunds to consumers who opt to have certain channels blocked."

The agency also takes a fresh swipe at MSOs for not offering channels to subscribers on a la carte basis, as consumer advocates have long promoted and Martin strongly favors. "If cable operators offered consumers the option to purchase channels individually, it would be appropriate to consider the prices charged to consumers for those channels," the report says.

Responding to the report, the National Cable & Telecommunications Association (NCTA) and American Cable Association (ACA) both contend that the FCC is missing the point with its pricing surveys.

NCTA officials argue that cable customers get more bang for their buck today because the average cost per viewing hour has dropped over the past 10 years. They reckon that an hour's worth of cable viewing cost 19.2 cents in 2005, down from 23.7 cents in 1995.

"The FCC's pricing survey fails to account for the benefits of bundled pricing, its favorable impact on cable prices, and the greatly increased value of cable services in a digital world," NCTA President Kyle McSlarrow said in a prepared statement. "Ignoring these factors makes the pricing survey obsolete on arrival and an unsound basis for policy decisions."

ACA officials say the FCC is targeting the wrong villain. They urge the Commission to pursue "the media conglomerate programmers" who have been jacking up the wholesale programming rates paid by cable operators and satellite TV providers alike.

"The truth is that more competition on the retail level is not going to do anything to control or moderate consumers' rates until something is done to control wholesale programming rates, terms, and conditions forced by the big programmers onto all video platforms," ACA president Matthew Polka said in a prepared statement.

— Alan Breznick, Site Editor, Cable Digital News

About the Author(s)

Alan Breznick

Cable/Video Practice Leader, Light Reading

Alan Breznick is a business editor and research analyst who has tracked the cable, broadband and video markets like an over-bred bloodhound for more than 20 years.

As a senior analyst at Light Reading's research arm, Heavy Reading, for six years, Alan authored numerous reports, columns, white papers and case studies, moderated dozens of webinars, and organized and hosted more than 15 -- count 'em --regional conferences on cable, broadband and IPTV technology topics. And all this while maintaining a summer job as an ostrich wrangler.

Before that, he was the founding editor of Light Reading Cable, transforming a monthly newsletter into a daily website. Prior to joining Light Reading, Alan was a broadband analyst for Kinetic Strategies and a contributing analyst for One Touch Intelligence.

He is based in the Toronto area, though is New York born and bred. Just ask, and he will take you on a power-walking tour of Manhattan, pointing out the tourist hotspots and the places that make up his personal timeline: The bench where he smoked his first pipe; the alley where he won his first fist fight. That kind of thing.

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