Snow Falls Down, Cable Prices Go Up Posted by Bob at 12/05/06 10:49 AM

Except for stomping their feet and threatening to hold their breath until they turn blue, consumers have virtually no good options when cable television companies decide to raise their rates.

Snow falls down. Cable prices go up. It's the natural order of things.

That is how University of Wisconsin telecommunications professor Barry Orton put it in an article in The Capital Times newspaper on the announcement of another cable rate increase in the Madison area.

The good professor sees little reason for consumers to hope for anything but more of the same for the foreseeable future.

“I think anyone in the cable industry who said, ‘Let's not raise rates this year,’ would either be laughed at or fired,” Orton told the paper. “And they don't have any real good reason not to raise them because many people are pissed at them anyway, and I guess they figure people can't hate them any more.”

Indeed.

Orten’s opinions are backed up by a report we blogged about last week from the Bernstein Research investment firm. That report said the country’s largest cable television company, Comcast, will be raising its rates by an average of 5.4 percent in the coming year.

Further down, the Bernstein report delivers the really bad news for consumers going forward.

“Continued pricing power, and price increases in excess of consensus expectations, bode well for growth in 2007,” says the Bernstein report. “More broadly, we believe Comcast’s willingness to announce increases of this magnitude indicate that, at least in many markets, they are feeling less ‘competitive intensity’ than many investors believe.”

In other words, investors are underestimating Comcast’s ability to raise its rates with relative impunity without losing customers.

Bernstein strongly recommends that investors buy Comcast stock, rating the shares as “outperform,” meaning they should do significantly better than the rest of the stock market.

That recommendation, according to Bernstein, is underpinned by the investment firm’s view that cable and satellite television service providers – including relative newcomers to the business such as telecom giants Verizon and AT&T – have little incentive to compete aggressively with one another.

In the cold language of financial analysis, such a situation is called “rational pricing.” The deal is that nobody in the business will go nuts and aggressively slash their rates, forcing everybody else to follow suit.

“Notwithstanding our analysis of rational pricing strategies, however, players may adopt irrational pricing behavior,” says Bernstein.

We think “irrational pricing behavior” sounds a lot like a competitive market. And unlike Bernstein, we would welcome some serious “irrational pricing behavior” in the cable and satellite television business for a change.

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