Cable Companies Using Monopoly Power to Unfair Advantage (Jan. 2003).

Report takes critical look at how cable companies try to justify large rate hikes

WASHINGTON, D.C. -- This month, cable television companies are raising basic cable rates substantially for consumers in every region of the United States. For example, as of January 1:

• Cablevision in Long Island, NY raised standard cable TV rates by 10 percent.

• Comcast in Washington, DC raised standard rates by 9 percent, including an "upgrade fee" last fall.

• Time Warner Cable systems in Orlando, FL and San Antonio, TX raised standard rates by 7 percent.

• AT&T Broadband systems in St. Paul, MN, Chicago, IL, and Boston, MA, raised standard rates by 7 percent.

When cable companies raise rates, they often blame the cost of programming, such as sports channels, and the expense of upgrading systems. But a new report by two of the nation's leading consumer groups says that these reasons do not stand up to scrutiny.

Consumers Union and the Consumer Federation of America state that the primary reason that cable rates have skyrocketed in recent years is that cable companies are taking advantage of their monopoly power. The groups say that exorbitant cable rate hikes are largely due to the lack of direct competition that exists for the vast majority of cable companies nationwide.

The report, entitled "Cable Mergers, Monopoly Power, and Price Increases," says that industry and government data show that cable revenues are rising much faster than industry costs. Revenues from advertising, digital cable, and other add-on services are enough to cover the expense of upgrades and programming costs. The latest round of large rate hikes is not justified.

The report also points out that approximately 40 percent of the top cable channels (as measured by subscriptions or prime time ratings), which command the highest prices, are owned in whole or in part by cable operators or companies that have large ownership stakes in cable companies. In other words, for a substantial part of the cable industry, rising programming prices is just a transfer from one division of the cable company to another, which comes out of the consumer's pocket.

"Cable companies would not be able to raise prices nearly as much if they did not have monopoly power," said Mark Cooper, Research Director of Consumer Federation of America and the author of the report.

The groups criticized the Federal Communications Commission (FCC) for failing to do enough to encourage competition in the cable and satellite markets and failing to protect consumers from the cable industry's abusive pricing. They urged Congress to take a hard look at the Telecommunications Act of 1996, the law that initiated the deregulation of the cable industry. Since the law was approved, cable rates have increased 45 percent, or nearly three times the rate of inflation. The groups said Congress should overhaul the law in order to deliver the benefits of competition and lower prices that the law originally promised. They said Congress must empower state governments to hold down prices and treat cable monopolies the same way they treat telephone monopolies.

"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 Consumers Union.

For consumers frustrated with higher cable rates, there are not many direct alternatives. 95 percent of American homes have only one cable company, while the 5 percent who have choice between two cable companies that compete head-to-head pay about 17 percent less on average. Satellite TV is one choice worth investigating. Satellite companies offer TV channels at rates that are comparable to cable in some areas, but the overall cost of satellite is often more expensive when installation and equipment costs are added. Furthermore, satellite TV does not offer local channels in some areas due to technical limits, and satellite dishes do not work unless they have a clear view of the southern sky.

For more information about cable television prices, visit the Consumer Federation of America website at www.consumerfed.org and Consumers Union's web site at www.consumersunion.org.