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FOR
IMMEDIATE RELEASE |
CONTACT: |
CONSUMER GROUPS ASK FTC, JUSTICE TO INVESTIGATE CABLE
PRICING STRUCTURE THAT TIES TV, INTERNET SERVICES
Consumer Federation of America, Consumers Union ask whether cable companies
are violating antitrust law
WASHINGTON, DC -- Two of the nation's leading consumer groups today asked the Federal Trade Commission and the Justice Department's antitrust division to investigate whether cable companies are violating antitrust law by charging Internet customers higher prices unless they sign up for the companies' television services.
The groups cited examples of how Comcast, the nation's largest cable company, is offering high-speed Internet services at a discounted price for new customers who also sign up for cable TV service. However, at the same time, current Internet customers who do not buy cable service from the company are being charged higher rates.
Consumer Federation of America and Consumers Union told the federal agencies that they believe that the pricing and tying arrangements involve such steep discounts that they constitute anti-competitive tying and possibly predatory pricing schemes.
A spokeswoman for Comcast, the nation's largest cable company, is quoted in today's Washington Post as saying that the new pricing structure is an incentive designed to get customers to sign up for both cable TV and Internet service.
But the consumer groups said that cable companies are tying TV and Internet service together in order to undermine competition from satellite TV and preserve cable's market power over multi-channel video service.
In a letter to FTC Chairman Timothy Muris and Acting Assistant Attorney General for Antitrust R. Hewitt Pate, the consumer groups wrote, "Although we are the first to applaud businesses that discount their services to consumers, when such discounts constitute short-term efforts to eliminate competitors from the market, they harm consumers by denying them the long-term benefits of expanded choices and lower prices."
Dr. Mark Cooper, research director for Consumer Federation of America, cited news reports of this controversial pricing structure:
In San Francisco, Calif., and Minneapolis,
Minn., Comcast is reportedly raising the monthly fee for high-speed Internet
service from $46 to $60 for customers who don't also subscribe to cable TV.
In Pittsburgh, Pa., Comcast is reportedly raising high-speed Internet rates
from $42.95 to $57.95 a month, for customers who own their cable modems and
from $45.95 to $57.95 for customers who rent their modems unless they agree
to sign up for cable TV.
Cooper explained: "This is how the bundling works. Consumers who choose to take cable-modem-only service are offered the service at a price in the range of $55 - $60 per month. If they also take basic cable service, the price for cable modem service is in the range of $40 - $45 per month. In many cases, this discount is offered to avoid a recent price increase, but that does not change the basic fact that, if consumers take basic cable, they are offered a much lower price. The marginal cost of basic service is not zero and it is certainly not negative. The cost of the cable set top box alone -- which is required for TV service, but not Internet service -- is reported to be $250 and there are certainly variable costs associated with basic service.
"If there were ever a candidate for an investigation of predatory pricing under the antitrust laws, this would be it. Even if the government concludes that the price is not predatory in the classic sense, it must be deeply concerned about anticompetitive tying," Cooper said.
"The effect of cable undermining
its only serious potential competitor, satellite TV, will cost consumers dearly
in the long term. The FTC and Justice need to launch an investigation of these
practices and take action before cable companies take this any further,"
Cooper concluded.
***
Consumers Union, publisher of Consumer Reports magazine, is an independent nonprofit testing, educational and information organization serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition and other consumer concerns. Since 1936, our mission has been to test products, inform the public and protect consumers
The Consumer Federation of America
is the nation's largest consumer advocacy group, composed of over two hundred
and forty state and local affiliates representing consumer, senior, citizen,
low-income, labor, farm, public power and cooperative organizations, with more
than fifty million individual members.
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