Cable Company Rates

There's a funny thing about companies with structural monopolies, they like to raise prices regardless of the reality of costs or market conditions. Just two months ago, Leesburg's Cable franchisees came before the Technology and Cable Commission (of which I am a member) to let us know that they would be raising rates. We on the TCC have no power or authority to change anything, but the franchisees are required to notify us. It gives people like me an opportunity to at least chastise them for doing so.

And so, in an awful economy in which people are losing their jobs and costs are going up everywhere, companies that have an effective monopoly (or, at least a duopoly) with attendant profitability are seeking to get even more money from consumers.

And lest you think this is a problem isolated to Leesburg, The New York Times has run an article on this national trend:

Faced with rising consumer protest and calls from members of Congress for new regulations, Time Warner Cable backed down last week from a plan to impose new fees on heavy users of its Road Runner Internet service.

The debate over the price of Internet use is far from over. Critics say cable and phone companies are already charging far more than Internet providers in other countries. Some also wonder whether the new price plans are meant to prevent online video sites from cutting into the lucrative revenue from cable TV service. - The New York Times

In my humble (but informed) opinion, this is exactly what is happening. Cable TV companies see high-speed Internet as a major threat to their core TV business, just like AT&T and the RBOCs saw it as a threat to their core telephone service. But like the phone companies, Cable TV companies are already addicted to the revenue stream from Internet connections. Thus Cable companies want consumers to buy just enough Internet to meet their needs, but not enough Internet to make subscribing to TV not worth the price. It is a tough balancing act, and one that requires increasing prices for increasing Internet usage, even though there is no relationship between higher Internet use and higher operating costs for the providers.

The argument that high-use subscribers cost more to serve is specious.

If all Time Warner customers decided one day not to check their e-mail or download a single movie, the company’s costs would be no different than on a day when every customer was glued to the screen watching one YouTube video after another.

That is because their networks are constantly being expanded to handle ever-greater peak periods. It is the modern equivalent of how the old AT&T was said to have built the long-distance network to handle the number of calls expected on Mother’s Day.

“All of our economics are based on engineering for the peak hour,” said Tony Werner, the chief technical officer of Comcast. “Just because someone consumes more data doesn’t mean they drive more cost.”

Yet even as the providers continually upgrade their networks, the cost of the equipment needed to do so is shrinking steadily, reflecting the well-worn economics of computing.

Indeed, the equipment needed to add capacity to any household costs a fraction of one month’s Internet service bill. Comcast, the nation’s largest cable provider, has told investors that doubling the Internet capacity of a neighborhood costs an average of $6.85 a home.

The cost of providing Internet service is about to fall even more, as cable companies install new technology, called Docsis 3, that will both increase their capacity and allow them to offer much faster download speeds. - The New York Times

There is no technical reason to charge separate prices for TV, Internet and Phone service, they're all the same bits, encoded a little differently, running over the same pipe. If we were to have truly cost-plus pricing in phone and TV service, prices would be remarkably lower than they are today - and they would fall regularly, not rise.

I do not believe we should have cost-plus pricing in Cable TV. I believe in the free market, and that includes the freedom to set prices. However, in markets which are not free, but which require public oversight (like, say, ones which have local government franchises, or involve the licensing of public goods), it is highly questionable - even deceptive - to raise prices in a down economy and claim that "costs" are higher. I'm not asking Comcast and Verizon to slash their rates, just refrain from raising them in the teeth of a recession.

(This opinion is my own and does not reflect the opinion of the Town of Leesburg or the Leesburg Technology and Communications Commission.)