For most folks the big telecom news of the last two days wasn’t Governor Blanco’s veto of HB 699 but Cox’s announcement that it was going to hike rates in its recently combined Baton Rouge/Lafayette/Acadiana region.
Both the Advocate and the Advertiser have had articles on it. The Advocate ran articles both yesterday and today and the Advertiser ran one today. The Advertiser’s version goes a good bit deeper into the the specifics of the changes in Lafayette and repays close attention.
It’s an odd a rate increase–it raises the cost of the “expanded cable” tier, lowers the cost of the basic tier, and puts an even surcharge of $2.00 on all tiers of internet service. The internet-based VOIP phone services aren’t touched. Now that doesn’t make much sense if you take Sharon Kleinpeter’s rationales for the increase seriously. She suggests that:
…rising programming costs, increasing fuel expenses and operating overhead associated with our rebuilding efforts directly impact retail cable pricing.”There is also a lot of other costs associated with the storms, things like higher insurance rates, what everybody is feeling right now,” Kleinpeter said.
No doubt that is true enough. But as Huval retorted other folks, like LUS, who also had storm-related costs aren’t raising rates and using that as an excuse. Said Huval:
But Terry Huval, director of Lafayette Utilities System, said the increase shows the need for the fiber-to-the-home plan the city has been seeking to build since April 2004. Once the city-parish has a fiber optic network in place, it will offer cable, TV and Internet service at rates 20 percent lower than Cox, Huval said.
“We had damages during the hurricane – we’re not looking to increase electric rates,” he said.
The difference? As far as I can tell it’s that LUS, being familiar with Louisiana, plans for hurricane expenses. There’s a concept. (We hear a lot of guff about poorly operated publicly owned utilities “must” be. Experience doesn’t seem to bear this out.)
Whats odd about the scattershot rate increases and reductions are that fuel and hurricane rebuilding costs equally impact all parts of the business. Based on that you’d expect that Cox would raise all prices by a similar percentage across the board. But that’s not what they’ve done–VOIP users are not bearing any additional burden while lower-tier internet users are bearing a higher proportion of the rate increase than upper tier users. Saying rising programming costs are driving up prices makes the picture even more puzzling since the really big increases in programming are in the premium channels like HBO that are not included in “expanded basic.” Cox is NOT simply recouping costs; something else has to explain the particular places Cox chose to jack up their rates.
So what’s going on here?
Well, one thing is that Cox is aligning prices in Baton Rouge and Acadiana. Acadiana getting a much larger “catch-up” jump than Baton Rouge. Lafayette hadn’t experienced a rate increase since its people started talking about building their own fiber to the home project and so had fallen “behind” Baton Rouge and its environs. With Lafayette’s decision effectively made by the people a year ago holding off on rasies in Lafayette with an eye to effecting our attitude toward Cox was no longer sensible. Similarly, with the legislature no longer meeting to consider issues that effect Cox’s interests the time was ripe to raise rates.
Cox is also trying to move people off the “cheap” basic cable tier. This is a long-term project of all the cable companies. Of course, they always want people buying more expensive stuff from them but beyond this they don’t like basic cable for all sorts of tangled technical and regulatory reasons. Suffice it to say that they really want you to upgrade badly. So reducing the number of channels and dropping some that are popular and useful is part of this strategy. By law they can’t drop local broadcast stations or local PEG stations like AOC. But having dropped services to the bare bones required by law regulation forces them to lower prices as well. So you are now confronted with the spectacle of raising the prices on the (unregulated) “expanded basic” tier while reducing prices on “basic” cable.
No doubt they were concerned that bumping up prices would push people to the cheaper tier so it was incumbent upon them to make that tier less attractive. The gap in price between expanded basic and basic was already huge..making simple basic even less attractive is one way to try and keep anyone who was teetering on the edge of dropping back to basic with the expanded basic tier. And the difference is huge: in Lafayette it will the difference between $13 a month and $47!
So what do you get for the extra $34 dollars a month? Well ESPN, the Weather Channel, and The TV guide channel to name what looks like the most popular channels that are moved out of basic cable and into the expanded tier. That wouldn’t do much for me. I don’t watch ESPN, I get my weather off the web, and I much prefer TiVo’s TV guide to Cox’s–but if I didn’t have TiVo losing the guide might really irritate me. The Expanded tier has all the lower end movie channels and popular speciality channels–channels you might recall from when they used to be offered on basic cable. Many of them gained a following there.
Of regional note in what Cox labels “Acadiana:” if you are a local French speaker you’ll want to note that TV 5 has moved up from expanded basic to one the sports speciality package. Sports??? So grand mama is going to have to buy a fancy bundle of sports channels to get French programming? However the “extensive” Spanish-speaking population will have a whole new tier devoted to Spanish programming–10 channels. That’s odd in a city where almost 20% of the population speaks a language other than English in the home and Spanish and Asian language speakers together are not 10% of the total. What are all those folks speaking? French? You guessed it, cher. You think maybe nobody ever talked to Cox about how out of touch this stuff makes ’em look? My guess is that LUS will be a mite more on the ball about such things.
A little reflection makes you wonder how long the tiering system can last once a converged cable/Internet system really hits the cable market. It’s already easier to get your weather off the web. TiVo has a better channel guide–I’d even prefer Yahoo’s if I could swap it in instead of Cox’s…and I can imagine a set of software conduits that would allow me to do just that. All the movie channels? Netflix. There’s a two day turn-around but you get great choice, personalized record keeping and good recommendations. With big broadband I could download all those movies and not give a fig for HBO. What remains are the specialty channels –I’d find it hard to give up the Food Network or Comedy Central (we all have our weaknesses). And finally, all the local channels. That’s a real reason to keep cable…but that’s only 13 bucks a month.
The only thing stopping people from bailing on Cox and moving to the net when hit with rate increases is that Cox also controls the big bandwidth that would make it possible. And they aren’t aren’t giving us quite enough. Yet. (Bring it on, LUS!) Cox hasn’t missed this point–they’re jacking up costs on bandwidth too–a uniform two bucks across the tiers. Meaning that folks who get the least are paying the highest percentage of increase. They’ve got you coming and going.
So Cox is catching Lafayette up to the prices that Baton Rouge has been paying. At the same time it is trying to push people off basic cable and onto its much higher-priced tiers. It’s also shifting some cost to its internet service, apparently sure that it won’t be hurt by BellSouth’s relatively anemic offerings.
It’s an interesting chess game which Cox can mostly play without considering much besides BellSouth’s DSL offerings its own desire to increase its VOIP market. (As myriad studies have shown, satellite TV doesn’t effect cable pricing much–though it can reduce the size of the market by establishing its own market; the two satellite providers compete but the cablecos basically ignore them.) Since it wants to grow its VOIP market and it thinks that will go a lot faster if it keeps a broad gap between that price and the plain old telephone price BellSouth charges it decides to not raise its VOIP rates at all. Instead it transfers those costs to its cable, where it is has no effective price competitor, and internet, where it has only BellSouth’s anemic offerings. But that ability to arrange things to its liking will change soon enough. BellSouth will enter the video market; and after Blanco’s veto it will have to actually compete with Cox; not just cherry-pick the market. LUS will also enter the market and its primary motivation will be to amass market share for its long-haul payback. Both new entrants will limit the kinds of choices Cox has been free to make. You can bet, for instance, that neither new cable company will let a 34 dollar per month gap sit unoccupied between the cheap “legal minimum” tier and the expensive everything-but-the-kitchen-sink expanded tier Cox has found to be to its advantage in an atmosphere all but devoid of competition. There will be real competition to find that sweet spot for cable–the price/channels combination that folks really want rather than the contorted setup that Cox finds most profitable in the absence of competition.
That will be a good thing.
But the real competition in the long run will be over pure bandwidth. And there the prize will go to team that can offer the most for the least. Competition in bandwidth will, eventually, kill the cable business model. And that’s ok by me. Bring on the future…Downloadable Television (DV as opposed to TV) is an end devoutly to be wished.