Has Comcast Got a Deal For You
Overbuilders eye WOW complaint for direction on pricing competition
By Bill McConnell -- Broadcasting & Cable, 12/1/2002 7:00:00 PM
Don't tell Senator John McCain, but some people are complaining that cable prices are too low—at least in a handful of markets. Overbuilder WideOpen West (WOW) contends that targeted price cuts by Comcast constitute an illegal tactic.
|Comcast's 'Secret' Promotions|
|Aggressive cost-cutting is intended to retain restive subscribers|
|Date||Service||Published Rate||Negotiated Rate|
|Source: WideOpen West
|Feb. 12||Expanded Basic||$33.95/mo.||$24.94/mo. for 12 mos.|
|Feb. 12||Digital Basic||$50.95/mo.||$34.95/mo. for 12 mos.|
|Feb. 15||Expanded Basic||$33.95/mo.||$21.95/mo. for 6 mos.|
Subscribers to Comcast's digital tier pay roughly $51 a month for an expanded lineup that includes niche and premium channels. But, in Warren, Mich., a Detroit suburb where the company competes with WOW, some customers can get the same menu of services for up to 35% less.
To keep subscribers from canceling their service and signing on with WOW or a satellite-TV competitor, Comcast offers customers threatening to make the switch the digital package for as little as $21.95 per month for six months. The price cuts are part of Comcast's aggressive cost-cutting to retain restive subscribers while continuing to earn fat margins on less price-sensitive ones.
WOW argues that the tactic is illegal because customer-service rules require cable companies to publicize their rates and forbid "secret" rates negotiated privately. Wide Open West says all rates and promotions must be publicized.
"If they want to offer promotions, that's fine, but those discounts should be available to everyone," says Craig Martin, WOW general counsel. "But, at the discounts they're offering, they wouldn't be able to stay in business if everyone in the market got that deal."
In May, WOW filed a complaint with the FCC alleging that Comcast's Warren system is violating customer-service rules by offering bargain rates to customers who call in to cancel their service ("In the Loop," Nov. 25).
The complaint is being taken seriously enough at the FCC that Media Bureau staffers in August asked Comcast to answer a series of questions about its marketing practices.
Overbuilders nationwide are eyeing the case because they are rapidly losing the regulatory protection that, for years, shielded them from targeted-pricing competition.
Generally, cable incumbents must charge a uniform rate for basic service in a market until 15% of multichannel homes in that market subscribe to an overbuilder or satellite TV. At that point, the government has decided, competition is strong enough that regulation of basic rates should be phased out.
Just two weeks ago, the FCC ruled that Adelphia Communications may continue its strategy of cutting subscription costs in Los Angeles neighborhoods served by a competing overbuilder because the Arcadia, Calif., market is now subject to the 15% "effective-competition" trigger. Altrio Communications had complained that Adelphia made "minute-by-minute" short-term cuts in rates to dissuade customers from switching to Altrio's service after the overbuilder entered the market in November 2001.
With the uniform-rate rules disappearing, overbuilders are hoping the FCC will accept WOW's interpretation of the customer-service rules as an alternative route to stem margin-cutting price wars.
Comcast officials declined to comment. But, in filings to the FCC, the company has put the onus on WOW, charging that it stretched the meaning of customer-service rules in order to keep prices high. "WOW and the other overbuilders have not found any support from government, at any level, for their objections to promotional discounts or other forms of price or service competition," Comcast said.
Comcast admitted that its call-center reps are authorized to make oral promotions in addition to promotions offered in advertisements, circulars, direct mailings or satellite-dish buy-back offers. None of the deals, however, are below cost, the company said.
WideOpen West and other overbuilders unsuccessfully tried to make that complaint and other allegedly predatory pricing tactics an issue during the FCC's review of the Comcast's merger with AT&T Broadband. The FCC said it will tackle the issue separately.
The Justice Department also is examining cable marketing practices.
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