Get Ready: Cable Rates Are Rising, Again

Hikes are running 5%-7%; some Comcast customers will escape them

It's time for TV fans to get a little something from their cable companies in the mail: a rate hike. Some subscribers have already been notified of 5%-7% increases in their basic-cable bills come January. However, some customers of Comcast properties will find they're not getting any increase at all.

A wave of increases will start this week as systems give a minimum of 30-day advance notice to customers and franchise officials. Many systems raise prices throughout the year, but the industry generally tends to cluster hikes in January and February.

Comcast is the biggest indicator: Because of its recent takeover of AT&T Broadband, the Philadelphia-based MSO serves almost a third of all cable subscribers. The company disclosed last week that, on average, its systems will boost rates 5.7%.

Cablevision Systems told customers in metro New York that their bill will rise 5.3% on average. Other major companies either wouldn't disclose their plans or—in the case of one major MSO—were still scrambling to finalize them.

But Cox recently raised rates in its Baton Rouge, La., System by 7% and jacked high-speed Internet service 14%. In Slidell, La., Charter Communications is raising rates 7.2%. Time Warner Cable is taking rates up 7% at its North Carolina properties.

That's generally better than the 9%-15% annual hikes common in the industry in the early 1990s. Then rate regulation and competition from DBS services slammed MSOs.

Although deregulation is here, EchoStar and DirecTV are an ever-present alternative for cable customers annoyed by the rates.

"If cable rates didn't go up this year, I would also expect gravity to be repealed," said Barry Orton, a University of Wisconsin professor who consults to many Midwest cities and towns on cable-franchise issues.

Cable operators counter that the increases are driven by a steady climb in the license fees they pay to networks. Cox claims that their costs are rising 15% this year, although Morgan Stanley media analyst Richard Bilotti said that, across the industry, basic-programming costs rise about 7%-9% a year. (Programming costs eat up about 25% of a cable system's revenues.)

Sen. John McCain (R-Ariz.) wants to make cable rates a high priority when he retakes the chairmanship of the Senate Commerce Committee, but it's not clear that there's enough political momentum around to reinstate actual price caps.

Comcast was the most forthcoming last week. Seattle and Boston will be above the average: Seattle up 7%, Boston almost 8%. Nashville increased 7% last month.

The highest rate increases will go to systems that have recently been rebuilt or are otherwise adding services to basic tiers, said Comcast Executive Vice President of Marketing David Watson. "It depends on the status of the rebuild," he said. "In Boston, we're able to give customers a little bit more."

However, some big markets will have no increase at all. Jacksonville, Fla., and Atlanta, for example, are problem children from the AT&T portfolio, now part of Comcast. They get a pass because of severe customer-service problems.

Jacksonville city officials have been enraged and are moving to revoke the franchise, contending that AT&T reneged on promises about rebuilding the operation. Comcast now inherits that dispute and, hence, is freezing rates and converting the name of the system to Comcast months earlier than most other AT&T systems will change their local branding.