McCain: MSOs' Rates 'Gouge' Subscribers


Throwing a little more political fuel into the already roaring fire between cable operators and program suppliers, cable critics used the FCC's latest rate survey to deliver another blast against the industry.

"Cable rates increased an unbelievable 51/2 times faster than inflation," complained Senate Commerce Committee Chairman John McCain (R-Ariz.), pointing to the FCC's finding of an 8.2% increase in cable bills. The industry "has risen to new heights in their apparent willingness and ability to gouge the American consumer," he said, vowing to examine cable pricing in future committee hearings.

Operators fear that Congressional anger will lead to a return to rate regulation. That's a big reason MSOs have been openly attacking cable networks over increasing license fees, particularly the ultra-pricey ESPN.

"It seems the cable companies always get the blame, while the fault is not necessarily ours," said Rocco Commisso, CEO of Mediacom.

The FCC's yearly survey found that average monthly rate for a cable subscription increased 8.2%, from $37.06 to $40.11, over the 12 months ended July 1, 2002. That's north of the average 7.1% annual increase of the past five years. The average price of a broadcast-basic subscription rose 3.7%, from $13.93 to $14.40.

The data is a year old. Even so, the survey's findings are markedly higher than what cable operators say their increases have been during the same period.

Operators' primary defense is that they offer more channels every year. On average, basic packages grew by three or four channels to around 63 channels last year. The cable industry's primary trade group argues that, when viewed on a cost-per-channel basis, rates rose just 1.2%, or slightly less than the inflation rate.

"Cable customers are enjoying greater choice and quality in basic channels plus additional optional digital-TV services," said Rob Stoddard, spokesman for the National Cable & Telecommunications Association.

Operators said that the license fees for networks they already carry accounted for 50% of their basic-rate hikes. ESPN is the poster child, costing $2-plus per sub monthly and increasing 20% each year. But other basic networks boost rates 10% or more per year.

"We raised our basic rates 5% last year," said a senior executive at one cable operator. "My programming costs increased 14%. But we'd lose more subscribers to DBS if we raised rates enough to cover the cost."

This fall, the Government Accounting Office is expected to study whether cable rates are actually out of control or appropriately reflect the rising cost of programming.

Consumers Union used the FCC report as an opportunity to reiterate its call for à la carte pricing that would allow customers to keep their bills down.

NCTA and large MSOs oppose à la carte pricing, arguing that sports nets like ESPN would become too expensive if the costs aren't spread among all cable subscribers.

The FCC report came under fire from the agency's two Democratic commissioners. Michael Copps and Jonathan Adelstein complained, the commission did not check the veracity of data supplied by cable operators. "The operators attributed over 60% of their rate increases to programming costs," Copps said, "yet the commission does not conduct even minimal audits to assure the accuracy of these data."