New reports are coming in from a variety of US newspapers that the local Comcast cable operator is putting up prices yet again, by an average of 4% across all the parts of the US where competition is less than rife. The increases will apply in a complex formula that no-one has worked out yet, but it will apply to both Pay TV charges and broadband in one way or another.
It is never clearer than in the US that competition drives consumer pricing, it’s such a pure market. If no-one else has cable or other pay TV on offer, consumers can scream until their lungs burst, but prices will go up not down. Speaking to a US consumer they say that’s just life. In Europe if a company behaved like that, there would be a hue and cry. House prices would go down in the area, people would write to their government representatives and a general sense of unfairness would ensue. But one of the things that worries us the most is just how unsympathetic consumers would be if Comcast was on the ropes.
With the roles reversed it would become a case of ‘Where were you in the recession, when I lost my job and needed a break on cable pricing?’ and consumers would just leave in droves. What happens is that there develops a burning resentment over the prices charged, even if a consumer can do nothing about it. Once they cut the cord, they will never go back. At least not to Comcast.
And of course we are getting to that point in entertainment history when such decisions are becoming possible and we start to see the wisdom of the federal broadband initiatives which will see broadband more widely available, in most cases, from more than one provider, just as the era of Over The Top video arrives in the US.
If there is only cable broadband available at your home, and you cancel your cable, you get a punitive rate hike for the broadband, which takes away any advantage you may get by switching to say Hulu Plus and Netflix.
Cable is still the cheapest form of broadband in the US and anywhere, in terms of dollars per megabit per second delivered. Well maybe that’s not quite true. It is the cheapest in terms of dollars per megabit per second advertised, which is not quite the same.
All we can say about these price increases is that Comcast feels little or no threat from OTT services because of the low number of places in the US where decent rival broadband is on offer. For pay TV service, there are two perfectly good satellite providers and they are doing more than their fair share of new business each quarter, but without a broadband line, you can’t switch to OTT services, and until there is significantly more build out in the US of fiber at the Telcos or until there are widespread LTE networks from cellular operators, there can be no 10 mbps and above broadband lines that compete end to end with cable. So expect more price hikes.
However it is perhaps overly relaxed on Comcast’s part that it has put through increases, at a time when it is coming under scrutiny from the FCC in the form of a public hearing over its proposed merger with NBC Universal. This deal will give it some control over Hulu, something which threatens to become a serious rival to its own business.
If ever there was evidence that one company holds too much power in the market it’s when a company opts to pay for its capex requirements through price increases, put through regardless of intense public scrutiny or consumer outcry.
For years cable has had the support of the US government in order to provide a capable competitor to the major fixed line operators. We are approaching a stage now where the boot is on the other foot, and it needs to be kept in check.
If you needed more evidence, the manner in which Comcast invests in infrastructure, but consistently fails to invest in support and customer care would do it. In May the American Customer satisfaction index looked at pay TV services and concluded that Verizon FiOS and AT&T U-verse came out on top with the highest scores of any services for ten years. That’s because it is the first time serious competition has been available in that market.
FiOS and U-verse had scores of 73 and 72, respectively while Dish leapt to 71 just ahead of rival DirecTV at 68. Both Comcast and Time Warner were down at 61, with Cox Cable at the front of cable with a score of 67.
All of which shows that cable companies have little incentive to provide quality services or value for money.
We’ve seen great industries fall before, but when the cable companies begin to react, we suspect it will be too little, too late and they will slide into oblivion, as the Telcos almost did with cable’s arrival.