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Wall Street Journal Highlights Consumer Benefits of Competition in Communications SectorWith Verizon

Recently, we have been sharing information with you about the benefits of competition in the communications sector. The following Wall Street Journal article shows how competition is working for consumers all over the country – lowering cable television prices and bringing consumers new choices in innovative video services. While the Pennsylvania legislature did not pass a cable and video franchising bill in its last session, it is an issue that is gaining attention across the country. Pennsylvanians surely would benefit from more choices for their cable and video services, and a more streamlined, statewide franchising process can help make it possible.

We look forward to even more robust competition in 2007 and will continue to advocate for a policy environment that encourages competition, and brings choice and value to consumers.

Cable Rate Increases Are Smallest in Years --- Heightened Competition Offers Consumers Chance To Play One Provider off Another; When to Bundle

By: Sarmad Ali
The Wall Street Journal
December 07, 2006

For years consumers have enjoyed falling phone rates thanks to increasing competition in the telecommunications business. Now competition is beginning to have a similar effect on how much households pay for television service.

With telephone companies pushing into the TV business, rate increases planned by cable operators for 2007 are going to be the most moderate in years. Next year, for example, Comcast Corp., the country's largest cable operator by number of customers, will raise the cost of its most popular 75-channel analog package an average 4.5% -- from about $41 a month to $43 -- its lowest increase in more than a decade.

Other companies are planning minimal or even no price increases. While Time Warner Cable, the cable unit of Time Warner Inc., is planning increases of the standard cable package in some markets, in Dallas and Los Angeles the rate will stay the same. Cablevision Systems Corp., an operator serving the New York City area, isn't planning to raise its standard rate at all.

Meantime, consumers also are benefiting from the move by cable operators to offer new services, like phone and high-speed Internet, and bundle them with TV service at discounted rates. Many of the leading cable operators, including Comcast, Time Warner and Cablevision, have introductory bundle offers of all three products for just $100 a month for the first year. Sold separately they would cost as much as $125.

Consumers who are used to playing phone companies against each other to get better rates now have their eyes set on their TV bills. Six months ago, Denise Harrison, a 39-year-old house cleaner in West Chester, Pa., began buying all three products from Comcast partly for the price and partly because she likes having only one bill for three services. But she says she would likely switch to Verizon Communications Inc., if the local telephone provider made a better offer. "It's all about saving money," she says.

The idea of saving money from a cable company may come as a shock to many consumers who remember how operators used to levy giant increases during the days they enjoyed near monopolies in the pay-TV business. Cable rates increased 93% between 1995 and 2005, according to the Federal Communications Commission.

But competition has slowly moderated this behavior. Cable companies got their first taste of it from satellite TV operators, such as EchoStar Communications Corp. and DirecTV Group Inc., which lured away millions of cable customers with cheaper prices and more channels. Kagan Research, a division of JupiterKagan Inc., estimates that there will be 65.4 million cable subscribers at the end of this year compared with 29 million satellite subscribers.

Cable operators responded to this by beginning to ease up on boosting prices. Indeed last year, average satellite prices rose 8.1% compared to cable's 5.1%, according to Kagan. Next year satellite operators also may put on the brakes. For example, EchoStar's Dish Network's basic package that includes more than 80 channels costs $29.99 a month now and will remain at that price next year, a company representative says.

Pressure on cable companies to raise TV rates also has eased as operators have opened up new revenue streams from new products like phone, high-speed Internet, digital cable, high-definition television and digital video recorders.

At the same time, phone companies are beginning to offer a similar palette of services, sometimes for less money than the local cable operator is charging. More than 100,000 households in eight states are subscribing to Verizon's new TV service, which includes 200 channels of TV and music. Verizon recently announced it was increasing the price of that offer to $42.99 monthly from $39.95, but existing customers will continue paying the lower price.

AT&T Inc. began offering its "U-verse" TV service earlier this year in Texas and says it is planning to add 13 new markets before the end of this year. The company is charging $44 a month for one of its packages, which includes 100 channels. Both AT&T and Verizon also have cut deals with satellite-TV providers to offer TV in areas not reached by the phone companies' television services.

AT&T and Verizon have ambitious plans to expand their own TV services. But these plans will depend on how fast the phone companies can get permission from local governments to launch in their areas. Phone companies have been lobbying to pass federal and state legislation passed to expedite this process, arguing that it would lead to even more price competition. Cable companies have been resisting these efforts, claiming that phone companies are seeking special privileges that cable operators don't get.

Increases in cable rates vary among regions. Comcast customers in Savannah, Ga., for example, will pay $49.99 next year for the standard analog package of about 75 channels, up from $48.50, a 3.1% increase. Customers in Washington state, however, will pay $48.27 per month, up 6.8% from $45.18.

But cable companies that are facing the early waves of phone-company competition are showing the most restraint in raising prices. Cablevision, for example, which is facing threats from Verizon in much of its turf, has some of the lowest price increases in the business. A Cablevision spokesman also credited the company's "surge" in revenue from its phone and Internet businesses for its low price increases.

Also, cable operators that are raising analog rates are showing more restraint in increasing the price of their other products, especially those like high-speed Internet service that are facing stiff competition from phone companies. Comcast says its average subscriber will pay 3.1% more next year because more customers are taking multiple products, down from a 4.3% increase this year.

Time Warner subscribers in Milwaukee who take just the standard 80-channel analog package will see a 4.4% increase in their bill next year to $48.15. But over one-third of Milwaukee's cable subscribers won't see any change in their bill because they're taking some form of bundled package, a company spokesman says.

Most of these cable rate increases are still well above the current overall rate of inflation. But cable operators say they have little choice because popular networks like ESPN have been sharply raising the costs of their programming. Cox Communications Inc., for example, said its programming costs have risen an average of 10% every year in the past three years. "We work hard to keep our prices reasonable, but simply must pass at least a portion of our costs on to our subscribers," a spokesman for the company says.

Meanwhile, many cable subscribers who took advantage of the bundle prices offered by many operators may suffer sticker shock when the introductory period expires. For example, Time Warner Cable charges $99 for the bundle for the first year. When it elapses the price rises to $115 to $125 depending on the location. But even at those higher prices, the three products often cost slightly less in a bundle than what they would cost individually.

Consumers also might see other reasons to stick with the package after the year elapses. "It's easier to deal with one company that provides all three services as opposed to having three companies do it," says Richard Myers, 38, a researcher at a New York online service who is paying the higher price for the Time Warner Cable bundle plan.