Strung Up With Cable TV

[Dave Farber <dave () FARBER NET>]

Delivered-To: dfarber+ () ux13 sp cs cmu edu
Date: Mon, 23 Feb 2004 12:02:13 -0800
From: Ray Everett-Church <ray () eprivacygroup com>
Subject: FW: Strung Up With Cable TV
To: dave () farber net

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Dave (for IP):

A very intersting inquiry. But that's par for the course with Rob Pegoraro... a
great tech writer.

-Ray

-----Original Message-----

Strung Up With Cable TV
by Rob Pegoraro
Washington Post

   When I awoke more than a week ago to hear that Comcast, the cable giant,
proposed to buy Walt Disney Co., I couldn't help wondering: If this company
could find enough change under the sofa to buy one of the biggest names in
Hollywood, haven't I been paying too much for cable?

 My own financial records say as much: Since 1997, my monthly bill for 
expanded
basic service plus HBO has gone from $44 to $70, including taxes. That's in 
line
with the 40 percent increase in cable rates from 1997 to 2002 that the General
Accounting Office reported last fall, a price hike "well in excess" of the 12
percent inflation rate over that period. Why is this service not following the
better-faster-cheaper path of the rest of the telecom universe?

 My cell phone costs less than it did in 2000 and now works across the country
without roaming charges while providing me with free long-distance calling. My
Internet-access costs have gone up, by $10 a month -- but in return for
upgrading from a dial-up account on a second phone line to a DSL connection,
I've seen an 11-fold increase in speed.

 Satellite-TV customers have benefited from this trend too. DirecTV reports
that, since it began carrying local broadcast channels in the Washington 
area in
late 1999, the price of its equivalent of expanded basic plus HBO has 
dropped $2
a month, to $52.

 Meanwhile, cable prices have remorselessly ratcheted up every year, as if 
they
were college tuition rates, health care premiums or property taxes. This has
been good for Comcast, which netted a 38 percent "operating cash flow" margin
last year on its cable services. But what about the rest of us? Why do cable
rates stay so high?

 Brian Dietz, the National Cable and Telecommunications Association's senior
director for communications, pointed to three factors (after expressing 
surprise
at the size of my cable bill): programming, customer support and system
upgrades.

 The price of content has definitely gotten out of whack, up by as much as 34
percent from 1999 to 2002, the GAO found. Sports broadcasts increased the most,
up to 59 percent. (One reason, the Federal Communications Commission noted in a
study three weeks ago, is "rising players' salaries" -- yes, part of this is
George Steinbrenner's fault.)

 But cable and satellite operators are in the same boat: About a third of
Comcast's operating costs last year went into programming, but DirecTV had to
spend still more, about 40 percent.

 Another reason is escalating customer-support expenses, as cable 
operators have
added 24-hour, toll-free help desks. But this isn't unique to cable either.

 The best explanation lies in cable operators' system upgrades and rebuilds --
$85 billion worth since 1996, Dietz said. This has allowed them to offer such
add-on services as digital cable, video on demand, high-definition TV, Internet
access and even telephone service.

 As a result, cable has become a tough rival to Verizon in Internet access; it
also has rolled out much better video services. But is it fair to pass the 
costs
of these extras on to people who aren't using them? Verizon, which lives in a
stricter regulatory environment, couldn't do this; jacking up phone rates to
cover upgrades to its DSL or wireless operations would be illegal.

 Comcast's corporate communications director, Tim Fitzpatrick, said the 
ability
to upgrade to these extra services is itself of value and worth paying extra
for: "It's choice, convenience and control," he said Friday.

 Focus on that first factor when you decide what to do about cable's cost. If
you can get DSL or another non-cable broadband Internet service and can receive
a satellite signal, you don't need cable. So get rid of it. Satellite does the
same job as cable TV for a lot less, which is why it has gobbled up about 22
percent of the so-called multichannel video market since 1993.

 If your home is like mine, without the clear view of the southern sky needed
for satellite TV, you're still not totally out of luck. The biggest secret in
the cable business is that you can purchase just basic cable, then add HBO,
Showtime or another pay channel, sparing yourself the $30-and-up cost of
expanded basic service.

 Last, you can always retreat to over-the-air TV. Or not watch TV at all.

 Neither Comcast nor the cable industry as a whole promises any quick relief
from this inflationary spiral. But there are two steps these companies could
take.

 The easy one would be to give customers more than three or four tiers of
programming to choose from, instead of marketing the myth that we should buy TV
in 50-channel blocks. (Who has time to watch them all?)

 The harder one would be to use their capacity more efficiently by finally
retiring analog cable, passing the savings to customers. While digital cable is
sold as an extra, each basic-tier channel continues to go out in analog form,
sucking up eight or nine times the bandwidth of a digitally compressed channel.
Only the satellite services and the few built-from-scratch cable systems, such
as Starpower, are all-digital -- and, not surprisingly, cheaper.

 For an established cable system to go fully digital, all its customers would
need digital converter boxes. But even with that hassle, "you could still do
basic cable digitally for much less," said Dick Green, chief executive of
CableLabs, the industry's Louisville, Colo.-based research and development 
body.


 Then there's plan C for the cable industry: Keep raising prices as if its
monopoly still endured, and watch the remaining customers flee to 
satellite, DVD
rentals, the Internet and technologies not even invented yet.

 Living with technology, or trying to? E-mail Rob Pegoraro at rob () twp com.

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______________________________________________________________________
From: ray () eprivacygroup com
To:   dave () farber net
Date: 23 Feb 2004

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