WASHINGTON — Cablers could be asking for trouble from Capitol Hill.
Their rates rose 8.2% in the last year, the Federal Communications Commission reported Tuesday in its annual cable-price survey.
The dramatic increase compares with an inflation rate of 1.5% over the same period, even though it was not adjusted for inflation or quality improvements made by cable companies. The increase marks the sixth consecutive year that the rate hikes have averaged more than 7% .
According to the FCC report, the combined average monthly rate for basic, expanded basic and equipment increased from $37.06 to $40.11, for the 12-month period ending July 1, 2002, compared with a five-year average annual increase of 7.1% from July 1997 to July 2002.
Reacting to the news, Sen. John McCain (R-Ariz.), chairman of the powerful Senate Commerce Committee, decried the increase, noting that rates have shot up an “unbelievable” five and a half times faster than inflation.
“The cable industry has risen to new heights in their apparent willingness and ability to gouge the American consumer,” he said in a statement, adding that the rising rates came during a time when the economy continued to sputter. “These increases defy logic. (The committee) will continue to focus on this issue in the months to come.”
Cablers defended the price hike, arguing that greater choice and, quality and optional digital TV services are giving consumers more bang for their bucks.
“Although cable prices have increased, cable consumers are also enjoying increased value for their entertainment dollar,” said Rob Stoddard, spokesman for the National Cable & Telecommunications Assn. “Compared with taking a family of four to a single movie, concert or professional sports event, a month of basic cable remains a superior entertainment value.”
Stoddard maintained that prices reflect a variety of costs facing cablers. During the same period as the FCC report, he said operators invested $15 billion in system upgrades and incurred “greater than inflationary” increases in personnel and programming.
Others believe license fees are a serious factor driving rates higher. Mike Egan, a longtime cable consultant and partner in Renaissance Media, said cablers pay an average of $15 a month in license fees to the basic cable networks, which went up 12% this year.
These extra costs leave little funds, he said, for capital improvements, hiring employees and paying existing employees raises, as well as buying new equipment like digital converter boxes
“That’s why cable operators have begun to press so hard to get revenue from high-speed access to the Internet, which is a holy grail that can add as much as $24 a month for each new Internet-modem subscriber,” Egan said.
By contrast, pay-per-view movies and video-on-demand programming reaps little income. For every $4 that a subscriber pays for a PPV movie, Egan said, Hollywood and the distributor in demand keeps 65%.
“So the operator would have to sell a ton of movies to make an impact on the bottom line,” he said.
Even so, at least one industry player believes cablers should not pass increased costs along to consumers.
“It is unfair to ask cable TV viewers to pay for the programmer’s inability to better manage their costs,” said Mike Pandzik, head of the National Cable TV Cooperative, which represents more than 1,000 indie cablers nationwide.
Instead of consumers paying the higher prices, Pandzik said programming costs need to be reduced significantly.
“What used to be a relatively gentlemanly, behind-closed-doors disagreement between cable operators and cable programming networks over wholesale rate cards has now spilled out into the streets.”
And Pandzik doesn’t predict the industry frictions will subside any time soon.
“(This is a) knife fight headed to a gunfight,” he remarked.
(John Dempsey in New York contributed to this report.)