With two planned megamergers threatening to further reduce competition in the pay-TV industry, consumer advocates have been looking for a way to shoot down the deals. A new report on industry pricing may have given them some needed ammunition.
The Federal Communications Commission late last week quietly released a report documenting that -- yet again -- the average pay-TV bill grew faster than inflation in 2012. In addition, the FCC report noted that cable-related equipment prices, such as monthly fees for DVRs, also outpaced inflation.
"Consumers continue to see price hikes and lousy service," said Delara Derakhshani, policy counsel at Consumers Union, the public advocacy group that publishes Consumer Reports.
But pay-TV operators have argued that rising content costs -- the amounts they pay companies such as Disney to carry channels -- largely explain the rate hikes. And as noted in the FCC report, the pay-TV operators have consistently added channels to their offerings at a faster pace than their prices have risen. For example, expanded basic customers had access to about 160 channels last year, up from about 150 the year before, according to the report.
The FCC report on pay-TV bills, which the agency is required to issue annually under the 1992 Cable Act, comes as federal regulators are about to weigh the merits of two mergers that would reshape the pay-TV industry. Over the weekend, AT&T announced plans to buy DirecTV, the largest satellite television company, in a $67 billion deal that would make the combined entity the nation's largest pay TV company. Earlier this year, Comcast, the largest cable company, announced plans to acquire Time Warner Cable, the No. 2 player, for $45 billion.
Both deals would require FCC approval. In reviewing such mergers, the commission is charged with determining whether they would serve "the public interest." That makes the latest fee report important, because it gives consumer advocates evidence to bolster their argument that the last thing the industry needs is less competition.
The report comes from a survey of pay-TV operators, including traditional cable companies, satellite TV operators, telephone companies such as AT&T that offer pay-TV services and companies such as RCN that offer competing cable services in some markets.
According to the survey, the average monthly cost of basic cable, the most popular service level, jumped 6.5 percent in 2012 to $22.63. The cost of expanded basic service, which typically includes many of the most popular cable networks, rose 5.1 percent to $64.41 a month.
Meanwhile, basic cable consumers paid an average of $7.55 a month for equipment such as set-top boxes and DVRs in 2012, up 4.4 percent from the previous year. Expanded basic customers saw their equipment charge rise 4.2 percent to $7.70.
By contrast, inflation in 2012, which is the most recent for which the FCC has compiled data, was just 1.6 percent.
On its face, competition didn't appear to help keep prices in check. In 2012, customers of cable companies in markets the FCC dubbed "competitive" paid $65.64 a month for expanded basic cable service, up 6 percent from 2011. Expanded basic subscribers whose only real choice was the local cable company paid $63.03 a month, up 4.6 percent from the year before.
Consumer advocates say that's an argument for greater competition -- or more regulatory scrutiny. Part of the reason cable rates rose faster in competitive markets is that cable companies in those markets aren't subject to price caps and can charge what they think the market will bear.
Pay-TV service prices have consistently grown faster than inflation since the FCC began issuing these reports nearly 20 years ago. Costs of basic, expanded basic and the next-most-popular tier of service have risen at average annual clips of 4.3 percent, 6.1 percent and 5.1 percent, respectively. Inflation has grown at an average annual pace of just 2.4 percent over that period.
Representatives for Comcast were not available for comment. Representatives of AT&T, Dish Network and DirecTV did not respond to requests for comment.
However, their previous explanations for the price hikes and moves haven't mollified many customers. Pay-TV operators as a whole lost about 105,000 subscribers last year.
Robin Wolaner, a 60-year-old San Francisco resident, hasn't cut the cord, but said she feels foolish paying around $200 each month to Comcast.
"I feel bad about it every time I write a check," said Wolaner, CEO of Vittana, a nonprofit that provides student loans in the developing world. "I never have time to watch half of what I record."
Contact Troy Wolverton at 408-840-4285. Follow him at Twitter.com/troywolv.
A new report from the Federal Communications Commission showed that pay-TV prices grew at a rate faster than inflation in 2012 as part of a long-running trend.
Basic cable jumped: The average monthly price of basic service rose 6.5 percent to $22.63.
So did expanded basic: The price for expanded service reached $64.41, up 5.1 percent.
And so did premium services: The third-most-popular tier of service rose in price to $77.05, up 4.2 percent.
All rose much faster than inflation: The underlying inflation rate in 2012 was just 1.6 percent.
That was par for the course: Over the past 19 years, the prices of basic, expanded basic and the next-most-popular service rose an average of 4.3 percent, 6.1 percent and 5.1 percent, respectively, each year. Inflation during that period averaged just 2.4 percent a year.
Federal Communications Commission