Save Access

from: MultiChannel News

Study Says Statewide Franchising Hasn't Driven Prices Down

By Linda Haugsted -- Multichannel News, 5/28/2007

Competition has not led to lower basic cable-rates in Texas, according to a survey conducted by the state's chapter of the National Association of Telecommunications Officers and Advisers.

Rates for a basic tier of cable service that includes off-the-air broadcast TV signals and public, educational and government channels have actually increased over the last two years in markets where there are two or more competitors, according to the study, posted May 22 on the group's Web site.

Denton Hike

The greatest hike, according to the group, is in Denton, Texas. There, Charter Communications has raised its basic rates from $12.78 in 2005 to $19.05 today, in spite of competition from Grande Communications and Verizon Communications. Basic rates by the competitive providers have not declined; they have remained level, according to the survey.

However, the arrival of Verizon as a video competitor has provided a lower-cost alternative for consumers of basic and expanded-basic video services.

According to the survey, the disparity in rates is greatest in Southlake, Texas, where Verizon charges $34.95 for what it terms standard service, compared to $48.99 charged for the same type of service level from Charter, a 27% difference.

But the services are not identical. To describe the tiers, municipal officials used the same terms as the providers. The number and type of video channels in a given level of service may differ from provider to provider, though.

Rates in Texas are closely watched across the country because it was the first state to shift video-franchising responsibility from municipalities in order to hasten the arrival of video competitors. Although executives from Verizon and other firms tell shareholders and analysts the companies will not compete on price in the video marketplace, lower consumer cost is frequently offered as a reason for other states to pass bills similar to SB5, the September 2005 Texas bill that began a national trend toward creating statewide cable-franchise regulation.

NATOA members were prompted to begin tracking rates after a Federal Communications Commission meeting held in Keller, Texas in February 2006, explained Margaret Somereve, assistant to the director of public works for Farmers Branch, Texas, and the NATOA chapter president. Testimony claimed rates were 25 to 45% lower in Texas, due to the passage of SB5, Somereve said.

NATOA members “knew there was no such decrease, but we had to get hard facts together.”

The rates in the Texas study, more than a year in the making since the group was spurred by the local FCC meeting, reflect regular, published video-subscription rates that consumers will pay long-term, NATOA officials said.

Early Glimpse

No conclusions should be made about cable rates in Texas, as competition is still in its infancy, said Waco, Texas-based economist Ray Perryman of The Perryman Group. New providers don't have a permanent effect until they have proven themselves to consumers.

“I see rates coming down [in the future],” he said.

Jenny Parker, a media director for AT&T, said that the study appears to focus solely on rates and fails to capture benefits such as improved customer service or new, innovative features that are a direct result of new entrants to the market.

Cable pricing continues to sort itself out in Texas, added Verizon Western bureau media director Bill Kula. Promotional pricing continues to be a competitive tool; SB5 created an opportunity for consumers in Texas to find alternative providers and as a result, incumbents offer steeply discounted rates, he said.

“It's still a buyer's market,” Kula said.

Texas Two-Step
Basic cable rates in Verizon Communications' initial markets:

Carrollton	Basic rates May 2007	% increase '05 to '07
Comcast/Time Warner	$15.99	6.67%
Verizon	$12.95	0%
Ft. Worth
Charter	$21.09	23.70%
Verizon	$12.95	0%
Irving
Comcast/Time Warner	$12.99	29.64%
Verizon	$12.95	0%
Keller
Charter	$19.05	26.58%
Verizon	$12.95	0%
Southlake
Charter	$19.05	11.73%
Verizon	$12.95	0%
Expanded basic rates:
Carrollton	Standard rate May 2007	% increase 2005-2007
Comcast/Time Warner	$44.50	4.71%
Verizon	$39.95	0%
Fort worth
Charter	$50.99	8.51%
Verizon	$42.99	7.61%
IRViNG
Comcast/Time Warner	$44.50	0%
Verizon	$39.95	0%
Keller
Charter	$48.99	4.26%
Verizon	$39.95	0%
Southlake
Charter	$48.99	4.26%
Verizon	$34.95	0%
Note: Verizon began operations in 2006 in these Texas cities Source: Texas NATOA