Firms Justify Cable Price Hikes : They Attribute High Rates to Better Service and Warn of Setbacks From Regulation

Cable companies these days engender about as much warmth and trust as lawyers and tax collectors. Since the Cable Act of 1984 took effect in 1987 and deregulated cable rates, the $25-billion industry--deserving or not--has been harshly criticized by consumer groups and politicians.

The perception is that cable rates have risen too quickly. And a survey of local cable companies shows that they have increased basic cable rates by an average of 52% since deregulation, nearly twice the rate of inflation.

Nationally, such price increases are helping to drive proposed federal legislation that would allow government control of cable prices. Proponents of the measure charge that cable companies are monopolies, free to bully customers and charge excessive rates. If the legislation passes, they say, cable prices would decline 30% on average.

For its part, the cable industry says it isn’t getting credit for improvements in programming and service, and warns that if the final bill becomes law it would result in higher costs, service setbacks and force more small cable systems to sell out to big companies.

Amid all the hyperbole, it’s hard to discern what is reality. But an informal survey of local cable operators provides some interesting findings:

Among 21 cable systems in the San Fernando and Antelope valleys and Ventura County region, rates for basic monthly service have increased an average of 52% since January, 1987, while nationwide basic cable rates grew more than 60%. In the same period, the national Consumer Price Index rose just 27%.

Basic cable is the standard package of channels offered for one monthly price. Subscribers are charged extra for premium channels such as Home Box Office and Showtime.

Locally the biggest price increases came from systems owned by large companies, including Time Warner Inc., Century Communications Corp. and Jones Intercable Inc., while it was small, independent cable operators--whose costs are spread over fewer subscribers--that often had little or no rate increases.

The biggest local price jump was at Century Communication’s Century Southwest franchise serving areas of Sherman Oaks, Encino, Woodland Hills and Tarzana south of Ventura Boulevard. Century’s basic cable rate has soared 142% since 1987, to $24.20 a month from $10, while the number of basic channels rose to 50 from 28.

William J. Rosendahl, Century Southwest’s vice president of operations, said Century’s rate increase reflects $70 million invested in rebuilding its cable system to provide better reception and more channels, and an expanded customer service department. “Thank God deregulation allowed us to raise our rates,” he said.

Another Century system in Ventura raised its basic cable rate 95% since 1987. Large price increases were also logged during that period by Falcon Cable TV in Agoura Hills (121%), ATC Cablevision in Canyon Country (80%), Jones Intercable in Palmdale/Lancaster (80%), and King Videocable in Sunland/Tujunga (92%).

Like Century, those operators justify their price hikes by pointing to more channels and improved programming. “Yes, prices have gone up, but we doubled channel capacity. Is that something that screams for regulation?” said Jeff Davis, manager of government affairs at Colony Communications Inc., the Providence, R.I., company that owns King Videocable.

But three small, independent cable companies--Avenue Cable TV in Ventura, with 10,818 subscribers; Acton Cable Co., which has just 511 subscribers, and Stevenson Ranch Cable TV near Valencia, with 800 subscribers--have added channels and their rates have remained flat. Pamela George, Avenue’s director of marketing, said that system has avoided rate increases through operating efficiencies and because “we don’t have to answer to public stockholders” who might demand bigger returns.

Some small cable systems also say that larger cable companies raise rates to help pay for their acquisitions of programmers and other cable systems. For instance, Denver-based Tele-Communications Inc., the nation’s biggest cable company, paid $1.9 billion in 1989 for cable systems owned by United Artists Entertainment Inc., including United Artists Cable in the East Valley. TCI also owns stakes in Turner Broadcasting System Inc. and Discovery Communications.

Cable’s cause hasn’t been helped by the widely held view that industry giants use strong-arm tactics to muzzle competition. TCI executives have been accused of bullying cities that question its prices, and self-dealing stock transactions. And Time Warner Inc., which owns ATC Cablevision in Canyon Country, last week settled a lawsuit filed against it by Viacom Inc. that accused Time Warner and its HBO channel of waging a campaign to put Viacom’s Showtime channel out of business.

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Nonetheless, cable operators large and small contend that the legislation now in Congress amounts to overkill and would hurt them badly.

Currently, the role of authorities, such as the Los Angeles Department of Telecommunications, is limited to awarding cable franchises, collecting a portion of franchise fees and enforcing public access rules. But they have no say in price increases. Only 3% of the cable systems in the country compete directly with other cable operators.

Thus, because most cable operators are effectively monopolies, the bills passed by the House and Senate would give local agencies the power to ensure that basic cable rates are “reasonable.”

A House-Senate committee is working on a joint bill that might include other provisions such as one that would give fledgling competitors to cable--such as satellite dish and microwave cable companies--better access to cable programming. It might also force cable companies to pay for broadcast stations they now get for free, a provision being pushed by the powerful broadcast lobby.

President Bush has threatened to veto the bill. But if Bush loses the election, cable could be in for a tougher time under a Bill Clinton presidency. His running mate, Sen. Al Gore, has championed cable reregulation.

Some of the region’s smaller cable operators warn that if regulation thwarts their ability to raise rates, they might be forced to sell out to larger systems. “We’re like a small town mentality out here. We can react quickly to customers’ inquiries,” said Erwin Boychenko, controller at Lost Hills Communications in Calabasas, which has 1,200 subscribers.

But if the industry is reregulated, he said, small systems would face “either a cutback in service or a merger with a larger operator.”

Larger cable companies argue that reregulation would also inhibit service, technology and programming investments. “Back in 1987, you probably saw a lot of reruns of ‘Gilligan’s Island,’ ” said Tom Belcher, regional manager at CVI Cablevision Industries in Chatsworth. Besides adding more channels in recent years, Belcher said, cable companies have also paid more money to run cable networks such as Bravo, Arts & Entertainment and ESPN, which in turn give viewers better quality programs.

What’s more, cable companies say, while basic cable prices have risen, rates for premium cable stations such as HBO have mostly remained flat or even declined. Cable operators say that’s because they no longer need to offset low basic rates with higher prices for premium channels. And despite boosting basic rates, they say, many cable companies are still reporting big losses.

But advocates of regulation suggest that many companies bury their cable profits through accounting methods, investments and acquisitions. They argue that premium cable rates are declining only because demand for those channels is down, and that many channels added to basic packages in recent years provide more advertising revenue for cable operators.

And while programming costs have risen, they concede, those costs remain only a fraction of cable operators’ total expenses.

Doug Wills, spokesman for the National Assn. of Broadcasters, an ardent supporter of the cable regulation bill, complains that a 20% increase in programming costs translates to 65 cents per subscriber on average. “But your local cable operator sees fit to jack up your entire base rate by 20%,” he said.

Backers of the legislation say that the only cable operators who should fear regulation are those that have raised their rates exorbitantly. “It’s the companies that have had the sharpest rate increases that are going to feel the brunt of the change,” said Ken McEldowney, executive director of Consumer Action, a San Francisco consumer advocacy organization that has pushed for government regulation of cable prices.

As the debate rages, another threat to cable companies looms: the possibility that phone companies might one day compete with cable in providing video services. Cable operators worry that phone companies--which have a government-guaranteed rate of return--would use phone profits to subsidize their video operations.

But cable operators’ more immediate worry is the specter of regulation, though that prospect isn’t likely to generate much sympathy from consumers who gripe about lousy service.

Said the NAB’s Wills, “The reason they’re going to get zapped is because they didn’t pick up the phone when they were supposed to and they continue to gouge consumers.”

Cable TV Prices

Since 1987 the cable TV industry has been free to raise its prices. Many consumer groups nationwide have complained that cable companies are taking unfair advantage of their monopolies, and Congress is now considering a bill to reregulate prices.

This table shows the increases in rates for basic cable service in the San Fernando and Antelope valleys and Ventura County areas since 1987.

On average, local basic monthly cable prices climbed 52% from January, 1987 to July, 1992, contrasted with a 27% rise in the Consumer Price Index.

Prices for local cable operators are not directly comparable, however, since they vary widely by the number of channels offered. Also, some basic rates include taxes, franchise fees, converter boxes and remote controls, while others do not. Nonetheless, the table gives an idea of how much local monthly rates have gone up in a deregulated environment.

Cable Customer Number of Operator Area Subscribers ATC Cablevision Canyon Country 20,500 Acton Cable Co. Acton 511 Avenue Cable TV Ventura 10,818 CVI Cablevision West Valley 94,000 Calavision Calabasas 2,000 Capp’s TV Electronics Lake Hughes, 345 Ojai Century Cable TV Sherman Oaks, 40,000 Tarzana, Encino, Woodland Hills Century Cable TV Ventura 15,300 Comcast Cablevision Simi Valley 26,000 Falcon Cable TV Agoura Hills, 7,000 Calabasas Hidden Hills Cable TV Hidden Hills, 800 West Hills Jones Intercable Oxnard 36,000 Jones Intercable Palmdale, 52,700 Lancaster King Videocable Newhall, 26,930 Saugus King Videocable Sunland, 30,000 Tujunga Lost Hills Calabasas 1,200 Communications Mountain Meadows Cable Moorpark 1,500 Sammons Glendale, 70,450 Burbank Stevenson Ranch Cable TV Stevenson Ranch 800 United Artists Cable East Valley 90,000 Ventura Co. Cablevision Ventura County 85,000

Basic Cable Recent Cable Price in Cable Percent Operator January, 1987 Price Increase ATC Cablevision $12.75 $22.90 80% 20 channels 37 channels Acton Cable Co. $18* $18 0 12 channels 25 channels Avenue Cable TV $20.30 $21.30 5% 25 channels 32 channels CVI Cablevision $16 $24.70 54% 40 channels 51 channels Calavision $13.95 $17.55 26% 16 channels 24 channels Capp’s TV Electronics $10.50 $16.80 60% 10 channels 16 channels Century Cable TV $10 $24.20 142% 28 channels 50 channels Century Cable TV $8.95 $17.45 95% 12 channels 20 channels Comcast Cablevision $15.50 $22.75 47% 25 channels 37 channels Falcon Cable TV $12.50 $27.60 121% 20 channels 38 channels Hidden Hills Cable TV $14 $19.15 37% 30 channels 41 channels Jones Intercable $12 $19 58% 12 channels 28 channels Jones Intercable $9-11.10** $20 80% 10-12 channels 31 channels King Videocable $14.95 $20.95 40% 23 channels 28 channels King Videocable $11 $21.10 92% 12 channels 40 channels Lost Hills $14.70 $17.95 22% Communications 28 channels 27 channels Mountain Meadows Cable $17.80 $17.86 0.3% 33 channels 33 channels Sammons $13.50 $19.50 44% 34 channels 40 channels Stevenson Ranch Cable TV $14.95*** $14.95 0 32 channels 37 channels United Artists Cable $14.90 $21.85 47% 67 channels 79 channels Ventura Co. Cablevision $14.00 $19.37 38% 22 channels 30 channels Average 52%

* As of January, 1989

** Rates varied depending on area

*** As of January, 1990

Sources: City of Los Angeles, Los Angeles County, U.S. Bureau of Labor Statistics, local cable operators