Wednesday, January 7, 2015

Raising Consumer Rates with Sneaky Unbundling

           With talk about how a la carte pricing of video can reduce consumer costs, I offer a rebuttal.  First video consumers should understand that if they select the most expensive networks, such as ESPN (at about $6.04 a month), they may not see a significantly lower out of pocket cost despite the sizeable reduction in available channels.

            But there is a more important factor that most consumers and the media do not understand.  Ventures like Comcast can reduce or eliminate their financial harm in subscriber “cord shaving” by increasing billing line items and by raising the cost of a “naked” broadband subscription having no additional video service.

            Despite having to be on its best behavior as the FCC considers the proposal to acquire Time Warner, Comcast inserted a new line item ostensibly to help recover its cost of retransmitting broadcast television channels.  Of course basic cable rates already cover this costs, because broadcast signals constitute the vast majority of the available channels in this tier.  In my market Comcast just DOUBLED the rate even though it surely did not incur a doubling of its costs.

            Comcast also increases the broadband subscription price when customers don’t also take a video service.
 
            By inserting various billing line items, Comcast and other cable companies want consumers to think the costs are a mere pass through.  Many are not a tax or government imposed fee and in a competitive marketplace a venture might have to absorb such costs.

            The most egregious example of billing line item abuse comes from the electric utility serving central Pennsylvania.  West Penn Power charges me for a smart meter I do not yet have.  But the most obnoxious charge is a “Consumer Education Charge” which the company defines as “a monthly charge for ongoing consumer education concerning your bill, shopping for electricity, energy efficiency and conservation.” It’s annual $6 tuition charge for something they probably don’t want me to know about in the first place.  So why not charge consumer for having to tell them about electricity conservation. 

          Clever!