AT & T Story Stirs Tempest Over Hikes

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AT & T Broadband came under fire last week after a published report in a national newspaper cited expanded-basic rate increases as high as 21 percent, in apparent contrast to an industrywide effort to keep rate increases low.

But AT & T Broadband and other MSOs restated that on the whole, their actual or planned increases are in line with the National Cable Television Association's unofficial cap of 5 percent to 6 percent per year.

AT & T Broadband-the No. 2 cable company behind Time Warner Inc. and on the way to the top spot after it buys MediaOne Group Inc.-did raise its charge for expanded basic by 21 percent in parts of Salt Lake City.

But that increase, in February, reflected a system upgrade that raised channel capacity from 34 channels to 62 and that only affected about 25 percent of subscribers in the city.

"If you're paying X for a known something, and the next day, you're paying X plus 1 for the same thing, that's a rate increase," AT & T Broadband vice president of external communications Steve Lang said. "If you're paying X plus 1 for something that's completely different, that's not a rate increase-that's a new package."

Other major cities where AT & T is proposing expanded-basic rate hikes include Seattle (9 percent), San Francisco (5.6 percent), Miami (6.2 percent) Chicago (9.5 percent) and parts of Denver (8.9 percent).

AT & T said the increases in Chicago, Denver and Seattle were also for systems that were recently rebuilt, and most increases at most systems are in the mid-6 percent range.

There are apparent exceptions, though. According to published reports, AT & T customers in Dubuque County, Pa., will see expanded-basic rates rise 12 percent, or $3.37 per month, to $31.55, with no increase in channel capacity.

Time Warner said last week that it has kept rate increases in the 5 percent range, and Comcast Corp., the third-largest MSO, said it will raise rates an average of 4 percent to 5 percent this year.

Comcast said its increases on a percentage basis declined this year from 5 percent to 6 percent in 1999 because it has had success selling additional higher-margin digital-cable tiers.

Reports of high rate increases, accompanied by complaints from consumer groups, reinforce negative perceptions of cable and can hurt MSOs in the marketplace and in Washington, industry executives noted last week.

In the marketplace, direct-broadcast satellite competitors can exploit the reports in marketing efforts. That didn't appear to happen last week, possibly in part because both DirecTV Inc. and EchoStar Communications Corp. plan to push through programming-charge increases in May.

In Washington, the reports can lead to calls for reregulation or influence regulators reviewing major mergers, such as AT & T's MediaOne deal or Time Warner's merger with America Online Inc., executives said.

"This was not handled well from a public-relations standpoint," one industry executive said of the April 10 article in USA Today. "There are ways to do this that put the choice on the consumer, rather than just mandating it."

But one MSO executive who asked not to be named said AT & T Broadband was in a tough situation because some of the systems it inherited from Tele-Communications Inc. badly needed upgrades in order to accommodate such AT & T Broadband priorities as telephony, high-speed-data carriage and digital video.

"When you go from a 330-megahertz system to an 860-MHz system, the quality of the product is going from night to day," the executive noted. "You can't afford to sit on a 330-MHz system. When you load up an 80-channel analog service and a 100-channel digital service, your programming costs increase exponentially."

The brief controversy probably would not have an impact on the MediaOne review, the executive added.

Cable operators have been repeatedly warned to keep rate increases low ever since federal legislation that regulated rates expired March 31, 1999. At last year's Western Show, NCTA president Robert Sachs urged cable operators to keep rate increases in check despite increased programming costs.

NCTA spokesman David Beckwith said that for the most part, cable operators are keeping rate increases in the 5 percent to 6 percent range. In cases where increases are higher, customers are usually getting substantially better service.

"The cable industry since the Telecommunications Act [of 1996] has spent $36 billion upgrading its infrastructure," Beckwith said. "[Cable] is an exceptional value."

Sanford C. Bernstein & Co. analyst Tom Wolzien said he was expecting to see modest rate increases from cable operators this year. "On the other hand, if you are adding a ton of new stuff, then we'll have to see what the marketplace is willing to bear," he said.

Ted Hearn contributed to this story.

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