TCIs 5% SOLUTION Pending Rate Hikes Below Other MSOs

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Tele-Communications Inc.'s plan for boosting cable rates byup to 5.5 percent in June drew mixed reaction last week, even as the MSO toutedfourth-quarter subscriber gains beyond what it had earlier disclosed.

Analysts said media coverage of ESPN's recent $9.2billion contract with the National Football League may convince skeptics that the MSO isresponding to higher sports-programming costs.

However, consumer groups and municipal authoritiescriticized the expected rate hikes for exceeding the rate of inflation, while lawmakers inWashington, D.C., hinted broadly that more competition is needed for the nation'scable operators.

On a related note, TCI reported last week that it added155,000 customers through internal growth in the fourth quarter of 1997, reversing a trendthat had seen the MSO losing subscribers during the early months of the year.

The MSO said December marked the fourth consecutive monthof internal growth, and it was second only to November in terms of the number ofsubscribers added in a single month.

The company has been steadily revising its growth estimatesupward since it first reported its fourth-quarter estimates in November.

The company will release 1997 fourth-quarter results March23.

On the rate increase, TCI president and chief operatingofficer Leo. J. Hindery Jr. told the Denver Post last week that the hikes will beamong 'the lowest rate increases in the industry this year.'

Hindery did not return calls seeking comment from MultichannelNews.

TCI officials called the remarks a reiteration of commentsthat Hindery made at December's Western Show, where he vowed that any rate hikeswould be held to single digits.

A 5 percent rate hike will add about $1.50 per month to a$30 cable bill, but it will still be below the 7 percent jump in TCI's rates lastyear and dramatically lower than the 13 percent hike that the company pushed through in1996. Moreover, it figures to be well below a national MSO average of between 8 percentand 9 percent.

'Some companies that I'm aware of may be lookingat as high as 12 percent,' said TCI spokeswoman LaRae Marsik. 'TCI is committedto being nowhere close to that.'

Marsik said the increases will be spread over theMSO's basic and expanded tiers. Decisions on increases at individual systems will bemade in the coming weeks, and they will be reported to subscribers and local franchisingauthorities before TCI announces them, she said.

TCI has already implemented rate increases averaging 5percent at its unregulated systems, which make up approximately 29 percent of its 14.2million subscribers.

The company's rate increases will be well below pricehikes announced by other MSOs this year. MediaOne subscribers were hit with increases ofup to 9 percent Jan. 1, while Cablevision Systems Corp. customers are reportedly paying anaverage of 6.2 percent more for their cable service.

In the Post interview, Hindery blamed the priceincreases on escalating programming costs.

'The cable portion for pro football recently went up133 percent,' Hindery said. 'When somebody wants to control the cost of monopolysports in this country, I'll be happy to show you what the effect is, which is moretemperate rates.'

ESPN responded with a statement in which it said the neteffect on TCI for distributing the network's programming 'will be a matter ofpennies' for an entire season of NFL games.

Aware of the political heat swirling around cable rates,Hindery offered to open TCI's books to congressional leaders that were scrutinizingthe industry's pricing practices.

Ted Henderson, an analyst with Denver-based Janco Partners,predicted that high-profile sports-programming contracts will make rate increases aneasier sell this time around.

'The visibility of that NFL contract, which is ajaw-dropping number, makes it easier to make subscribers understand that 5 percent is notremotely onerous, and that it probably only gets them to a break-even point,' hesaid.

Henderson predicted that Wall Street will react positivelyto TCI's decision to hold the line on prices, reasoning that it's better thanacting 'imprudently' and risking a political backlash.

Nevertheless, news of TCI's planned rate hikes did notsit well in Washington, where some lawmakers have raised the possibility of extending thesunset on cable regulation, or even pushing for a freeze on cable rates.

Sen. John McCain (R-Ariz.), an acknowledged opponent of arate freeze, was prompted to refer to Federal Communications Commission rate regulationsas 'toothless.'

'If this continues, we really have two choices: We cantry to reregulate the industry, or we can provide competition,' McCain said.

Sen. Slade Gorton (R-Wash.) hinted that competition may bethe only answer.

'It doesn't seem like the TCIs of this world arereally feeling an awful lot of pain ... from competition at this point,' Gorton said.

When asked about TCI's impending rates, some municipalregulators pointed out that from December 1996 to December 1997, the Consumer Price Indexrose a meager 1.7 percent.

'From one point of view, it's not double-digit,like 1996, and it's less than 1997, but it's still aggressive in a year of lowinflation,' said David Olsen, head of cable-franchise management for Portland, Ore.,and its neighboring jurisdictions. 'Still, with clustering and other efficiencies,costs should be going down.'

Olsen attributed TCI's relatively low rate increase toprice-related saber-rattling in Congress.

Susan Littlefield, head of the St. Louis Office ofTelecommunications, said she would withhold comment until she sees what changes TCI plansfor its equipment costs.

Meanwhile, rate hikes will complicate ongoing pricingdisputes in communities such as Tucson, Ariz., and San Jose, Calif.

In Arizona, TCI just got an FCC order mandating that itroll back rates for its cable-services product tier. Later this month, the city will issuean order requiring that the MSO also cut its equipment costs, said Bob Hunnicutt,part-time telecommunications administrator for the city.

Additionally, after negotiating a $1.1 million in-kindrebate for previous disputes as part of its franchise renewal, the city may soon befielding a whole new series of complaints related to higher rates, Hunnicutt said.

San Jose already has a two-year backlog of complaints onunwarranted rate hikes, said Pamela Stone Jacobs, assistant to the city manager.

TCI can also expect to take a public-relations beating inSan Jose, inasmuch as its rate hike will come on the heels of the demise of a hardwirecompetitor, Pacific Bell Video Services, in that community.

People will perceive a connection between the rate hike andPacBell leaving, Stone Jacobs predicted, adding, however, that regulators understand thefact that rates are set on a national basis.

Ted Hearn contributed to this story.