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K.C. NEEL
Investors liked AT&T Broadband's second rate increase in less than a year a lot more than subscribers and local regulators.
The jump - an average 4.8% for customers subscribing to both basic and expanded basic - isn't out of line with other MSOs. Several operators announced larger increases late last year. Cablevision Systems, for instance, is lifting its rates about 7% this month.
AT&T's latest price increase comes about only seven months after its last hike, and that has some city officials seething.
"In the short term, this is bad for consumers," Richard Varnes, the telecommunications coordinator for Boulder, Colo., says of AT&T's increases. "In the long run, it might be good news. The higher AT&T pushes its rates, the easier it'll be for competitors like Qwest and WideOpenWest [both of which have received franchises to build systems in the city] to get a foothold on the market. If AT&T had cut rates here, it might have edged WideOpenWest out of the market. Now it's going to be easier for the competitors to undercut AT&T's rates and still make money."
The company maintains it's getting all its customers on the same billing cycle as it relates to rate increase and won't have another one this year. Most of the subscribers getting a second dose of increases were former TCI customers, who traditionally received rate changes in July.
AT&T Broadband, slated to be spun off as an independent company under the breakup plan announced by AT&T in October, is also boosting its equipment and installation prices in February.
Cablevision pulled a similar move last year when it took over some TCI/TKR systems in New Jersey. The increases were not outlandish - an average 5.4% - but the MSO was reviled by city regulators, the press and some consumers who complained about two increases less than a year apart.
While city administrators wailed about AT&T's climbing rates, Wall Street investors praised the move. Some even wished AT&T had bumped its rates higher. Broadband CEO Dan Somers is said to have resisted boosting rates beyond the magical 5% threshold to avoid even more backlash from the local authorities and consumers.
The company could use all the cash flow the rate jumps will create. Upgrading the old TCI systems has cost AT&T more time and money than originally expected. Cash flow from new ancillary revenue streams has helped push growth, but capital expenditures continue to put pressure on margins.
The debt-plagued company says the price increases are designed to offset rising costs, including programming and construction expenditures.
However, the "rising programming cost" excuse used by operators for the past several years is wearing thin on consumer advocates.
"AT&T's rate hike is no more or less egregious than other operators' increases," says David Butler, a spokesman with the Consumer Union. "But it's frustrating to hear that the hikes are being made to cover the costs of programming. Inflation is half of what these hikes are. It's hard for us to imagine that programming costs are so out of line. We're not buying that excuse anymore."
Butler says this is a good time for the new administration and Congress to reexamine the 1996 Telecommunications Act.
"These rate hikes are just the latest example of how deregulation isn't working," he says. "We've seen cable rates rise 30% since 1996."
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