Please ensure Javascript is enabled for purposes of website accessibility

Why ISPs and Cable Companies Are the Most Hated Companies in America

By Daniel B. Kline - May 21, 2014 at 9:39AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Lack of choice has allowed pay television and broadband internet providers to neglect customer service. Customers have noticed.

In many cases the companies that deliver pay television service are also the ones providing broadband Internet -- if you believe the American people they are doing both badly.

Subscription TV and Internet service providers fell to the bottom of the American Customer Satisfaction Index in its annual measure of communications industries. According to the latest ACSI results, ISPs dropped 3.1% to an ACSI score of 63 on a 100-point scale, while subscription TV fell 4.4% to 65. These industries, which include many of the same companies, are the worst performing among 43 tracked by the ACSI. 

"The Internet has been a disruptor for many industries, and subscription TV and ISPs are no exception," said ACSI Chairman Claes Fornell. "Over-the-top video services, like Netflix and Hulu, threaten subscription TV providers and also put pressure on ISP network infrastructure. Customers question the value proposition of both, as consumers pay for more than they need in terms of subscription TV and get less than they want in terms of Internet speeds and reliability."

The traditional cable companies, which include Comcast (CMCSA -0.52%), Time Warner Cable (NYSE: TWC), and Cox, all provide both cable television and broadband Internet service. In many markets they traditionally had a monopoly on one or both services. That has changed over time with phone companies offering broadband service and satellite companies providing a pay TV alternative, but the big cable companies have had trouble shaking off the attitude it's easy to develop when customers have no place else to turn. 

Which pay TV providers are disliked the most?

While customer satisfaction has fallen for all of the largest pay TV providers, people like their cable TV service providers even less than they like the satellite and fiber-optic companies (phone company cable offerings). The two leaders in customer satisfaction, AT&T (T 0.98%) and DirecTV (DTV.DL), both saw their scores fall with the satellite company dropping 4% and the phone company dropping 3%. Both had ACSI scores of 69. Verizon (VZ 0.53%) was next with a 68 while Dish Network was the lowest-rated non-traditional pay TV provider scoring 67 on the ACSI scale.

The traditional cable companies all faded a lot. Cox, the highest rated, dipped 3% to score a 63. Comcast and Time Warner Cable -- which are currently planning to merge -- are the least popular. Comcast fell 5% to 60, while Time Warner registered the biggest loss, plunging 7% to 56, its lowest score to date.

The data suggests that the merger of these two low-rated cable giants may not be good for the public.

"Comcast and Time Warner assert their proposed merger will not reduce competition because there is little overlap in their service territories," said David VanAmburg, ACSI Director. "Still, it's a concern whenever two poor-performing service providers combine operations. ACSI data consistently show that mergers in service industries usually result in lower customer satisfaction, at least in the short term. It's hard to see how combining two negatives will be a positive for consumers."

These same companies provide lousy Internet service too

According to ACSI, high prices, slow data transmission, and unreliable service have brought customer satisfaction with Internet service providers to record lows. This is another example where companies skimp on customer service because people have limited alternatives to the biggest Internet service providers. Overall customer satisfaction with ISPs dropped 3.1% to 63, the lowest score in the Index.

If there is a bright spot it's Verizon's FiOS Internet service, which scored well above the category average with a score of 71. AT&T, CenturyLink (NYSE: CTL) and the aggregate of other smaller broadband providers, all scored 65.

Cable-company-controlled ISPs sit at the bottom of the rankings again. Cox Communications tops this group, staying above the industry average despite a 6% fall to 64. Comcast plunged 8% to 57 and Time Warner Cable fell an astounding 14% to 54, even lower for Internet service than for its TV service. In both industries, the two providers have the weakest customer satisfaction.

To put these numbers into context with other industries, satisfaction has climbed for the retail segment for the last three years. In the most recent ACSI report the retail sector gained 1.7% to post an ACSI score of 77.9.

Cable companies and ISPs need real competition

If customers have no place else to go, then companies have little incentive to provide good service. In order for the companies on this list to change they need real competition, which is a challenge because delivering pay television and providing broadband Internet service requires a huge infrastructure. Digital streaming services may provide an alternative to cable, but they require good broadband Internet access. Since the companies controlling that are the same ones offering lousy customer service on the pay TV side, it's hard to see where consumers will turn.

Change however may be coming. Companies including Internet giant Google are testing alternative ways to deliver broadband Internet. It may take years but the cable/phone company monopoly on offering broadband will eventually be broken. If the ISPs and cable companies haven't changed their customer service ways by then it's hard to see why consumers won't flee in droves. 

There remains time for a pay TV/ISP company to change its ways. The newly announced purchase of DirecTV by AT&T will allow that company to offer both broadband service and pay television to much of the country in competition with other cable companies and ISPs. If that newly combined company made customer satisfaction a priority, it likely would win market share ... or at least force its rivals to treat their customers better.

Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends DirecTV. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
VZ
$45.80 (0.53%) $0.24
AT&T Inc. Stock Quote
AT&T Inc.
T
$18.57 (0.98%) $0.18
Comcast Corporation Stock Quote
Comcast Corporation
CMCSA
$40.36 (-0.52%) $0.21
DIRECTV, LLC Stock Quote
DIRECTV, LLC
DTV.DL

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
403%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/17/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.