While the cable industry sees its business model collapse around it, Comcast (NASDAQ:CMCSA) has found ways to grow the revenue from its pay television and broadband Internet business.
The company increased its pay TV revenue 1% in the third quarter, a small gain, but an impressive one given the considerable negative publicity Comcast has received regarding its customer service efforts. Those scandals, which included a phone call that went viral during which a "retention specialist" belittled and berated a customer who was trying to cancel service, forced the company to appoint longtime company executive Charlie Herrin as senior vice president of "customer experience."
Acknowledging its customer service faults has not been something Comcast had previously been willing to do. It only did so this time because there was intense media pressure generated when former Engadget editor-in-chief Ryan Block publicly posted a call which showed the great lengths Comcast employees went to to prevent people from dropping service. Having to admit that the customer retention specialist was perhaps overzealous but was essentially following his training (which Comcast COO Dave Watson did in a memo to employees that was published by Consumerist) was an embarrassment for the cable giant.
That public egg on its face comes at a time when Comcast can ill afford it, as it needs to polish its image to win approval for its $45 billion merger with Time Warner Cable (NYSE:TWC). Comcast certainly did not want the public to know it had a policy to make it incredibly hard to cancel service. It also has a few other skeletons in the closet, which are not exactly secret, but are not trumpeted by the company because its customers would likely not be too pleased if they knew. Let's take a look.
The average bill for its customers is rising
Comcast has managed to grow its pay TV revenue despite a falling customer base by wringing more money out of each customer. The company lost 81,000 video customers in the third quarter, but revenue for that segment increased by $52 million. This follows industry trends as tracked by the FCC's annual survey of cable rates, which shows that for at least the past two decades, the average monthly cable bill has risen roughly $2 to $3 per year. The average household now pays about $64.41 per month for cable, nearly triple what they paid in 1995, when the FCC began keeping track.
Merging with Time Warner Cable would give the company even more ability to raise prices, according to one analyst speaking to the International Business Times.
"Comcast's dominant position in the marketplace and incentive to favor its own content will give it enormous power," Delara Derakhshani, policy counsel in the Washington office of Consumers Union, was quoted as saying. "That means prices will likely continue to climb, consumers will have fewer choices, and customer service will get even worse."
Even if you drop cable, Comcast can still get you
While satellite has given much of the country an alternative to cable that does not involve cutting the cord, most consumers are stuck with cable or phone companies as their ISPs. That means even if a customer decides enough is enough with the rising cost of cable, he or she may be stuck with Comcast, or a similar Internet provider.
Currently, Comcast charges a flat fee for broadband service. Ultimately the company plans to add data caps, which would allow it to recoup the money it's losing from cord cutters by charging them more if their data consumption goes up because of increased use of streaming services in place of a cable subscription.
Comcast Executive Vice President David Cohen predicted at a conference May 14 that in five years' time, the company will have "a usage-based billing model rolled out across its footprint," CNN Money reported.
"I would also predict that the vast majority of our customers would never be caught in ... buying the additional buckets of usage, that we will always want to [set] the basic level of usage at a sufficiently high level that the vast majority of our customers are not implicated by the usage-based billing plan," Cohen said, according to a transcript provided by the company.
Of course, the executive wants people to believe that, but it's pretty logical to assume that whatever cap the company uses will be tilted toward keeping prices flat for customers who also keep a cable subscription while penalizing those who get their TV from Netflix (NASDAQ:NFLX), Hulu, and other streaming services.
The advertised price for cable is not the real price
Comcast runs commercials touting its prices and lists them on its website. The only problem is the prices advertised are not what you actually pay. Customers generally assume that taxes are extra, and because they vary by state, the company can be forgiven for not including them in the advertised price. What's less forgivable is the inclusion in the bill of a mysterious $1.50 broadcast fee.
Comcast spokesman Steve Kipp said the charge is because of broadcast "retransmission costs," which have more than doubled in recent years, GeekWire reported. Retransmission fees are how much Comcast and other cable operators get charged to carry the signals of broadcast stations, which they are required to do.
This isn't an add-on charge for a service you can drop, it's an extra fee for a basic part of what you're already paying that Comcast (and other cable companies) charges for separately as a way to promote artificially low prices. It's like advertising a $1.99 ice cream cone, then tacking on a mandatory $0.50 "flavor" surcharge.
Comcast needs to play it straight
Because of the proposed Time Warner Cable merger, the FCC and, to a lesser extent, the American public have more influence over Comcast than they ever have before. That influence should be used to demand transparency. Show customers what they will actually pay prominently -- before they commit. Show how and why cables bills keep rising, and make it clear that cutting the cord will soon come with unexpected costs.
Daniel Kline has no position in any stocks mentioned. The Motley Fool recommends Netflix. The Motley Fool owns shares of Netflix. 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.