In “Martin FCC Purges Per-Channel Rates,” Ted Hearn at Multichannel News notes a change in the FCC’s cable pricing survey that stayed largely below the radar immediately following the Commission’s release of the survey last week:

Although the FCC has routinely crunched the per channel data in previous reports, it did not do so in the latest one. “This [per-channel] data is [sic] not included in the 2005 price survey report because of the weaknesses associated with using it,” the FCC said. “If cable operators offered consumers the option to purchase channels individually, it would be appropriate to consider the prices charged to consumers for those channels.”

One possible reason for the new policy: While the price of cable programming tiers has risen, inflation-adjusted per-channel cable rates have declined in the decade before January 2005.

The FCC contends the per-channel analysis is irrelevant because consumers can’t buy channels a la carte and can’t get refunds for channels they block. In the FCC report and in virtually every quote issued about it last week, the Commission focused on a “93% increase” in cable prices since 1995. But according to MCN, the per-channel rates can still be extrapolated from the survey: “For the decade, nominal per-channel cable rates rose 19.6%, from 51 cents to 61 cents. Inflation, according to the Bureau of Labor Statistics, was 25.05% for the same period. Since inflation outpaced per-channel rate hikes, real per-channel cable rates actually declined, a result that clashed with Martin’s emphasis on bundled cable rates.”

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The FCC voted along party lines, 3-2, to treat service providers differently in video franchising. The Commission didn’t release an order, and likely won’t for several weeks, so we can’t comment on all of the details. But based on what has been reported, it’s a disappointment that the FCC appears determined to create an uneven, unfair playing field slanted decidedly in the telcos’ favor. Of course, it’s far from a done deal, with lawmakers questioning the FCC’s authority on the matter and cities likely to sue. (Here’s the official NCTA response.)

The other matter on the FCC’s meeting agenda was release of the 2005 cable pricing survey. No surprise there, since details had been leaked for months. NCTA head Kyle McSlarrow on Tuesday called the study “almost entirely useless as a foundation for any policy decision.” Although we haven’t seen the full report, based on the data that have been released, the conclusions of the study just aren’t true for Cox Communications. The FCC’s chief contention is that speeding the entry of AT&T, Verizon and other large telcos into the cable business will reduce prices. Truth is, Verizon and AT&T’s video services are already priced well above $35.94, which is the FCC-reported average price of cable in markets with at least two wireline competitors. Verizon’s FiOS service is $47.98 ($42.99 + $4.99 for a required converter) and AT&T’s U-Verse starts at $59. The FCC’s report claims that cable prices in markets with video competition from the telcos are about 20% lower (or $7) than in markets without telco video. Again, in Cox markets at least, that’s just not the case. Our prices in competitive markets aren’t distinctly different – only about 3% lower than in other markets. So, our prices are essentially the same whether we’re competing directly against satellite or telco video.

Kyle McSlarrow, president of the National Cable & Telecommunications Association, didn’t hold back in a year-end media briefing earlier today. His ire was directed toward the FCC and his timing surely was not coincidental. The Commission is set to meet tomorrow and is expected to release the ’05 cable price survey and to take action on new rules that could further ease franchising requirements for AT&T, Verizon and other telcos entering the video business.

Addressing the price survey, McSlarrow said, “It is unclear to me why a report that was clearly finished at the beginning of this year was kept under wraps or why it has been subject to selective leaks of information.” He further derided the report as “almost entirely useless as a foundation for any policy decision,” noting that the data in it are almost two years old. He further declared it “severely limited” in its focus only on analog expanded basic cable, which ignores the reality that most cable customers subscribe to digital and that satellite TV providers DirecTV and Dish Network have significant video market share, yet are excluded from the report. Of the satellite competitors, McSlarrow noted that they have aggressively increased their prices, as has Verizon. As for the so-called Section 621 proceedings the FCC is expected to address tomorrow, McSlarrow said, “Based on what we know, I think it’s a proposal that has to be dramatically pared back. The case has been made by the telcos that they’re being held back from getting franchises. There’s no evidence in the record at all to support that.”

Early in his remarks, McSlarrow exasperatedly declared that the current agenda of the FCC “represents one of the most sweeping regulatory examples of government micromanagement.” Asked later by a reporter if FCC Chairman Kevin Martin has a grudge against the cable industry, he replied, “You’d have to ask him. All I can say is I just think there is a fundamental misunderstanding of what actually our industry is doing. It’s almost like they are moving through a time warp.” How misunderstood? How far into a time warp? Stay tuned for news out of the FCC meeting tomorrow.

Not surprisingly, we love the current cover story in Telephony magazine, “The Best Phone Company in America?” Of course we love that it implies (without explicitly answering the question posed in its title) that Cox Communications is that phone company. But beyond the obvious self-serving, self-congratulatory reasons for us to love reporter Carol Wilson’s article, we above all respect and admire its painstakingly thorough review of the dozens of steps and components required to successfully launch and deliver cable telephony. In what is essentially a tutorial for new entrants in the telecom space, the article addresses basically every gory detail of the telephony biz—network redundancy, powering, billing and provisioning, customer care, knowledge management, training, research, etc.—in a surprisingly readable way. Granted, we admit that, other than Cox employees, it likely will be the rare reader who will stick with every one of the more than 3,500 words in the thing. But for those who like their business news unabridged, it definitely provides some enlightening historical context to the current hyper-competitive telecom marketplace.

We were pleased to see that this Wall Street Journal article touched on a few key issues of relevance in their discussion of cable’s price increases. First, they referenced the price increases of our satellite competitors, which have been more frequent and larger than the price increases implemented by many cable operators in recent years. This clearly supports something that we at Cox have been saying for years—that programming is the single biggest driver in the retail price we charge for cable TV. In the article, Cox was the only cable operator to highlight rising costs of our wholesale product as a driver in our retail prices.

The fact is that the universe of programming content is not infinite and often not competitive in nature. All video service providers buy content from the same providers, and in many cases the retailers have interests on the wholesale side as well. Several cable and satellite video distributors own programming networks (or have ownership stakes in them) which they distribute themselves, and sell to their peers and competitors. (Cox Communications, for example, holds about a 24% stake in Discovery. )

A major premise of this story is that competition from DBS and more recently the telcos has already slowed the rate of cable price increases. While we agree wholeheartedly that competition is always good for consumers, we still suggest that telco competition in the video space will not be the panacea suggested by policy-makers and the media. There is much additional room for studying the food chain in television; it’s nice to see the Journal taking some initial steps toward that end.

Today’s CableFAX Daily notes our Friday post about the misleading way cable price increases are frequently reported. Citing Friday’s USA Today’s article, CFD agrees that FCC Chairman Kevin Martin will apparently tie rising cable prices to proposed plans making it easier for the telcos to receive video franchises. While the FCC’s annual price survey isn’t out yet, CFD did its own calculations:

It appears that the avg monthly rate of cable has increased about 5% from $41.29 for Jan 1, ’04 and about 7% in areas where there’s effective DBS competition. If those numbers hold, expect cable to point out that Verizon plans to raise its rates for new customers 7.6% in Jan to $42.99. The most basic AT&T package listed on its Website (over 190 channels) starts at $59.99. Martin, however, will probably base his argument on the idea that the avg rate declines where wireline overbuilder competition exists.

As the familiar holiday song goes, “It’s the most wonderful time of year.” If only that were true in the halls of cable TV companies; you see, this is the time of the year when we are assailed by the media over rising video prices. These reports rarely get into the real issues impacting the cost of TV, leaving readers with a sour taste in their mouths and the wrong impressions of cable providers.

Today, we see coverage in USA Today: “Trying to spur competition and beat back cable TV prices, Federal Communications Commission Chairman Kevin Martin has proposed rules to make it easier for phone companies and others to jump into the video business.” The story goes on to discuss a “cozy duopoly” between satellite and cable and refers to a forthcoming FCC study which purportedly shows a $7.40 difference in the average price of cable TV in markets where a third wireline competitor is present.

While we welcome competition from a fourth, fifth, or sixty-fifth competitor in our markets, there are a few problems with such a rudimentary analysis of potential benefits: