Duane Hoffmann / msnbc.com
By Bob Sullivan Technology correspondent
msnbc.com
updated 1/28/2008 9:38:00 PM ET 2008-01-29T02:38:00

Television, from the start, has always been addictive. And there’s nothing easier than stealing from an addict.

To the cable industry, you are not a customer. You are an ARPU. Understand that, and you will understand why this group of companies does everything it can to sign you up for the most basic service and get that coaxial cable churning. Then, it’s all about squeezing more and more out of your wallet, enrolling you in more services, and about making you a bigger and better ARPU — average revenue per user. 

To that end, cable is king … of misleading come-ons. For example, I challenge any reader who picks up an ad for a cable service bundle to find the real price.  Take Comcast’s Triple Play, an attractive bundling of TV, Net access and telephone service rolled up with a tidy $99 price tag.  But how big were buyers’ monthly checks to pay their bills?  And how much was the price six or 12 months later? Here’s a typical consumer experience:

“I have a Comcast service plan for cable/internet/phone package that totals $120.93/month. I received a call from a Comcast representative indicating that my promotional period has ended for the bundled package and my rate will go up to nearly $148/month.  First, when I decided to go with the bundle package of service Comcast did not tell me this was a promotional rate. I specifically asked the sales representative if the prices would go up on the bundle as it had with cable and the representative said it would not. But here now a year later it is going up 23 percent and there's no alternative broadband cable available in Attleboro to contact for a competitive service.”

That $99 come-on didn’t last long. In fact, it doesn’t make it to the first bill, which turned out to be 20 percent higher than the ad, thanks to taxes and fees. Worse yet, the base $99 price was a teaser rate. It was advertised even lower in some areas, such as Seattle, where the rate customers could sign up for was as low as $85 each month.

But on mailers sent to Seattle-area residents, the introductory period was not defined. When did it end? Whenever Comcast called. And despite the abundant small print on post cards sent to Seattle-area TV watchers — which numbered 300 words or more — the real price of the service (ultimately about $150 a month) never appeared once.

There’s only one term for this: Legal false advertising. And if you think small print on cable advertisements is bad, advertisements targeting Hispanics can be even worse. There are full-page cable advertisements in Hispanic publications where the large print is in Spanish, but small print is in English. Of course, I can read English and the Comcast small print didn’t make much sense to me, so maybe the language barrier is the least of our worries.

The bottom line: Their bottom line. If you’re wondering how your average cable bill (their ARPU) soared from around $22 a decade ago to $60 in 2006, look no further than legal false advertising and small print. 

Don’t just take my word for it. Here’s how the Massachusetts state attorney general described Comcast’s advertisements in a 2006 out-of-court settlement between the company and the agency.

“Comcast, and its predecessor, AT&T Broadband, engaged in a series of unfair practices in the advertising and sale of its cable television services, including advertising limited time offers of free or reduced rate digital cable packages without adequately disclosing to consumers what the actual price of those services would be during and after the promotional period.”

The attorney general also accused Comcast of “hiding material terms and conditions from consumers in difficult to read fine print, in violation of the Attorney General's advertising regulations.”

The hits don’t stop there. Here’s a few other Comcast ARPU-enhancing tactics, pulled from the attorney general’s memo.

  • Promoting Comcast's higher-priced digital packages, like its "Digital Gold" video programming, without disclosing to consumers that they could purchase less expensive digital cable packages
  • Overstating the number of channels available on digital cable packages by failing to distinguish among video, music and pay-per-view channels, and overstating the capabilities or benefits of Comcast’s "On-Demand" and "Digital Video Recorder" services
  • Charging a $5 monthly rental fee for a converter box and remote control, even for consumers who did not need the converter box and remote to get their programming
  • Advertising "free" installation, but then charging consumers for installation and requiring them to redeem coupons or vouchers to receive an installation credit. In some cases consumers were unable to receive the "free" installation as advertised.

There’s no need to pick on Comcast, however. Time Warner Cable had a similar run-in with then-New York Attorney General Eliot Spitzer just a year earlier. Spitzer’s office found that Time Warner offered three-month teaser rates to consumers without disclosing that they had to keep the service for 12 months to get that price.

In another instance, the company offered “free Digital Cable TV and free HBO for one year.”  But there was a Gotcha. Consumers received free HBO and free digital equipment but still had to pay extra for monthly digital access. And in another case that might sound familiar to many subscribers, Spitzer’s office found consumers who signed up for a “$24.95 for four months” special who were actually charged higher prices during those four months. Finally, Road Runner Internet broadband customers who signed up for a promotional discounted Internet service later found out they also had to order cable TV from Time Warner — or else the Internet discount was forfeited. Such bundling is great for ARPU, but bad when a state attorney general notices.

Cable’s humble beginnings
The first cable television subscriptions cost about $3. Cable’s unceremonious invention is often credited to engineer Ed Parsons, who in 1948 rigged up a crafty community antenna and married it with long cables to bring television to his home in remote Astoria, Ore.

Parsons simply wanted to let his wife watch the new Seattle TV station, which had gone on the air a few months earlier. At the time, no one could have imagined he was inventing a multibillion-dollar industry that would become a king of sneaky fees.

In fact, cable came simply because Parson’s wife, and millions of other Americans, didn’t live close enough to broadcast stations to receive a signal. CATV, the most familiar abbreviation for cable, actually stands for community antenna television, and literally means sharing access to a superpowered antenna. Parsons discovered areas where signal strength was particularly strong, atop a nearby downtown hotel, erected an antenna, and then strung wire — coaxial cable — to his apartment across the street.

The addictive power of cable was clear from the start. As Parsons tells the story, from the moment he flicked the switch on cable TV in his apartment on Thanksgiving Day 1948, he said the couple “literally lost our home.”

“People would drive for hundreds of miles to see television. We had gotten considerable publicity. … And when people drove down from Portland or came from The Dalles or from Klamath Falls to see television, you couldn’t tell them no.”

To get the crowds out of the way, Parsons strung a similar cable into a nearby hotel lobby and turned on a TV there.  Soon, he had to shut the service off because the lobby was so full of visitors that guests couldn’t check in to the hotel.

Parsons turned his hobby into a business, stringing wire to area homes for $125 and charging $3 a month.  The price seems quaint now, but even in the early 1990s, when cable prices were controlled by regulatory agencies, decent plans could be had for $20. An activist Federal Communications Commission regularly kept cable companies in line, resolving 18,000 complaints involving 5,700 communities, ordering $100 million in consumer refunds to 40 million cable subscribers from 1993 to 1998.

Then, quite suddenly, cable prices exploded — rising at three times the rate of inflation in the next five years.  What happened? The sweeping Telecommunications Act of 1996 deregulated cable rates, effectively killing the FCC’s ability to act as a price watchdog.  The deregulation took effect in 1998.  The ARPU race was on.  You lost.

And what are you getting for this pricey service? Cable television consistently ranks near the bottom of most customer satisfaction surveys. In 2002, the American Customer Satisfaction Index found that cable companies "now rank among the worst rated businesses in ... history."   The Ponemon Gotcha sneaky fee survey, conducted for this book by the Ponemon Institute research firm, is no exception. Cable firms were essentially tied for the bottom with credit card companies as purveyors of hidden fees. 

And yet, despite skyrocketing prices and wide dissatisfaction, two-thirds of Americans subscribe to cable, clear evidence that real market forces are not at work in the world of cable television. There is occasional discomfort of competition from satellite television or new fiber-optic TV delivery services, but cable firms still enjoy sizable monopoly power in many places.  And that’s how they get away with so much.  They know most of us would still crowd into Ed Parson’s living room to watch if we had to.

Teaser rates
The single biggest problem facing cable consumers is the fact that cable companies have learned far too much from credit card companies.  Introductory price “teaser” offers, with their fleeting discounts and unpredictable bottom lines, are the bane of cable TV watchers.  Consumers who are enticed by $50 or $100 teaser prices can easily end up writing checks for twice that amount by the time the real rate kicks in and the digital video recorder starts piling up episodes of "Lost."

The only way to avoid bottom-line shock is to ask the right question — repeatedly — when you sign up.  What will my bill be six months from now? One year from now? Never sign on the dotted line until you get a solid answer to that question, preferably in writing.

Some consumers endeavor to play the teaser rate game with cable firms.  If you are the type of person who stays up on your bills, you can try this, too. Some people call this the “Just Ask” strategy, and it’s amazing how few customers actually try it.

Sign up for a low rate, and then call and cancel just as the teaser rate is about to expire. Or if the higher price has already kicked in, call and ask for the low advertised price offered in a newspaper ad or flier.  Ignore the line that says, “for new customers only.” 

Key to the success of this conversation: You’ve got to be willing to drop your cable service.  You must convince the cable firm operator that you are a customer who deserves special “retention” treatment.

Obviously, this strategy works best when you are in an area where there is genuine competition for your business.  If you can call and say, “I’m thinking of going with another cable firm because they are offering this price,” and you are telling the truth, the odds are good you’ll get a better deal. Ditto if you have done your homework and you drop into conversation the possibility that you are going to have a little dish installed on your roof if the cable doesn’t cough up a better price.

Bluffing might work; but it might not.  And remember, you might have a term commitment and face early termination penalties if you do switch. Never sign up without fully understanding the cancellation terms. And of course, if you play this game, you’ve got to keep playing it, because every six months or so, the lower rate will expire, and you’ll have to start over again.

Excerpted from GOTCHA CAPITALISM by Bob Sullivan.  Copyright (c) 2007  by Bob Sullivan.  Reprinted by arrangement with The Random House Publishing Group.

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