Broadband price hikes to overshadow video, analyst says

Prices for video services are expected to rise this year as cable companies agree to pay broadcasters more for their content. But prices for broadband services among major providers are going up at least as much as video prices are, according to Bernstein Research analyst Craig Moffet. And unlike video, broadband prices don’t have the same history of perpetual increases.

“Cable and telco operators almost across the board are implementing price increases for broadband as well as video,” Moffet wrote in a note today. “Taken together with video price increases, they may enable cable and telco fiber operators to be better off financially in 2010, even against higher programming costs and optically lower video profit margins.”

AT&T, Time Warner Cable and Comcast all appear to be raising their broadband prices this year, Moffet concluded after collecting newspaper announcements from several markets. AT&T is raising its broadband prices about 10% on average across a range of different markets, while its video prices are only going up about 7%. Comcast is raising broadband prices by nearly 5% on average (by upping its cable modem rental fees) while raising video prices less than 4%. TWC is raising prices for both broadband and video by slightly more than 7%, on average. Cablevision is the lone exception (apart from perhaps Verizon, which has yet to announce pricing), increasing video prices nearly 4% on average, apparently without raising broadband prices at all.

Much of the increases are directed at the lower end of the market. For example, AT&T is raising monthly prices for its bottom three broadband tiers by $5 (which amounts to a 14% to
20% increase) next month while lowering prices for its top three tiers by $10 (or 13% to 18%), Moffet said.

“While consistent with the industry-wide trend of raising prices more significantly for lower end services, [AT&T] takes the trend to a new extreme,” Moffet said. “The strategy appears intended to highlight the relative value of its high end products for new subscribers, pushing them into service tiers for which churn rates are lower than for lower tiers. The unanswered question, of course, is whether churn rates are lower in higher speed tiers due to greater customer satisfaction, or simply due to greater customer affluence.”

Part of the justification for broadband price hikes among video providers generally may be the anticipation of those higher video programming fees, Moffet said. “Cable operators may (rightly) feel that they have more pricing power in broadband than in video and that taking a price increase on the broadband side may be optically more palatable than a larger percentage hike for video (even if the economic impact is identical).”

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