No ‘Bundle’ of Joy: Cost of TV, Internet and Phone Service Rising
If you feel like you’re paying more for TV, Internet and phone service, it’s not your imagination. And it’s possible you may have been “bundled” into an even costlier monthly bill.
Market research firm SNL Kagan reports that cable companies’ average revenue per user grew from $119.24 in 2010 to $161.12 this year – an increase of more than 35 percent.
And while many consumers assume that bundling TV, Internet and sometimes phone services means they are saving money, that might not be the case.
“While double play Internet and television packages have promotions for as low as $35 per month, and triple plays (adding phone service) as low as $45 per month, most subscribers are paying much more – the average for Internet and television is $132 per month, and the average spend on three services is $165 per month,” market research firm Mintel said in a report earlier this year.
A separate 2013 Mintel survey found that triple play subscribers on average paid more than those who signed up with multiple providers, while double-play subscribers saved an average of $8 a month.
Perhaps as a result of figures like that, the number of bundled-subscription customers across the industry has been sliding, with Mintel noticing a first-ever drop in the percentage of bundled-service subscribers in 2014.
“Consumers are getting very frustrated at the costs they’re paying for double-play and triple-play services,” said Dan Rayburn, a media analyst at Frost & Sullivan. The cable companies are definitely starting to get worried that consumers are just getting fed up.”
That’s especially true with young adults, who are “cutting the cord” on pay TV in increasing numbers. Mintel found that while 80 percent of American households have pay TV of some kind, that number drops by 10 percentage points for adults under the age of 25.
Fewer people in this age bracket also have landline phones or DVRs and, at 47 percent, they have the lowest adoption rate of bundled services of any age group except for those over the age of 75.
The industry contends that the increasing cost of TV programming and infrastructure investments force them to raise rates, but others point to the industry’s high profits and the near-monopoly that the biggest companies have in many parts of the country as evidence that the American consumer is getting the short end of the stick.
For example, they note that, even with a $36 million decline from a year ago, Time Warner Cable still earned a profit of $463 million in its last quarter, and cable communications at Comcast (NBCUniversal’s parent company) had a 6.3 percent jump in revenue last quarter to $11.7 billion.
That’s a cause for concern for providers. William F. Osbourn, Jr., Time Warner’s senior vice president, controller, chief accounting officer and acting co-CFO, told investors on the company’s most recent quarterly conference call that triple-play customers contribute half of the company’s residential recurring monthly revenue, and that they tend to jump ship, or “churn,” less often.
In response to competition from streaming offerings, cable companies have been rolling out “skinny bundles” of fewer TV channels for a lower price, but Rayburn, the media analyst, said these have limited appeal because they tend to exclude popular, but expensive, programming like sports.
They also have been increasing prices on current customers, a strategy that many analysts say may backfire.
Vincent Moy, entertainment industry analyst at the NPD Group, said prices for monthly cable service have been increasing this year even as subscriber bases have declined.
“The quickest way for cable companies to grow their revenue is charge more to the customers they already have,” he said. “Ultimately, this may prove counterproductive … (if) they decide to cut the cord altogether.”
Time Warner and Comcast did not respond to NBC News’ request for comment.
But even cord-cutters are still tethered to operators for broadband Internet access, another area where consumers may not be getting their money’s worth.
“What we’re finding is that consumers in the U.S. pay more for less … than their peers around the world,” said Sarah J. Morris, senior policy counsel at think tank New America’s Open Technology Institute.
In a 2014 study, the institute found that home broadband connectivity at every speed was more expensive on average in the U.S. than in Europe. It also found that major American cities lag in both speed and pricing compared to overseas counterparts like Seoul, Hong Kong, Paris and even Bucharest, Romania.
“A lot of this breaks down to competition … even though the ISPs like to claim the market for broadband Internet access is competitive, when you really break it down, it’s not,” Morris said. “This exacerbates low speed for high cost.”
The lack of competition was underscored by a Federal Communications Commission report that found nearly two-thirds of Americans can only get the fastest category of broadband connectivity from a single provider, and one in five can’t get download speeds of 50 megabits per second, or Mbps, at all. Even at the lowest tier of high-speed broadband categorized by the FCC — 4Mbps of download speed — roughly a quarter of households have one or no providers.
And that’s for a speed the agency itself describes as inadequate. “Four megabits per second isn’t adequate when a single HD video delivered to home or classroom requires 5Mbps of capacity,” FCC Chairman Tom Wheeler said in a presentation last fall. For some perspective, downloading a movie at 4 megabits per second would take more than half an hour.
Giving Americans access to a greater number of providers, especially municipal or new entrants like Google’s Fiber project, requires incumbent providers to invest in their own infrastructure and be more competitive on price, Morris said.
“One of the policies recommendations we’ve made over the years is to really encourage more locally owned and operated networks,” she said, adding that many efforts to create them are fought by established players fight with legislation and litigation.
The result is a raw deal for consumers, Morris said. “In all of these rankings we’ve done, we tend to see the U.S., especially offerings from the traditional providers, middling at best.”
by MARTHA C. WHITE OCT 13 2015, 11:08 AM ET
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