All too often customers who sign up for “price lock” agreements or 12-24 month service contracts find themselves trapped when a provider finds a clever way to increase rates or introduce usage caps and still subject customers to a steep early termination fee if they want out of the deal.

In the United Kingdom, the Office of Communications (Ofcom) wants providers to tell customers at least 30 days before any price or service changes and show customers how to cancel the contract and leave without a termination fee.

Ofcom says its new rules on ISPs, landline and mobile operators are designed to stop mid-contract price hikes or service reductions.

The regulator is responding to multiple consumer complaints where providers have used “wiggle room” in contract language designed to let customers off the hook if a provider attempts a “materially adverse” change mid-contract that a customer does not accept. This language is common in both the United Kingdom and North America.

Several years ago, providers on both sides of the Atlantic began adding non-regulatory fees to customer bills to hide rate increases. The charges often sound “official,” but are in fact not. When customers demanded to cancel over charges like “regulatory recovery fees,” “rights of way fees,” or other costs of doing business now broken out on their bills, many successfully invoked the “materially adverse” clause of their contract to escape termination fees.

These days wireless carriers have gotten wise to that. When a customer now calls to demand out of their contract, companies refuse, claiming the small dollar amounts involved are not “material” changes. They often reinforce this by offering to credit a persistent customer’s account for the amounts involved.

Ofcom considers this practice an end run around the contract, and wants it stopped. The regulator is notifying providers it is now likely to regard any and all price increases of any kind to be “materially adverse/detrimental.” The regulator warns it will also treat reductions in voice minutes, texting, and data usage allowances the same as a price hike.

“Ofcom is today making clear that consumers entering into fixed-term telecoms contracts must get a fairer deal,” said Claudio Pollack, director of Ofcom’s Consumer Group. “We think the sector rules were operating unfairly in the provider’s favor, with consumers having little choice but to accept price increases or pay to exit their contract. We’re making it clear that any increase to the monthly subscription price should trigger a consumer’s right to leave their contract – without penalty.”

Ofcom has also found that some consumers were caught unawares by mid-contract price rises and were not sufficiently warned this could happen when they signed up. In some circumstances, consumers may also have not been made adequately aware of their right to exit their contract, or of the amount of time they had to exercise this right.

To address this problem, the new rules explain how providers should communicate any contract changes, pricing or otherwise, to consumers.

These measures include ensuring that letters or e-mails about contract changes should be clearly marked as such, either on the front of the envelope or in the subject header.  Notifications of price increases must also be clear and easy to understand and make customers aware of the nature and likely impact of the contract change.

Where relevant, information about the customer’s right to exit the contract should be made clear upfront – for example, on the front page of a letter or in the main e-mail message, rather than via a link. The period within which consumers can cancel their contract (Ofcom’s guidance sets out that providers should allow consumers 30 days) should also be made clear.

The new rules take effect in 90 days.

Time Warner Cable believes it has room to raise broadband prices and get away with it without much customer backlash.

The cable company’s chief financial officer, Arthur Minson, raised the prospect of more price hikes at Tuesday’s Goldman Sachs 22nd Annual Communacopia Conference.

“Look, the modem [fee] was really just a form of a High Speed Data rate increase,” Minson said, referring to the company’s introduction of a $4 cable modem rental fee last fall and a later increase to around $6 a month introduced this summer. “I do see an ability for us to continue to have ARPU increases on that product.”

“ARPU” refers to the Average Revenue Per User — a term that reflects what companies earn in revenue divided by the number of customers. In most cases, an ARPU increase comes from price hikes or customers subscribing to additional value-added services.

Minson

Minson suggested that the company’s gradual rollout of optional usage-based pricing tiers provides an alternative for price-sensitive customers that cannot afford rate increases on flat-rate service or are seeking a price reduction.

“I think we’re very pleased with where we are in the usage-based pricing front and I think that’s something we will continue,” Minson concluded. “I think over time it will be interesting to see how many people ultimately take the usage-based pricing, or will people say I just want to have unlimited and I think the market will speak on that.”

Time Warner Cable has focused investment on several fronts this year, and plans continued investments to expand offerings in these key areas:

1. Business broadband expansion. Some of the company’s biggest investments target wiring businesses and office parks for cable service, primarily to expand commercial broadband. “Commercial services is success-based capital that we see real meaningful returns on,” Minson said.
2. Wi-Fi expansion. Time Warner Cable will continue expanding Wi-Fi hotspots in select cities. Customers with Standard (15/1Mbps) service or above can use the service for free. Minson said that the company was very happy to offer customers subscribed to unlimited use tiers free access to Wi-Fi. Not so for those choosing usage-based pricing plans. They will have to upgrade to an unlimited plan to get free access. “That’s a real incentive to drive people into the higher tiers,” Minson noted.
3. DOCSIS 3.1. Time Warner plans to adopt and invest in DOCSIS 3.1 cable modem technology when it is officially released. DOCSIS 3.1 will offer more efficient broadband transport and will let companies offer even faster speeds. Minson noted that broadband is increasingly the company’s anchor product, so it will continue investments accordingly.

Customers looking for aggressive pricing won’t find much at Time Warner Cable. Minson noted the company will continue its year-long pullback on low-priced promotions.

“We have a $79 bundle out in the marketplace and you would say okay, that sounds similar to the offer in the marketplace last year,” Minson said. “It may be similar but in terms of what you get for that $79 it is very different from what we gave a year ago and what we have now is the ability to meaningfully up sell the customers from the beacon price.”

A year ago, Time Warner Cable didn’t have a modem rental fee and typically bundled its Standard tier Internet service in its promotional packages. A traditional triple-play package of phone, cable TV and Internet service starts at $89 today, but only includes 3Mbps broadband, doesn’t bundle DVR service, and doesn’t include a mandatory set-top box which now costs a minimum of $8.99 a month each. Combining the modem fee with the mandatory box charge raises the promotional price to $104.97 a month.

• Upgrading to Standard 15/1Mbps service costs an extra $10 a month.
• Adding a DVR? That costs an additional $21.94 a month.
• The “whole house” DVR package is now priced at $37.47 a month.
• Time Warner Cable has also recently increased the price of premium movie channels to a uniform $15.95 each for HBO, Cinemax, Showtime, and Starz.

Taking into account these popular upsold add-ons, the promotional price of $79-89 might be seen as bait and switch by some customers. The true cost for most choosing a triple play package including cable TV with DVR service, one set-top box, a Time Warner-supplied cable modem, and a speed upgrade to 15/1Mbps service is $127.92 a month before taxes and fees.

Customers unhappy with their cable bill who call to complain are now routed to specially trained retention operators, Minson said.

“We’ve taken about a 1,000 dedicated employees and focused them on retention and even within those centers there are areas of expertise,” Minson said. “For our Spanish language customers we have retention centers set-up to help them when they call in. For people who are coming off a promotional offer, we have dedicated reps who can deal with that group of customers. So it’s having a deeper set of expertise in those areas and the returns so far are well within our expectations and we are really pleased with how it’s going.”

Just weeks after Time Warner Cable and CBS settled a dispute over retransmission fees, other broadcasters and networks are preparing to make new demands for increased compensation from their cable, satellite, and telco IPTV partners at prices likely to provoke more blackouts.

Despite repeated protestations from Time Warner that over-the-air stations and networks deserve lower fees than cable-only networks, once the two parties went behind closed doors, the cable company quickly agreed to pay considerably more for CBS programming. Sources say CBS made a deal that will run up to five years and includes more than $1.50 in fees per subscriber, up from between 50-85 cents per month, depending on the city served, under the old contract. CBS had asked for about $2 a month. Effectively, the company will earn more than that because Time Warner also agreed to renew both the CBS Sports Network and Smithsonian Channel, which cost extra.

“There is a new template here. Two dollars is the new holy grail,” Wunderlich Securities analyst Matthew Harrigan told Reuters.

Fox was the highest paid network before the CBS deal, collecting close to $1.25 per month per subscriber. ABC receives 50-65 cents and NBC less than that.

Harrigan predicts the other networks will race to raise their own prices, with Time Warner Cable (and others) likely forced to raise rates early next year to cover increased costs.

In the war for compensation, programmers hold most of the leverage.

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The Wall Street Journal reports the dispute between Time Warner Cable and CBS set new industry precedents on the value of broadcast stations and networks and how their programming is distributed on digital platforms. (2 minutes)

There have already been local station blackouts in 80 cities so far this year, with the likelihood last year’s record of 91 markets will be broken before Thanksgiving. In almost every instance where a popular network is involved, the pay television provider eventually capitulates because of subscriber complaints or cancellations.

Moonves

Time Warner Cable admits its dispute with CBS cost the company business, both from prospective new customers going elsewhere and customer disconnects. Time Warner also spent money advertising its side of the dispute and paid to distribute free antennas to affected subscribers.

CBS’ Les Moonves had predicted Time Warner would eventually meet most of the network’s compensation demands before football season arrived. He was right.

“CBS is the winner. Content owners always win these negotiations, it’s just a matter of how much they won,” said Craig Moffett of Moffett Research. “They have all the leverage. Consumers don’t get mad and trade in their channel when these fights drag on. They go looking for a different satellite or telephone company.”

Almost 200,000 Time Warner Cable television customers left during the second quarter, and company officials admit that trend continued during the third quarter as the dispute dragged on. Time Warner Cable is likely to end the year with fewer than 11.5 million video subscribers, a loss of several hundred thousand this year.

Sources say one major sticking point that kept CBS off Time Warner Cable systems for nearly a month wasn’t about money. Instead, it was about digital distribution rights.

Time Warner Cable wanted CBS on its TV Everywhere app TWCTV and was also concerned about CBS selling content to online video streaming competitors that could accelerate cord-cutting.

Time Warner Cable did win permission to offer Showtime on its digital streaming platform and on apps for portable devices. But Time Warner will not get to carry local CBS-owned stations on streaming platforms, a significant blow. The cable company will also have to pay more for streamed and on-demand content.

In the end, CBS got almost everything it wanted and Time Warner Cable was handed back its largely unfulfilled wish list and a bigger, retroactive bill subscribers will eventually have to pay.

“We wanted to hold down costs and retain our ability to deliver a great video experience to our customers,” Time Warner Cable CEO Glenn Britt said in defense of the agreement. “While we certainly didn’t get everything we wanted, ultimately we ended up in a much better place than when we started.”

Moonves gloated to various trade publications and investors that CBS went unscathed after the month-long dispute.

“Our national ad dollars did not go down,” Moonves told attendees at the recent Bank of America/Merrill Lynch Media Communications & Entertainment Conference. “There were no such things as make-goods and there was no harm done financially to CBS Corporation.”

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CBS’ Les Moonves has won his dispute with Time Warner Cable, says Les Moonves in this interview with Bloomberg TV. (10 minutes)

Comcast owns both NBC and the cable companies that carry its local affiliates.

Cable rate increases are not likely to stop with the agreement with CBS. Analysts predict NBC, ABC, and FOX will be seeking similar rates when their contracts come up for renewal. Altogether, every cable, telco IPTV, and satellite subscriber could see rates increase up to $6 a month for the four major American networks.

“Any time one of these larger networks sets the new standard in terms of pricing for their programming, the rest follow,” Justin Nielson, an analyst for SNL Kagan, told Hollywood Reporter. “In most cases it’s been CBS and FOX trailblazing what the rates should be and then ABC and NBC following.”

Comcast-NBC’s Steve Burke is already there. Burke told investors affiliates should be paying 20 to 25 percent more for cable networks such as USA, Bravo, SyFy, CNBC and MSNBC .

“We’re not paid as much as we should be given our rating and positioning by cable and satellite companies,” Burke said. “I see no reason why we won’t sort of draft behind the other broadcast networks and get paid in a similar way.”

Burke predicts NBC will earn between $500 million to $1 billion annually from increased retransmission consent fees comparable to what CBS and FOX receive.

Next week, DISH Networks faces the expiration of their contract with ABC/Disney-owned channels, including the Cadillac-priced ESPN. The outcome of renewal negotiations may serve as an indicator for where rates are headed in the world of retransmission economics.

A growing number of elected officials in Washington are paying attention as they and their constituents live through one programmer blackout after another. At least four pieces of legislation have been introduced to deal with the problem in very different ways, according to Bloomberg News:

The Satellite Television Extension and Localism Act

This law, known as STELA, dates to 2004 and gives satellite companies a license to provide local TV stations, just as cable operators do. The current law is set to expire at the end of 2014, with most observers calling its reauthorization a near certainty. The debate is mainly over how “clean” the STELA reauthorization bill will be as it emerges from the legislative process, with the pay TV companies urging lawmakers to address the issue of retransmission disputes. Broadcasters are working for a “clean” bill, written narrowly to address the satellite companies’ immediate needs. “There’s nothing clean about the current retransmission system,” says Brian Frederick, a spokesman for the American Television Alliance, a coalition of pay-TV companies. Two House committees held hearings on the law this week. A final bill and vote are expected next year.

Video CHOICE (Consumers Have Options in Choosing Entertainment)

Representative Anna Eshoo, a Democrat who represents much of Silicon Valley, introduced this bill Sept. 9 aimed at ending blackouts. “Recurring TV blackouts, including the 91 U.S. markets impacted in 2012, have made it abundantly clear that the FCC needs explicit statutory authority to intervene when retransmission disputes break down,” Eshoo said in a press release. (The FCC gets involved now only if one party accuses the other of negotiating in bad faith.) The bill would unbundle broadcast stations from a cable package and prohibit a broadcaster from requiring a pay TV operator to take affiliated cable channels to obtain more popular channels. That issue is at the heart of why Cablevision sued Viacom in February, following a contentious negotiation.

Eshoo’s bill would also require the FCC to study programming costs for sports networks in the top 20 regional sports markets. The rising fees for sports programming—led by ESPN—is considered one of the major influences behind rising cable bills and the power that content creators such as Disney hold in negotiations. Cable companies have praised Eshoo’s bill, while broadcasters are not fans. Don’t expect to see it get far in a Republican-led House.

Television Consumer Freedom Act of 2013

This bill, introduced in May by Senator John McCain (R-Ariz.), would end the long era of the cable television bundle, that phenomenon by which you pay for hundreds of channels and find yourself watching only about two dozen, or fewer. This summer, Connecticut Senator Richard Blumenthal signed on as a Democratic co-sponsor, but there’s been no similar sponsors on the House side. Blumenthal explained his support of the bill in an August interview with the Hollywood Reporter:

“What I hear from cable consumers overwhelmingly is, ‘give us freedom of choice. Don’t make us pay for something we don’t want and won’t watch. Why am I paying for—you name a channel you don’t like or five or ten or them—just so I can watch the one I do want.’ That’s overwhelmingly the sentiment of people who buy this product. So this bill just gives voice and force to that sentiment.”

Next Generation Television Marketplace Act

This bill from Representative Steve Scalise, a Louisiana Republican, and former South Carolina Senator Jim DeMint, also a Republican, dates to December 2011 and would deregulate the entire television market, top to bottom. It would repeal compulsory copyright licenses, the legal mechanism by which content owners are required to let pay TV companies carry their programs, if they are paid a fee for the content. The bill, which would also dismantle the system of retransmission fees, is essentially an exercise in carrying free-market ideology to its logical conclusion. The problem? It would require a countless number of individual deal negotiations—any radio or television station that wanted to carry programming (i.e., all of them)—would need to strike deals with every programmer, yielding an inefficient system that would likely prove unworkable. Lawyers would love the bill, but don’t expect it ever to pass Congress.

In fact, none of these bills are expected to pass through both the gridlocked House and Senate this year.

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CNBC also talked with CBS’ Les Moonves about CBS’ views towards compensation and distributing content online. (13 minutes)

Comcast rates are going up again this fall in the Pacific Northwest, now exceeding $70 a month.

At least 600,000 cable customers in Oregon and southwestern Washington will pay 4.4 percent more for 100-channel television service beginning this October, raising the cost of Standard basic cable to $70.49 a month.

Despite threats of cord cutting, customers in the Pacific Northwest have remained loyal to the idea of paying for television, according to Fred Christ, policy director for the Metropolitan Area Cable Commission in Washington County.

“Subscriber numbers remain steady,” Christ told The Oregonian. “People still don’t see an easy alternative to Comcast, Frontier (FiOS TV), or the satellite providers, all of which cause more or less the same amount of pain.”

The newspaper notes sports programming may not be the cause of this year’s rate increase.

The cost of Comcast’s discounted “Digital Economy” cable package, which excludes most expensive sports networks, is rising at nearly double the rate of Standard Cable, up 8.6 percent this fall to $37.95 a month.

For those who cannot afford traditional Standard cable television, Comcast’s limited basic service, which primarily consists of local TV channels, runs $12-22 a month depending on the customer’s location. It also increased in price by about $1.30 a month in August.

Comcast may not mind cord cutters too much, because it reaps significant profits from the broadband service that powers online viewing. Comcast raised speeds from 15 to 20Mbps last spring along with the price. The popular “Performance” tier now costs $53.95 a month.

Comcast is testing the reintroduction of usage caps in a handful of service areas, typically providing up to 300GB of usage per month before overlimit fees kick in. But those Internet usage limits do not yet apply in the Pacific Northwest.

Comcast blamed the rate increases on network enhancement investments including faster Internet speeds, more multi platform video and better customer service. Comcast is currently introducing its new X1 cable box that makes finding programming easier.

Customers can avoid the worst of the price increases by choosing a bundled service package, which will see a lower rate increase. Current customers can also call Comcast to negotiate a better deal by threatening to cancel service.

Roberts

Brian Roberts, the CEO of Comcast-NBC-Universal has two things to celebrate this week:

1. His exclusive invitation to golf with President Barack Obama at the Vineyard Golf Club on Martha’s Vineyard, joined by World Bank president Jim Kim and former U.S. Trade Representative Ron Kirk;
2. He is a billionaire again.

Thanks to a series of rate increases and improving broadband sales, Comcast’s chief executive has now amassed just over one billion dollars in assets, estimates Forbes magazine.

Much of his net worth rests in more than $800 million in Comcast stock controlled by Roberts. Comcast shares are up almost 30 percent in the last year and over 105 percent in the past 24 months. Comcast reported revenue of $16.27 billion in the second quarter alone.

Comcast’s earnings fueled the buyout of NBC-Universal.

Roberts had been a billionaire club member before, appearing on Forbes‘ 400 Richest Americans list in 1999 after inheriting the majority of his father’s stock, worth $750 million. By 2001, that stock increased in value to $1.2 billion. But by 2003, depressed Comcast share prices meant Roberts’ net value dropped to $625 million.

Executive compensation at most cable operators has increased right along with the prices customers pay for service.