Cable’s Response to the Consumers Union
On Thursday, NCTA responded to the Senate Commerce Committee in regards to a Consumers Union complaint about cable’s migration to a digital platform. The CU has questioned the impact of our migration on the simultaneously occurring digital transition for broadcast signals. In the letter, we sought to specifically address the Consumers Union allegations that our migration is an attempt to surreptitiously game the broadcast transition to fleece our customers.
My co-author Paul has written repeatedly on the distinction between cable’s migration to a digital platform and the broadcasters’ transition to digital broadcast. While the two share one common element – the movement from increasingly obsolete technologies to delivery methods that greatly increase consumer value – they are two completely different events.
You can refresh your understanding of the differences between the two by reviewing any of the following posts.
- Clearing up the DTV Transition
- The two digital transitions
- Separating the two transitions
- Once more – there are two transitions…
- More DTV Confusion
Without dwelling on the point, cable’s migration away from an analog platform to digital began years ago, in the mid 1990’s. Since 1996, cable has spent $130 billion dollars to create a robust platform not only for digital delivery of video, but to also provide valuable services like high-speed Internet and telephone service. We have been upfront about our plans to migrate our delivery to digital and the fact that 60 percent of cable customers now have digital is a pretty good indication that consumers also like it.
Cable operators could have simply set a date, contacted their customers and said, “On this date, you’ll need a box. If you don’t have one, you won’t get cable.” Instead, we took a gradual, phased approach to the upgrade in an effort to cause minimal disturbance to our customers. We recognize that no matter how carefully we manage the switch to digital some customers will be inconvenienced. Even a gradual shift to this new technology will cause some disruption. However, the industry has done all it can to be upfront about the process, and to ensure that the unfortunate overlap of our ongoing migration and the rapid shift in broadcast technologies do not harm our customers.
Many of the complaints about our move from analog to digital center around the fact that customers will be required to obtain a set-top box, while they do not currently need one. This is true. Note that all of cable’s competitors – satellite video services, Verizon, etc. – run on all-digital platforms and require every subscriber to obtain a set-top box. By contrast, many cable companies plan on retaining at least some analog services. No box will be needed to receive those services.
In contrast to cable’s digital migration, the DTV switch will occur on a flash-cut basis on set date, February 18, 2009. The DTV transition was handled that way out of necessity – needing to free spectrum for emergency services and others – there has been a fair amount of confusion and fear of possible disruption. We have worked tirelessly to minimize the effects of that rapid change on consumers. We joined with the National Association of Broadcasters, the Consumer Electronics Association and a host of other organizations to educate consumers. We have aired public service announcements valued at hundreds of millions of dollars, and used many other tactics to help ensure that the American people are not inconvenienced by the cut over from analog to digital broadcasts.
The fact that a hard date was set for the DTV transition just as cable’s migration began accelerating does not mean that the two events are related.
Like the DTV shift, however, ours is also being done out of necessity. Our companies have millions of customers who are looking for faster Internet, less expensive phone service, increased hi-def viewing options, and more video-on-demand content. To meet that demand, it is critical for cable operators to free up the space consumed by analog channels.
Technologies like DOCSIS 3.0 – cable’s wideband Internet service – make use of the freed analog space. For example, for every four analog channels, DOCSIS 3.0 channel bonding can deliver 160 mbps – typically 10-50 times faster than current cable Internet service. In video terms, for every channel delivered in analog, cable operators can deliver 6 digital channels.
Analog channels, viewed through that lens, end up costing cable operators more in terms of lost opportunities for other services. They become more expensive to maintain, and that expense increases rapidly.
Think about it this way. Horse-drawn carriages were once a popular method of getting around. As people adapted to the new technology of automobiles, things began to change. Different types of road construction may have increased wear on parts. Parts for the old buggies may have been harder to obtain, or more expensive. The technology simply outpaced many consumers who were loyal to what they knew.
This migration is no different.
Today’s telecommunications platform requires hardware to connect. The cable industry (through CableLabs) has worked with the consumer electronics industry to develop technology to allow you to connect to digital service without a STB – first with the one-way Digital Cable Ready sets and now the interactive tru2way televisions. The first sets with this technology are already for sale in Denver and Chicago. We are confident that consumers will find tremendous value in the digital services you will be able to get using these devices.
While there will, as mentioned, be some customers who are inconvenienced during our migration, cable has done all it can to keep the number impacted, and the disruption they experience, to an absolute minimum. Cable continues to feel the pressure of competition from both satellite and the phone companies. Our customers have choices, and we do not take that for granted. We work every day to provide great products with great value, and strive to keep every customer happy.
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November 13th, 2008 at 11:13 am
A fine and well reasoned response but it fails to answer the core question: are cable companies charging more for less or the same service?
November 16th, 2008 at 3:30 pm
Stephen is right, NCTA’s response does miss the point. It also brings to light another issue that should be investigated. In it’s response, NCTA states that for each analog channel cable companies retire, they can replace it with six digital channels. The NCTA admits it is much cheaper for cable companies to deliver digital channels than analog. This being the case, the FCC should be investigating why cable companies are charging their customers so much more for digital service than their already overpriced analog service.
November 18th, 2008 at 4:52 pm
Stephen, it actually doesn’t fail to answer that at all.
There are several factors that impact the price at which a company offers service. In the case of analog cable, there is the cost to provide the service (physical plant, personnel, programming, etc) and there is the cost of delivering an obsolete service to those who cling to it while other options are available (lost opportunity cost).
In the case of analog, it’s not necessarily a question of it being the same dollar value for the same number of channels (or the same dollar value for less channels). It’s a question of whether the costs for the operator are expanding at greater than the analog service revenue (which is declining due to the migration).
If the analog customer is costing the operator more to support/maintain, that customer may see fewer channels at the same price. But that may be in contrast to paying more for the same number of channels if all costs continued to increase.
Given that different operators are addressing this in different ways, there’s not really a “one size fits all” answer. I’m just trying to explain why the costs may stay the same, even if the channel lineup doesn’t.
November 18th, 2008 at 4:59 pm
Gianni –
It’s not a question of digital costing less. You still have the same costs for fiber in the ground, personnel etc. You also have hardware costs etc.
If you look at what you get as part of the digital package, your claim that digital packages should be investigated is way off the mark. If you consider the options available on a digital system (HD, Video on Demand, etc), you actually get far more value for the difference in rates.
And the fact that cable can deliver 6 digital channels in the space of 1 analog channel doesn’t mean the programming costs are static either. Every one of those six channels requires payment to a programmer and those can vary greatly.
The economy of scale for cost averaging 6 channels where one used to reside can actually increase the viewing options available while minimizing the additional expense, making the digital value even greater.
December 16th, 2008 at 3:37 pm
[...] written about the so-called “Digital Migration” on quite a few occasions (Check this post for links). Again, for the short version, there are two transition taking place right now – the [...]
February 3rd, 2009 at 4:32 pm
[...] leaves out the context that cable has been migrating towards an all-digital environment for years (Here is one typical post explaining the transition). They also assert that channels for use in DOCSIS 3.0 services will come [...]