The Economy of Rate Hikes

The economy may be in the toilet and aggressive promos may be out there (like DISH’s $9.99/month for 150 channels for 6 months when you sign a 2-year contract), but that’s not stopping the rate hikes from cable, telcos and DBS. It may seem pretty odd that companies will offer drastically slashed promotions while the sector continues to raise rates overall. But Sanford Bernstein’s Craig Moffett said there is a perfectly good explanation. Yes, such a combo could generally be expected to increase churn rates. “But these are not ordinary times,” Moffett said in a note to clients earlier this month. “Churn rates are currently at all time low levels due to the collapse of the housing market. Faced with fewer purchase occasions, competitors are left to resort to more aggressive promotions to counteract the inertia of ‘staying put.’”

It’s hard to put an exact figure on rate hikes since it often varies by market, but Moffett estimates that Comcast is raising expanded basic analog by about 6.3% and Time Warner Cable by about 6.6%. Cablevision said in the fall it would raise cable prices an avg of 3.5%, with triple-play pricing remaining at $90/month. Verizon FiOS and DirecTV haven’t announced rate hikes for ’09, though Moffett notes DirecTV has hinted at 4-5% increases (similar to ’08). AT&T U-Verse has detailed several adjustments, including a 40% spike in the monthly cost for non-DVR receivers along with a 50% increase for its Spanish package. DISH will freeze prices on its lowest priced package, but will raise other packages in Feb, including America’s Top 100 by 6.1% and America’s Top 100 Plus by 4.7%.