March 3, 2005

Cable Wars

By Vickie Aldous
Ashland Daily Tidings

Charter Communications has been offering a popular cable television package in Ashland for $24.15 per month while offering the same package for $45.99 per month in other Rogue Valley communities that lack a city-owned telecommunications service.

Dena Adame, a telecommunications technician for the Ashland Fiber Network, installs a new filter for cable service Tuesday. Orville Hector | Ashland Daily Tidings

The price difference raises the issue with city officials of whether Charter, the nation's third largest cable company, has engaged in predatory pricing against the Ashland Fiber Network, the City of Ashland's cable television and high-speed Internet service.

Under federal law, it is illegal to discriminate in price between different consumers when the effect is to lessen competition or create a monopoly.

Charter customer service representatives quoted a price of $24.15 for the Expanded Basic cable package in Ashland to a Tidings reporter, while quoting a price of $45.99 for other Rogue Valley cities.

After being contacted this week about the price difference in Ashland versus surrounding cities, Charter Western Division Vice President of Communications Craig Watson said the corporate office had been unaware of the $24.15 offer in Ashland.

He said Charter will stop making the offer in Ashland.

"We are no longer going to offer that rate as of tomorrow, or when your article comes out," Watson said on Tuesday by phone from his office in Long Beach, Calif.

Watson said the local management team was responsible for the pricing. Gary McDonald, a Charter general manager who worked out of the company's Medford office, is no longer with Charter and has not been replaced, Watson said. Remaining local staff members referred all questions to Watson.

The offer - which Watson said was meant to be a short-term promotional price - has been in effect since at least February 2004, he confirmed.

Customers who signed up for Charter service at the low price will continue receiving that price for now, although Charter may raise the price in the future. New customers will not be offered that rate, Watson said.

Instead, Charter will charge $32.40 per month for Expanded Basic.

AFN charges $32.41 per month for that package, according to AFN and Electric Department Director Dick Wanderscheid. Nationally, similar cable packages average about $45 per month, Wanderscheid said.

Predatory pricing?

Watson said Charter was not trying to undersell AFN with the $24.15 price and drive the financially-strapped city service out of business.

"No, that's not the case. Absolutely not. There's no intention of that," Watson said.

But Wanderscheid disagrees. He said the offer seemed like an example of predatory pricing.

"They don't want any other places to do what Ashland has done. They want us to go away," he said.

Opponents of municipal cable television and Internet services have long argued that it is inappropriate for governments to compete with private businesses that provide those services. But Watson said he does not believe Charter has taken a stance in the debate.

"I don't know that I've seen us take an official position. To my knowledge, we don't have an official position," Watson said.

However, the lobbying group Oregon Cable Telecommunications Association - which represents Charter and other businesses - is supporting a bill in the Oregon Legislature which would make it more difficult for cities to launch cable and Internet services, OCTA Executive Director Mike Dewey confirmed on Wednesday.

Stiff competition elsewhere

Word of Charter's low cable television rate in Ashland was met with concern by some city officials.

"They are either underselling for the sake of competitive pricing or gouging the heck out of everybody else," said Mayor John Morrison. "Either way, it's not a pretty picture. I'm very concerned about the pricing issue."

Ashland officials are not alone in the nation in worrying about the effect of low rates by businesses in competition with municipal services.

Cities in a variety of states often see cable and Internet businesses charging lower rates than they do in surrounding communities without a government-provided service, according to John Kelly, director of economics and research for the American Public Power Association based in Washington, D.C.

But allegations of predatory pricing are extremely difficult to prove, he said.

Iowa Association of Municipal Utilities Executive Director Robert Haug found that out when he said he could not interest any prosecutors in pursuing a case against the private company Mediacom Communications.

Haug said the company had offered cable television for two months free and 10 months for half off a price that was already lower than what was offered in cities without municipal broadband services. Pursuing a predatory pricing case would have required years of expensive litigation, with little chance of success.

"Like most states, Iowa's anti-predatory pricing laws are old and ineffective. There has been no successful prosecution of predatory pricing since the 1930s," Haug said, although he added a proposed state bill would strengthen predatory pricing protections.

Cities in Iowa saw some reduction in customer numbers after Mediacom began making the offer, but most customers remained loyal to their municipal service, according to Haug.

"For the most part, there was little effect. Some municipalities lost business," he said. "Most of our member cities found the offers so transparent that members of the community understood what was going on. They thought, 'We may get lower prices for a year, but if Mediacom is successful in getting rid of our municipal service, it's going to be $50 next year.'