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Cable Technology Feature Article

August 01, 2013

Time Warner Cable Sows Seeds for Future Competitors

By Gary Kim, Contributing Editor

In November 2012, Time Warner (News - Alert) Cable instituted a $3.95 monthly modem-lease fee and now is raising the fee to $5.99. The hike could boost annual revenue by $150 million, some analysts suggest.

Some will decry the increase as just another way Time Warner Cable is instituting a rate hike. Those observers would be correct. Any service provider has the right to set its prices, and customers have the right to refuse to pay.

Time Warner Cable customers can avoid paying the recurring charge of the modem rental by simply buying a device outright. Some won’t like that alternative and will either have to pay the modem rental fee, or find another provider.

Others will object to the seemingly endless round of price hikes they see on their video entertainment bills and now, it seems, high speed access services. In some ways, the way Time Warner Cable is approaching the fee is analogous to the way airlines price tickets and then many other services, such as onboard food or checked baggage.

That simply is to say that shoppers look at headline price and then tend to make their decisions on that basis. That is why quoted online prices tend not to include the taxes and other fees: a seller wants to show the best possible price.

So a seller benefits by quoting the base product price and then only after the customer has committed, adding on the taxes that actually are a required part of the ticket, and then any other incremental sums.

In essence, Time Warner Cable is doing the same thing, trying to keep its posted product prices as low as possible, while still growing revenue per account.

Time Warner Cable’s moves are, in a sense, good news for other competitors who will be able to compete under Time Warner Cable’s price umbrella. The higher Time Warner’s prices go, the more competitors can charge and still offer a discount to Time Warner Cable prices.

Proponents of competition might be justified in “cheering” the Time Warner Cable move, in a real sense, as the higher effective prices mean more room for competitors to enter the market with different value propositions or retail price points.

Nothing is more helpful to new competitors than an incumbent’s high prices, irritated customers or declining reputation.

In the short term, the modem rental fees will boost Time Warner Cable’s bottom line. In the long run, Time Warner Cable is raising the revenue opportunity for competitors.

Edited by Alisen Downey

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