Comcast: Charging more for less

Monopolies are bad for consumers and society (and of course death to competition). To my mind, telecom monopolies are the worst, particularly now that they’re fighting the threats to their core business.

Our local cable TV provider, Comcast, is pushing a double whammy to try to raise revenue, and hiding behind misleading (and most likely untrue) claims as to why it needs to charge customers more in a down economy.

First, without notice last month it dropped 11 channels (including TV Land and SyFy) from its cheapest service — “Limited basic”. When I called to ask, the switch was attributed to the digital switchover. (It dropped a 12th channel last year). As best I can tell, it dropped the channels not because it needs to drop them, but because now it has the technology to more finely control channel choices — and wants to force consumers off the basic service to more expensive plans.

The Mercury-News this morning reported that Comcast plans to raise rates 1.5-9% on the three least expensive services — priced at $15, $46, and $60. Its honesty here is even more suspect. (Ironically, the Merc and its sister papers won a full-page of “tombstone” legal notices by Comcast announcing the price hikes in 9 separate jurisdictions.)

According to the Merc,

Comcast attributed the price hike to rising costs, including an increase in the cost of TV programming, and investments in new technology.

"These investments make it possible to deliver continued innovations such as more high-definition (HD) networks and video-on-demand (VOD), converged services, multi-platform content and new services that consumers demand," the company said in a statement.

The problem with this claim is that none of these new services are going to the basic cable customers who are paying the 9% rate increase. It’s a smokescreen for using its monopoly power to raise profits — presumably because it can’t extract the money from its most expensive plans.

The Merc continued

Mindy Spat, communications director of The Utility Reform Network, a San Francisco-based consumer advocacy organization, said Comcast appears to be taking advantage of its lower-end customers.

She noted that many Bay Area consumers who were unable to tune in the new digital broadcast signals signed up for limited basic cable to continue to get the local channels after the old analog ones were switched off earlier this year. With the increases, Comcast also appears to be trying to push customers into higher-tier packages, she charged.

"If consumers had choices, they certainly would not choose Comcast," Spat said. "But they don't, and Comcast is taking advantage of the fact."

TURN is an activist group to the left of Consumers Union and to the right of ACORN. This may be the first time in my life I’ve agreed with TURN, perhaps suggesting the degree of the company’s naked assertion of monopoly power.

Great healthcare blog

Prof. Scott Harrington of Wharton is an expert on healthcare economics. I learned of him from his detailed op-ed in Monday’s WSJ, and then used that to find his website and blog.

Harrington’s blog provides the best and most detailed economic analysis I’ve found for the current healthcare debate. There have also been excellent heathcare posts at EconLog (a joint blog of several economists). (Econlog, Cato and Heritage are good places to track economic issues more broadly.)

Harrington’s blog pointed me to a dynamic column in Forbes about last week’s latest presidential salvo over transforming the healthcare system. Here are excerpts from the column by David Gratzer, MD:

Before a tense and packed House, the President told Congress:

"Millions of Americans are just a pink slip away from losing their health insurance, and one serious illness away from losing all their savings... And in spite of all this, our medical bills are growing at over twice the rate of inflation..."

That's President Clinton, sixteen years ago almost to the day, in a speech about a complex health-care plan built on government expansion, with billions in hidden costs. Last night, a President--who was only 32 then--is now in the White House, out to prove that nothing has changed in the minds of the Democratic leadership since the Clinton debacle.

President Clinton's health-care legislation didn't fail in 1994 because people didn't want better health care. The White House plan failed because it was too bureaucratic, too complicated, and too expensive.
…
The President (yes, Obama this time) told Congress that "our collective failure to meet this challenge--year after year, decade after decade--has led us to a breaking point." Has it really? When President Clinton conjured similar fears about pink slips and millions losing coverage to Congress in 1993, 15.3% of Americans were uninsured. In 2007, the percentage of Americans without insurance was...15.3%. A solution to this problem is needed, but the fact that it hasn't grown worse is a sign that Congress has time to think, and little reason to panic.

Since President Clinton spoke of health inflation in 1993, health costs continued to rise faster than wages, but President Obama refuses to acknowledge years later that the U.S. health inflation rate is almost identical to rates in government-run systems. Rising costs must be attacked, yes, but if rationed health management can't stop health inflation in Britain or Ireland, will a rush to President Obama's version of HillaryCare do any better?

The entire column (and both blogs) are strongly recommended.

Latest in a series of outsourced economic policy criticism as a cost-cutting move during difficult times.

Monetizing Twitter

Michael Arrington of TechCrunch remarks on Twitter’s dilemma for starting its revenue model. To reword his points:

• Many firms are acquired pre-revenue and thus their valuation is made without proof of its revenue model.
• Before a startup has a revenue model, its revenues are anyone’s guess.
• Once a firm has revenues, the range of guesses will be much narrower — and often lower than the most optimistic predictions.

Of course, I’ve long been skeptical of Web 2.0 companies and their ability to create viable business models.

Cross-posted to Engineering Entrepreneurship.

Dick Tracy phone in London before NYC

Some 60 years after it was imagined by Chester Gould, and more than six months after the product was pre-announced at CES, LG recently released its “GD910” watch phone. Dick Tracy never heard of 3G networks or touch-screen LCDs, but he did sport the world’s first (albeit fictional) wrist-mounted videophone.

Priced at £500, the first 50 phones that went on sale in London sold out in 10 minutes, although more are coming. The phone is also available in Dubai but not the US.

The FT reviewer raved about the phone in this morning’s “How to Spend It” conspicuous consumption supplement. However CNET UK was more restrained.

However, FT reviewer Jonathan Margolis notes the main value delivered by the phone is status:

Will you find it useful? Absolutely not — unless it’s to impress people in offices, bars, airport lounges and everywhere else on the planet. … It’s the Bugatti Veyron of gadgetry: pointless, impractical, sublimely silly but impossibly desirable. Could it be a rebirth for the most unwanted technology in gadget history, the video phone call? Of course not, don’t be silly.

If it’s available for sale without a required data plan, then at $834 actually quite a bit cheaper than the iPhone. Also more exclusive — a few hundred vs. 30 million — even if it’s not nearly as useful.

First shoe on Motorola's Android strategy

Motorola today announced their first Android phone, to be available in time for Christmas on the Android T-Mobile network. As a piece of hardware, the Motorola Cliq is a touchscreen with slide-out keyboard. This is the same phone as the previous leaked Motorola “Morrison” model.

Motorola’s main claim to fame (other than the brand and distribution) is Motoblur, a new skin that integrates social networks, contact management and email similar to Synergy under Palm webOS.

There are two curious things about the announcement. The first is starting with T-Mobile, the smallest and least important of the major US operators, and the one that has all the installed based of Android phones. Aren’t there Sprint, Verizon or AT&T users that also want Android? (Supposedly the Motorola Sholes will be available on Android later this year).

The second curious thing is Motoblur, which is not quite a GUI but more than an application. Obviously it’s an attempt to create differentiation within Android (and perhaps fix some of its usability problems). Is it also an attempt to create switching costs between Motorola and other Android handset vendors? If not, then when a user drops his Cliq in the pool he’s just as likely to buy an HTC or Samsung as a Motorola.

If Motoblur is about switching costs, then Motorola will have to commit to offering a family of Motoblur phones over the next few years -- and that Motorola hopes that such phones will be a big part of its business.

This sort of semi-platform strategy strikes me as neither fish nor fowl. Motorola doesn’t have its own smartphone platform, but it wants some of the benefits of doing so. Sony Ericsson and Nokia tried this with custom GUIs on Symbian and eventually gave up, although the cost of maintaining a full GUI would have to be more than maintaining what appears to be a grouping of applications (or an integrated app suite) on Motoblur.