Hidden Fees Adding Up

Consumer Reports recently published a special report titled “What’s the Fee?: How Cable Companies Use Hidden Fees to Raise Prices and Disguise the True Cost of Service”. Cable companies have advertised prices for many years that are significantly lower than the actual bills customers see – but the CR report shows that the size of the fees has grown significantly over the last few years.

The report lists several specific examples. For example, the broadcast fee and the regional sports fees at Comcast increased from $2.50 in 2015 to $18.25 currently. The broadcast fee supposedly covers the cost of buying local network channels – ABC, CBS, FOX, and NBC. The regional sports fee can cover the cost of channels carrying regional college and pro sports. In both cases, the cable companies never disclose the actual fees they pay that are covered by these fees.

The report shows that Charter increased its broadcast fee three times in the last year, starting at $8.85 in October 2019 to reach $13.50 per month in October 2019.

It’s not hard to understand why customers are confused by the many fees. The report points out that some cable bills have more than a dozen line items, which are a mix of rates for products, external taxes and fees, and these various ‘hidden’ fees – meaning they are usually not disclosed when advertising the products.

In addition to the Broadcast TV fee and the Regional sports fees the report lists the following other fees:

  • Settop box rental fee. This is to recover the cost of the settop box hardware. For many years this fee was around $5 monthly for most cable providers, but this is an area that has also seen big price increases in recent years and the highest rate I’ve seen was $12 per month. This is to recover a settop box, which for small ISPs costs a little over $100, and must cost less for the big cable companies.
  • Cable Modem / WiFi Router. This is the fee with perhaps the biggest range of pricing – some ISPs don’t charge for this while others are charging more than $10 per month.
  • HD Technology Fee. This fee used to be charged by almost every cable company back when they started offering HD channels (a decade ago many channels were offered in both an HD and an analog format). Now that the whole industry has largely gone to digital programming, CR reports the only company still charging this fee is Comcast.
  • Internet Service Fees. This is a relatively new fee that gets billed to anybody buying Internet Access. The report highlights the fees charged by RCN and Frontier.
  • Administrative and Other Fees. These are often fees under various names that don’t cover any specific costs. However, some fees are specific – I just read an article describing a $7 fee to business customers by AT&T in California to recover property taxes.

Consumer Reports collected a number of sample bills from customers and reports that the average monthly company-imposed fees for the bills they analyzed averaged to $22.96 for AT&T U-verse, $31.28 for Charter, $39.59 for Comcast, $40.16 for Cox, and $43.79 for Verizon FiOS. They estimate that these fees could total to at least $28 billion per year nationwide.

To be fair to the cable providers, these fees are not all profits. The companies pay out substantial retransmission fees for local content and pay a lot for sports programming. However, some of the fees like settop box and modem rentals are highly profitable, generating revenues far above the cost of the hardware. Some of the fees like administrative fees are 100% margin for the companies.

Consumer Reports advocates for legislation that would force cable companies and ISPs to fully disclose everything on bills, similar to what happened with the airline industry in 2011 with the Full Fare Advertising Rule. CR believes that the FCC has the authority to require such transparency without legislation.

Consumers Love Independent ISPs

For the second time in three years the municipally owned and operated ISP in Chattanooga got the highest ranking in the annual Consumer Reports survey about ISPs. They were the only ISP in the survey that received a positive ranking for value. This is a testament to the fact that consumers love independent ISPs compared to the big ISPs like Comcast, Charter, AT&T and Verizon.

Chattanooga’s EPB makes it into the ranking due to their size, but there are numerous other small ISPs offering an alternative to the big companies. There are about 150 other municipal ISPs around the country providing residential ISP service and many more serving their local business communities. There are numerous cooperatives that provide broadband – many of these are historically telecom cooperatives with the ranks recently growing as electric cooperatives become ISPs. There are hundreds of independent telephone companies serving smaller markets. There is also a growing industry of small commercial ISPs who are building fiber or rural wireless networks.

As somebody who works with small ISPs every day it’s not hard to understand why consumers love them.

  • Real customer service. People dread having to call the big ISPs. They know when they call that the person that answers the phone will be reading from a script and that every call turns into a sales pitch. It’s the negative customer service experience that drives consumers to rank big ISPs at the bottom among all other corporations. Small ISPs tend to have genuine, non-scripted service reps that can accurately answer questions and instantly resolve issues.
  • Transparent pricing. Most big ISPs have raised rates significantly in recent years by the introduction of hidden fees and charges. People find it annoying when they see broadband advertised in their market as costing $49.99 when they know they are paying far more than that. Smaller ISPs mostly bill what they advertise and don’t disguise their actual prices. I’m sure that’s one of the reasons that consumers in Chattanooga feel like they are getting a value for their payment.
  • No negotiations on prices. Big ISPs make customers call every few years and negotiate for lower prices. It’s obvious why they do this because there are many customers who won’t run the gauntlet and end up paying high prices just to avoid making that call. The big ISPs probably think that customers feel like they got a bargain after each negotiation – but customers almost universally hate the process. The ISP triple play and cellular service are the only two common commodities that put consumers through such a dreadful process. Most small ISPs charge their published prices and consumers love the simplicity and honesty.
  • Quality networks. The big ISPs clearly take short cuts on maintenance, and it shows. Big ISPs have more frequent network outages – my broadband connection from Charter goes out for short periods at least a dozen times a week. Small ISPs work hard to have quality networks. Small ISPs do the needed routine maintenance and spend money to create redundancy to limit and shorten outages.
  • Responsive repair times. The big ISPs, particularly in smaller markets can take seemingly forever to fix problems. Most of us now are reliant on broadband in our daily routine and nobody wants to wait a few days to see a repair technician. Most of my small ISP clients won’t end a work day until open customer problems are resolved.
  • Fast resolution of problems. Big ISPs are not good at dealing with things like billing disputes. If a customer can’t resolve something on a first call with a big ISP they have to start all over from the beginning the next time they call. Small ISPs tend to resolve issues quickly and efficiently.
  • Privacy. The big ISPs are all harvesting data from customers to use for advertising and to monetize in general. ISPs, by definition can see most of what we do online. Small ISPs don’t track customers and are not collecting or selling their data.
  • Small ISPs are local. Their staff lives and works in the area and they know where a customer lives when they call. It’s common when calling a big ISP to be talking to somebody in another state or country who has no idea about the local network. Small ISPs keep profits in the community and generally are a big part of local civic life. Big ISPs might swoop in occasionally and give a big check to a local charity, but then disappear again for many years.
  • Big ISPs are really the Devil. Not really, but when I see how people rank the big ISPs – below banks, insurance companies, airlines and even the IRS – I might be onto something!

Tackling Hidden Fees

The topic of hidden fees on telecom bills was in the news recently when AT&T tripled their administrative charge on cellular bills – a change that nets then $800 million annually in new bottom line. Consumer Reports recently launched a campaign they are calling “What’s The Fee?” that is identifying and tackling hidden fees from big corporations like ISPs, airlines and banks. Their advocacy branch, Consumers Union launched a web site to identify hidden fees and started a petition drive to notify the big companies that many of their customers are unhappy with these fees. Consumers Union says they get more complaints on the issue for Comcast compared to any other corporation.

I’ve written in the past about the hidden fees that ISPs put onto their bills. I think they use these fees for a number of reasons:

  • The hidden fees disguise the true price of their products. The big cable companies widely advertise the price of cable that doesn’t include the fees without telling the public that the fees can’t be avoided. They night advertise a $69 cable package that might actually cost over $90.
  • The big cable companies have increased the rates for the hidden fees at a much faster pace than the increases in the ‘basic’ published rates for cable TV. This disguises rate increases by holding down the published rates for cable TV.
  • The hidden fees put pressure on competitors. Any competitor to the big ISPs that wants to publish true rates is at a disadvantage when customers compare their true rate to the deceptive basic rates of the cable companies that don’t include the hidden fees. My clients wrestle with this issue all of the time – should they be honest with customers and look to be more expensive or should they follow the same practice of mimicking the hidden fee structure so that their pricing is more easily compared?

What are the hidden fees? Let’s look at Comcast:

  • Broadcast TV Fees. This fee supposedly covers the cost of the retransmission fees paid to the over-the-air networks like ABC, CBS, FOX and NBC. Comcast charged $1.50 for this fee in 2015 and it’s now up to $7.75. Comcast doesn’t mention on bills that they own NBC. Comcast already charges all customers a substantial fee for basic TV that far exceed the cost of buying this programming.
  • Regional Sports Fee. This fee is now up to $6.75 per month in many markets (varies somewhat around the country). This fee supposedly compensates for the various regional sports networks. What Comcast fails to mention is that they now own the majority of regional sports networks, including a big pile they are getting due to the AT&T / Time Warner merger. This fee was $1 in 2015.
  • Settop Box and Cable Modems. While these are not hidden fees, these charges are supposedly set to recover the cost of the hardware. But in recent years Comcast has jacked up these fees significantly, to the point that I would consider a big portion of these to also be hidden fees. The charge for a cable modem is now $11. The company charges $9.95 for the first settop box and $7.75 for additional ones. Just a few years ago these fees were around $5. In both cases it’s likely that the settop box and cable modem costs Comcast $100 or less.
  • HD Fee. Comcast no longer charges separately for this, but I still see this on the bills from some of the other cable companies. This fee was established years ago when HD was a new technology, but today practically every channel is HD.

The Comcast fees have gotten so large that they could add $25 per month to the advertised price of a cable / broadband package. There is an open class-action lawsuit against Comcast that is seeking damages for customers who were charged these fees when they purchased advertised products that didn’t mention the fees.

What is most perplexing is that regulators have been quiet on the topic, even though just about everything to do with these fees is deceptive. Comcast swears that it provide full disclosure about these fees and that customers are not deceived, but one has to read some truly fine print on their web site when ordering a cable product to understand that these fees will be added to the advertised price.

Do the Big Companies Even Want to Get it Right?

020916-F-4728F-001The latest Consumer Reports rankings are out for telecom providers, and the results are much the same as in past years. There are many different groups that rate companies and we often hear of reports that put the cable companies at the bottom of all companies in terms of customer service.

But the Consumer Reports ranking is more comprehensive. It looks at a lot of factors such as the perceived value that customers see with the provide, reliability, speeds, and support both in the home and over the phone. And they compare all of the major telecom companies and don’t compare to other industries.

Not surprisingly, HughesNet and their satellite broadband ranks the lowest. I’ve never heard anybody talk nicely about their product since it’s slow, costly and also has a lot of latency and delays. Many people say it is barely better than dial-up. It will be interesting to see how satellite ranks now that Exede is in the market with a faster product. As I reported a few weeks ago, the issue with Exede is the low total data caps, but at least the 12 mbps download is a huge improvement.

Ranked next to satellite is MediaCom which always comes in dead last among cable and telcos. Ranked next at the bottom are the various DSL providers, with Frontier, Fairpoint, Windstream and AT&T DSL. For the most part the customers on these services have older DSL technology that is only delivering a few Mbps download speeds. There is faster DSL technology available today and better ways to deploy it by bringing the DSLAMs closer to customers, but the companies listed are for the most part not pumping much money into DSL. The exception is Frontier who has gotten a pile of federal subsidy money from the new USF fund to upgrade and expand its DSL footprint.

But right next to this old DSL technology is Comcast, followed closely by Verizon DSL and then Time Warner. Verizon barely even advertises that it has DSL anymore and it is a surprise to see it more favorable with customers than Comcast.

At the top of the list and doing the best job are the smaller cable companies and fiber providers. At the top of the list are WOW and Wave (Astound) followed by Verizon FiOS.

It just amazes me to see these large companies like Comcast and Time Warner do so poorly with their customer service. They have been at the bottom of these kinds of rankings for well over a decade now and it’s obvious that they are willing to live with giving poor service. When you look at the rankings and see that Comcast is viewed by customers to be doing a worse job than Verizon and CenturyLink DSL you just have to shake your head.

It’s very obvious that they don’t care to become better because by spending some money they could do much better. Doing customer service well is not some unreachable mountain of a task. Thousands of companies do it well. If WOW and Astound can do it well, so can Comcast and Time Warner. It’s a matter of investing in the right systems, the right training and the right management of the process. Being big is not an excuse for being crappy, and if it is a valid excuse, then this alone ought to stop the Comcast / Time Warner merger.

I would think that the management of these companies would hate seeing themselves at the bottom of these lists. But they obviously like profits more than they hate doing a poor job. And that is what I don’t get. These companies have lost millions of customers due to dissatisfaction with their service and their best growth strategy is to lure back customers in their existing markets by doing a better job.