Cox Raising Rates

The Advocate reports that Cox is raising its rates in the "Greater Louisiana" market on January 15th. That marketing region now includes both Lafayette and New Orleans and an email to the author of the article lead to confirmation that the rate hikes will apply in Lafayette. I'd been uncertain as to how expanding the Baton Rouge market to include Lafayette and then New Orleans would change Cox's pricing policies. For a good while during and after the fiber fight in '04 Cox left rates unchanged in Lafayette while raising them in the then-separate Baton Rouge and New Orleans markets. The consolidation apparently makes that just too embarrassing a policy to continue and Lafayette is no longer benefiting from lower list prices. (That does not mean, of course, that Cox has not continued to cut special deals with customers inside the city limits of Lafayette. Anyone who has dropped Cox for LUS Fiber can testify to the predatory pricing "deals" offered those who express an intent to move away from the national corporation for the local utility.)

Rates rising:

Cox Communication’s across the board video price increases include:

• Cox TV Starter: Rising from $19.55 to $21.99.  (12.5%)
• Cox TV Essential: Rising from $56.99 to $60.29. (5.8%)
• Cox Advanced TV: Rising from $63.98 to $65.98. (3.0%)

Increase telephone rates by $1 per month 


Internet prices will also increase—but the Advocate article doesn't specify by how much. 


Why?
Why raise prices...or at least why raise prices now? On Cox's part the explanation is simple: higher costs. It rightly claims that prices have increased for big national networks like ESPN as well as retransmission fees for local network affiliates like KLFY. But that sort of blame shifting doesn't begin to explain the increases in either the telephone or the internet side of things in which costs are not increasing. It also looks like a pattern of raising prices the most on the cheapest tiers of video and telephone, and perhaps the internet as well—a pattern that is not well explained by the rising costs of national programming.


The Advocate reporter, gratifyingly, doesn't accept the corporation's explanation at face value and asks for a second opinion; this one from a consumer advocate: 

Mark Cooper, director of research for the Consumer Federation of America, said while cable companies’ costs have risen, the firms always increase their margins more than the costs themselves.

“It’s a down economy. They’re the only ones that get that much,” Cooper said. “Their costs didn’t go up four bucks a month. No way. I guarantee you their margins are going up.”

Raising prices in a down economy is a luxury that only a semi-monopolist like Cox can afford; in Lafayette they'll have some rare local competition whose lower prices will now look even more attractive.


Coordination?
The Baton Rouge Business reports that Cox is implementing a interface and HD channel upgrade. That's convenient timing. The new interface looks interesting. 

LUS Bond Issue Approved, Interest Payment Starts

Ok, got behind on posting this bit of news; the Lafayette City-Parish Council approved the issuance of the last round of bonds the city voted for back in 2005—unanimously. The unanimity is a good sign for the future and indicates that at least the current nay-sayers have limits to just how much damage they are willing to inflict on a well-respected utility.

The only new news in the reports was to be found in the Advertiser's final paragraph:

LUS Fiber has made an interest payment for its $110 million bond issue. That payment was made on Oct. 18 in the amount of $2,747,165.64, according to Lafayette Consolidated Government Chief Financial Officer Lorrie Toups.

That's the first interest payment and as much a milestone in its own way as taking the final batch of bond  money.

You can check out the story in the Advocate and a version that went out over the AP wire as well.

LPF commenting policy upgraded

I'm increasingly impatient with Anonymity. Long-time readers will recall that I have long pushed commenters to leave real names and failing that to maintain a consistent pseudonym. During the active political battle that took place over fiber I tried to strike a balance, calling out the poor reasoning and highlighting the lack of confidence in their own arguments anonymous posters "enjoyed." I'd let a comment or two go by and then start pushing. I was able to push a number of opponents into posting using their own names and staking their own reputation. It helped a lot; comments were always more civil and useful on LPF than most other sites. I modified my own position more than once in response to responsible postings. Things have changed; there is no longer an ongoing political campaign and, probably even more importantly, the larger community of Lafayette media has seen the value of real identity commenting. It looks like our community has come around to the position long held on this site that real, useful discussion comes from having risking real reputations. KATC, the Advertiser, and the Independent had instituted real name policies. I think it has already improved the level of discourse. 

Consequently I'm upgrading my policy for comments. I expect real identities and will feel free to go beyond simply admonishing those that refuse to show that simple respect for the basis of real conversation. 
Two things are necessary to make a claim that would be worth spending time really thinking about and engaging in an honest discussion about: 1) A real person with a real reputation to dispute with. Until that happens I bear all the cost and the anonymous person is freeloading on the reputation I establish...I am through subsidizing unfair sniping.  2) REAL references with real links or at the very least references to title and where/how to get the materials that people vaguely reference. I almost never post a piece without traceable references on this blog and again I am no longer willing to subsidize the bad practices of others by allowing them to trade on the quality of referencing that this site has established. 

Notice is hereby served.

Pssst ... Wanna Buy a Law? Lafayette and ALEC

What's Being Said Dept.

Bloomberg Businessweek has an article up that features Lafayette's travails with the Local Government (un)Fair Competition Act as a the clearest example of how corporations can buy favorable legislation. In its article, Pssst ... Wanna Buy a Law? Businessweek traces the law back to its genesis in Utah and the American Legislative Exchange Council (ALEC) and through "Noble" Ellington the rural legislator who got a call from the cable companies and gutted his own rural broadband bill in order to insert the anti-Lafayette law. (Gutting an already existing proposal was necessary because the deadline had passed for submitting new bills.)

The initial pages briefly recount the story of the (un)Fair Act nicely with new interviews with both Joey Durel and Terry Huval and it's worth the read for that part alone. But Lafayette serves as a human interest framing for the larger story of how ALEC operates. ALEC has appeared on these pages before. ALEC is an engine that produces ready-to-file legislation that pretty uniformly reflect the desires of the corporations that sponsors that provide the vast majority of its finances. State legislators are paired with lobbyists and executives to produce "good" laws that govern their industries. The corporations generously provide expertise, study "academies," and short issue analyses. It is through this mechanism that Louisiana got its anti-Lafayette law; a law that is extremely similar to laws introduced and passed in a number of other states—most recently, as the story notes, in North Carolina where its local adopters didn't even bother to change the name. From the article:

None of this is illegal. And it’s effective. It allows companies to work directly with legislators from many states, rather than having to lobby in each state individually to get language into a bill. ALEC says its mission is to help state legislators collaborate around the Jeffersonian principles of free markets, limited government, federalism, and individual liberty. It does this, and something else, too. It offers companies substantial benefits that seem to have little to do with ideology. Corporations drop bills off at one end, and they come out the other, stamped with the imprimatur of a nonprofit, “nonpartisan” group of state legislators. Among other things, ALEC is a bill laundry.

Ellington, the legislator who sponsored the law in Louisiana, was at one time proud enough of his work to he to fly out to Seattle, Washington to discuss the ALEC bill he sponsored to block Lafayette's project on July 30th 2004—with a representative from Cox Communications. The story closes by returning to Louisiana and follows up on the subsequent history:

Noble Ellington hasn’t followed what became of his bill. “I just hope we fixed it,” he says, “so private industry and the city and parish were satisfied with what we did.” Terry Huval and Joey Durel both travel around the country now, talking to other small towns about how to get wired. Durel believes it’s going to get worse before it gets better. Huval is working with towns in nearby states but won’t say where. When a plan goes public, he explains, a bill—that bill—is not far behind. ALEC’s model bill on municipal broadband works because the idea of a city providing Internet access is alien to even most lawmakers. If a bill shows up at the right time, in response to one or two cities, it smothers an idea that hasn’t yet gathered many defenders. “I tell people this is not for the faint of heart,” says Huval. “If you don’t have the drive, don’t even start.”

LUS Fiber Seeks to Complete Bond Sales

The Advocate reports that LUS Fiber is going before the City-Parish Council Tuesday evening seeking final approval to bond out the remaining $14.5 million of the bonds of the $125 million the voters approved back in 2005. Articles in the Advocate and the Advertiser report parallel stories. The tale boils down to Huval explaining that the new utility is paying its operating expenses but isn't yet generating enough income to comfortably pay its ongoing debt service to the bondholders while at the same time acquiring new customers.

That's going to seem counter-intuitive to some; after all, new customers is supposed to be what every growing business needs, right? Yes, but there's the long run and the short run—and laws and regulations that simply stink. We need to dig a little deeper to even begin to understand what is going on here.

Customer acquisition costs

Here's a term to store away: "customer acquisition costs." It's an update on the old saw: "It takes money to make money." In the world of telecommunications networks this is particularly true; it takes a lot of money to make money. The biggest chunk comes from simply paying to build the network; but even then there will be a continuing capital cost for paying to supply each user with their own fiber link, putting an expensive Optical Network Terminal on each house to support video, voice, a IP translation onto copper wiring, bringing wiring into the house, and to set most users with an nifty light-weight computer in the form of a set-top box. That part of the "start-up cost" is taken each time a customer signs up. Estimates for the cost of supplying a household after "passing" them with the basic network are variable but start at 650 dollars per customer and range up from there to figures like a 1000 dollars.

It will typically take years to payback that extra cost; it's a great (and absolutely necessary) investment since you're not going to make money in the long run unless you have plenty of customers but each customer you pick up means years of short-term debt load. It's worth noticing that all of LUS Fiber's competitors long ago paid off all these costs. It's a testament to the basic business plan that the community utility is able to offer generally better services to the city at a lower cost than the private competition.

Still, why not go ahead and take out the whole amount that the citizens authorized? Why take some early and then take more later? Doesn't that just sound bad—like LUS didn't anticipate the need?

The economy, smart business and lousy politics

It's perfectly possible, and even probable that LUS didn't anticipate the need: the long legal delays imposed by the incumbents lawsuits skewed their initial estimates and nobody anticipated the Wall Street crash and subsequent financial chaos and recession. Cable lost a record number of subscribers this year largely as a consequence of that recession according to analysts. Not the best market in which to begin a new network.

But there are also some smart business reasons to not put all of your financial eggs in one basket of borrowing. First, and most obviously, it's a good practice not to borrow money before you really need it—you just end up having to pay interest for a longer period of time so it is cheaper to space borrowing. But there are also federal regulations to take into account. According to the Advertiser's interview with Huval the IRS wants to be reassured that municipal bonds are actually being spent on building what they are supposed to build—in this case a fiber-optic utility—and they want to see the product that the bonded indebtedness is meant to build built within about three years or the issuer faces penalties. (Presumably this is meant to prevent using tax-exempt bonds to "arbitrage" or leverage the purchase of taxable but higher-yielding investments thereby defeating the purpose of having tax-exemptions for municipalities to build basic infrastructure instead of using the piles of money to invest in the open market.) But a fiber-optic network has a longer period of capitalization than your typical road or damn construction; as already noted each brand-new customer imposes a large acquisition cost. So it makes smart business sense to split out some of that downstream capitalization and only use it when it becomes necessary; you get an additional three years of capitalization for the investments you have to make in bringing late-adopters online.

So while it might be lousy politics to go back to the well, it can be smart business.

(Note: The Advertiser has their article running in the print edition but it's not appearing online yet...look for an update here when the on lie copy appears. —Here you go.)