A few weeks ago I came home to a letter from Hargray, informing me that it was -- once again -- raising its rates, this time on Internet services. My first reaction was one of supreme irritation, which I figured would probably be the reaction of most Hargray customers, as well. To that end, I asked Andrew Rein, vice president of sales & marketing for Hargray, for an explanation.
Question. You say you are raising your Internet service rates because of the need to continue to make "network investments." What specifically does "network investments" entail?
Answer. Over the past year, Internet usage has continued to increase substantially due to new bandwidth-intensive apps like social media, video sharing and streaming video. In fact, Internet usage across our network has increased by more than 300 percent in the past two years alone. Satisfying these huge increases in usage requires significant investment. Toward this end, we have invested more than $100 million in capital over the past four years and expect to invest at this same rate in 2012.
Q. How much of the additional revenue from this rate increase will be spent on those network investments? If less than 100 percent, where will that money be allocated?
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A. The revenue from this rate increase will be a small fraction of the amount we have budgeted for network-related capital expenditures in 2012, and we expect our capital expenditure budget in 2012 to be higher than our expenditures in 2011.
Q. Are there any benefits customers should expect to see out of these network investments aside from the greater upload and download speeds?
A. These are the benefits that will be most noticeable to our customers, but the network improvements will also increase reliability. For example, by upgrading our capacity, we reduce the possibility of network congestion which negatively affects our customers.
Q. Hargray mentioned the same need for network investments during the last cable TV rate increase earlier this year. Will there come a point when the money you spent on those investments has been recouped and customers can expect to see their rates stabilize?
A. While network investments for Internet service are driven by growth in usage, network investments for cable TV services are driven by growth in the number of channels offered and growth in demand for high-definition programming. Over the past two years, we have added 18 standard definition channels and 30 HD channels. In addition, the number of customers subscribing to HD content increased 50 percent over the same period. That said, the primary driver of cable TV rate increases is increases in charges by the content providers, which routinely demand 6 to 10 percent annual increases for their content. This issue is being exasperated by recent demands of local affiliates of ABC, NBC, CBS and Fox for substantial payments in return for the right to carry their channels.
Q. How do you justify continuing to raise your prices when the competition from other providers is so fierce? For example, a current customer can save $600 over the next two years by switching to DirecTV, and get more HD channels than Hargray offers, a much better standard DVR, mobile apps, 3-D, etc. Other than more reliability during an intense rainstorm, what is the incentive to stay with Hargray for television service?
A. It is difficult to respond without knowing the details of the specific offer and which of our offerings you are comparing it to, but many providers cite promotional rates to attempt to entice customers to switch providers. These advertised rates rarely include necessary payments for set-top boxes and other ancillary services. So, when the cost of the services are compared on an "apples-to-apples basis," the savings are often much less or non-existent. Further, in addition to a more reliable service and superior picture quality (especially as you point out during rain), it is important to keep in mind that our double-play and triple-play customers enjoy additional savings and $20 to $30 per month in value-added features at no additional charge. Lastly, note that virtually all cable TV companies (including the satellite providers) increase their rates each year.
So there you have it. I disagree with Rein about the superiority of cable television over the dish, and those additional savings he refers to are only applied if you call and ask for them. It would be nice if existing customers didn't have to jump through hoops. Overall however, he makes a compelling argument.
Morgan Bonner is Pre-Press Manager and a systems administrator for The Island Packet and The Beaufort Gazette