You’ve probably suspected that your cable company has been overcharging you, but they specialize in covering their tracks so it’s hard to pinpoint exactly what they’ve been doing. In a U.S. Senate report this week Charter and Time Warner Cable admitted that they overcharged customers $7.2 million in cable box fees alone last year. Of course, that’s not the only way that customers are being overcharged. Here are some of the tactics that your cable company uses to get you to pay them more without you realizing it.
1. Bait and Switch “Promotional” Prices
When you first signed up with your provider, you were likely given a low (or at least reasonable) price for your services. After a year, I bet you noticed that low price wasn’t so low anymore. You may have thought it was some sort of mistake, a billing error that made your price go up 40% overnight. You might have even called in to see if they’d fix the obvious error. If you did that, you’d have been in for an unhappy surprise: that price was not an error, your provider raised your price on purpose.
New Customer Rates
Companies advertise low “promotional” or “new customer” rates to get you in the door. These are the rates you see when you get advertisements in the mail or try to look up prices on their website. The company is happy to make less profit off of you the first few months because they’re counting on you being a customer for many years.
If you’ve signed up for cable, you know it can be an annoying experience getting everything working initially. You probably aren’t itching to do it again anytime soon. Your cable company knows this, and counts on you not wanting to deal with the hassle of switching to a new provider. In many areas there isn’t even competition, so your company doesn’t need to worry about you jumping to a cheaper provider because there isn’t one!
Now that you’re stuck with their service, they raise the rates. You’ve become…an ‘existing customer.’
Existing Customer Rate
Existing customers are the exact same as new customers, but there is one important difference: existing customers have to pay way more for the exact same service.
The price difference can be dramatic. Take the following cable company, for example. In many areas, they advertise 25Mbps internet for $29.99/mo (not including tax or equipment). That’s the “new customer rate.” When that price wears off, they change customers to the “existing cusomer” rate, or the “everyday” rate, which is code for “more expensive”. Here are two statements for the same services from the same company, the first with the “new customer rate” and the second with the “existing customer” rate.
The existing customer is paying more than twice what the new customer is for the same service! This is unfortunately the reward for being a loyal customer. The longer you stay a customer with a provider, the higher your price will go. Seems to us like it should be the other way around.
It’s important to look at the small print when you sign up. Make sure you know when the price is going to increase so you can call in and negotiate it back down yourself (or have someone do it for you).
2. Misrepresenting and Hiding Prices
So at this point you now know the difference between “new customer” rates and “existing customer” rates and you want to go to your provider’s website to see how much more you’re paying than a new customer. Should be simple, right? Wrong.
When you go to your cable company’s website, they automatically change the prices (just for you) to make it look like the higher “existing customer” rate that you’re paying is what they’re offering everyone.
The site can detect that you’re already a customer so instead of trying to win you over with low prices, they try to convince you that you’re paying a reasonable amount. They’ll only show you the ‘existing customer’ rates, which are far higher than those ‘new customer’ promotional rates we talked about above!
If you want to see what a new customer is paying, you’ll have to go to your provider’s page in an ‘incognito’ window so they can’t track you.
Price with Incognito Mode Enabled
$29.99 looks much more reasonable – but you’ll have a hard time finding this price.
Next I looked for the exact same service (Performance Internet) and gave the site the exact same home address that I used for the incognito price test. Only this time, I used a normal browsing window instead of trying to be sneaky.
Price with Incognito Mode Disabled
$66.95 for internet? Oh and this price does not include a modem.
Surprise! As a reward for being a loyal customer you get to pay 223% more for the same service.
This is not to mention that all the prices they show generally do not include fees, equipment, and taxes. We’ll get more into the fees and equipment next, but for a standard household, this can add over 30% onto the actual price of the bill each month.
On the topic of fees, you’ve probably noticed the dozen or so assorted fees on your bill with vaguely official names. You may have seen charges on your cable bill for fees like the “HD Tech Fee” or the “Broadcast TV Fee”, and have wondered what they are (or why they keep going up). The answer is simple – they’re a way for your cable company to make more money off of you.
You’ve probably also noticed that these fees aren’t explained anywhere. We’ll get into some of the worst fee-offenders but if you want to read more on the topic, The Consumerist has detailed the fees for several of the major cable companies in their series of Bill Guides.
There are several different types of fees, and I’ll split them into three categories.
Hidden Cost Fees.
Hidden Cost Fees are fees that the cable company has made up entirely. These are things like the “Regional Sports Fee” and the “Broadcast TV Fee.” In theory, these cover costs for things like “TV programming” or “rebroadcasting costs.” But what are you paying for when you pay for cable if not for the programming and broadcasting? And since this fee shows up with any cable package, shouldn’t these extra costs be included in advertised price?
By separating out these mandatory fees, it allows your cable company to charge you more for the exact same service you were getting before, while also allowing them to advertise it for a “lower” price. As The Consumerist puts it: “[these fees] might sound like some sort of required regulatory charge, but [they are] a way to raise rates while pretending not to raise rates.”
These are not the only two hidden cost fees. One of the most egregious is the fee for HD service. As of last year, 81% of U.S. households had at least one HD television. But despite how commonplace HD televisions are, most cable companies’ advertised prices do not include HD channels. If you actually want to make use of that HDTV, you’ll have to pay $10-20/mo for an HD cable box and then cough up another $10/mo for the “High Definition” fee. Sad!
The government regulates cable companies (as they do all companies). However, instead of simply paying what it costs to comply with the regulations – cable companies ‘pass-through’ that cost to the consumers in the form of a fee. The company will generally name the fee something that sounds official, like the “Universal Connectivity Fee” or the “Regulatory Recovery Fee”. When you look at the bill, it seems like some sort of tax levied by the government — instead, it’s a tax levied by the cable company. But by labeling them as a fee, it allows the company to advertise a lower price while still charging you more.
This category of taxes and fees are the actual taxes and fees that the government requires that you pay. These are fees like the 911 Fee (helping the government pay for enhanced 911 services), Sales Tax, and Communication Tax. While unpleasant, it’s one of the few things that shouldn’t be blamed on the cable company.
4. Yearly Price Increases at 400% the Rate of Inflation
Each year, cable (and satellite) companies increase the price of their services. Now, this in and of itself is not surprising, because many things go up in price over time. You can’t buy a sandwich for a nickel anymore, and gas doesn’t cost 25c per gallon. But most goods increase in price at around the rate of inflation, 2%. Cable, on the other hand? 8%.
According to Time Magazine, at 8% per year since 2010- cable prices are increasing at 4x the rate of the average yearly Consumer Price Index (CPI) increase.
That has resulted in the average subscriber paying almost $100/mo for service. The same Time article article quotes CutCableToday.com to say “if cable prices increased consistently with the U.S. inflation rate over the past 18 years, you’d be paying $35 a month for about 165 channels and there would likely be a lot less cord cutting going on.”
5. Auto Pay and Paperless Billing
It’s dangerous to give your cable company a blank check.
Cable companies will often give you a discount for setting up auto-pay (automatically charging your credit card or bank account each month) and paper-less billing (only getting an online statement). There are good reasons for the consumer for using these features, even aside from the discount. Auto-pay lets you pay bills without worrying about writing out a check each month and getting it to the cable company on time (lest you face a late fee). Paper-less billing is eco-friendly and also saves on clutter.
However there is a significant benefit for your cable company. Not only are they assured that they’ll get their money each month, but you’re far less likely to question what they’re charging you. When their system automatically pays the bill without you having to look at it first, it reduces the chance that you’ll notice the price increasing from month to month. If you look at your last 12 months of statements, I would bet you’d be surprised at just how much more you’re paying now than you were 12 months ago.
This post is already much longer than intended (and I haven’t even come close to covering every method your cable company uses), but before I leave off, this final trick is one of the most expensive for you.
6. Adding Services You Don’t Need
Adding unnecessary services to your account is probably the single most profitable trick your cable company has. If you just want internet, your cable company will tell you that you’ll actually get a better deal by adding cable. Have both cable and internet? All of a sudden, they’ll want you to bundle home phone too.
What’s the catch? They use all the tricks above to talk you into a package that may not be what you think it is. Then later on down the road, that new package is going to be more expensive and harder to change than your original one.
Here’s an example of how it all comes together.
Here’s an example of all these tricks in action. Let’s say you signed up for internet and to be smart, you bought your own modem instead of renting one. They advertised $29.99/mo. for the first year. Now 12 months pass and they’re changing your “new customer” rate of $29.99 to an “existing customer” rate of $66.95. The smart consumer you are, you call them up and threaten to cancel your service unless they give you a better rate.
After navigating their endless robotic phone menu, you finally reach a customer service representative (who is required to upsell you on more services on at least 5% of their phone calls). The representative tells you that they can’t reduce the price of your internet, but that they have a great new offer for you. For only $59.99, they’ll give you internet AND a few television channels. Since you’re such a loyal customer, they’ll also throw in three months of HBO. But it requires a one year contract. “You’ll save $7 dollars a month AND get more service,” they say. You’re not happy that it’s so much more expensive than it used to be, but there aren’t any other companies in your area, and you need internet, so you accept.
A week later, a mysterious cable box shows up in the mail. “You need that to watch your new TV channels,” the rep says when you call. It’s a busy few months at work so you put the bill on auto-pay. Later that year, you’re looking at your bank account and happen to see how much you’ve been auto-paying to the cable company. It’s over $100 each month! You’re outraged! Surely there must be some sort of mistake. You quickly log in online to look at your most recent statement for what the mistake was. Only there’s no “mistake.” The package was $59.99, as promised, but it’s no longer the only thing on the statement. You’re now also paying $9.95 for the cable box, $9.99 for high definition, $15.99 for HBO, $5 for the “Broadcast TV Fee”, $3 for the “Regional Sports Fee”, and a few other additional fees. Oh, and when you finally call up to cancel your service – remember that contract? Canceling now costs you a several hundred dollar “Early Termination Fee.”
It might sound like this story is exaggerated for dramatic effect but it’s not even uncommon. We’ve worked to help hundreds of customers who went through this exact series of events. The only real way to avoid this entirely is to go without television, internet, and phone. That’s not really possible in this day in age. My advice is to remember these tricks whenever you talk to your cable company, especially when considering a service change. Or, if you’d prefer, you can have our experts take a look at it for you.
Do you know any other methods that cable companies are using to take advantage of customers? Drop us a line at [email protected], we’d love to include them in our next article.