With Verizon expected to move into Pittsburgh's cable-TV market, customers can expect competition to drive down prices charged by Comcast, the city's existing cable provider. But some city officials wonder what the ensuing face-off could mean for the city's bank account.
"Having [Verizon] and Comcast would be great for the consumer," says Pittsburgh City Council President Doug Shields. "But for the city, the question is: What's going to be the revenue?"
Since 2002, Comcast has held a monopoly on the Pittsburgh cable market, paying the city 5 percent of its gross annual revenue for the right to be the city's sole cable provider. According to Howard Stern, the city's director of information services, that has resulted in more than $4 million in franchise fees each year. But if Verizon enters the Pittsburgh cable-TV market, the city could lose some of that revenue.
Verizon is currently negotiating with the city to bring its FiOS service, which uses fiber-optic cables to carry the signal to homes, to Pittsburgh. Until an agreement is reached, Verizon can't offer the city the product, which Verizon spokesman Lee Gierczynski says already has more than 200,000 Southwestern Pennsylvania subscribers in 90 municipalities.
If Verizon joins the market, Stern says, "What we expect is that Comcast and Verizon will have a price war."
Customers would likely be the ultimate winners of that battle, as the cable providers vie for subscribers. But that showdown could mean a drop in city revenue, too.
Stern says he expects Verizon's franchise agreement to provide the city with 5 percent of its gross annual earnings -- just as Comcast's agreement does. But as prices shrink, so will the city's take.
The average Comcast subscriber currently pays $100 per month for cable, Stern says. If that rate dropped to, say, $80 once Verizon enters the market, "instead of [the city] getting 5 percent of $100, we'll be getting 5 percent of $80," he says. "I don't think it's going to be a significant loss [for the city], but it could be."
Shields -- who expects a franchise deal to be finalized and presented to council by the end of the year -- doesn't think the city needs more money from its cable franchise agreements, but he's worried about getting less. With Comcast as the sole franchise-holder, he says, "It's been steady revenue. But now there's a question mark."
But Gierczynski says Verizon's experiences in other cities have shown that "franchise fees don't really get diminished" when competitors split the market. For the most part, he says, city revenues stay the same.
For one thing, Gierczynski says competition doesn't always lower prices. Instead, he says, companies offer customers incentives like free premium channels. "In the past, customers didn't have that kind of leverage," says Gierczynski.
In any case, residents will likely welcome the competition. Rates for Verizon FiOS have yet to be set for Pittsburgh, but some packages the company offers in other cities are cheaper than similar ones offered by Comcast.
For $47.99 a month, Verizon offers a cable package, which includes more than 200 digital channels, and up to 14 high-definition channels. Comcast currently offers a similar package for about $10 more. Verizon also offers a "Triple Freedom" package -- which includes phone, Internet and cable service -- for $91.99 each month. A similar package from Comcast costs $132.99.
If Verizon and Comcast start competing, Stern says, "The citizens of Pittsburgh are going to win.
"If [the city's] going to lose money," he adds, "we're going to lose money for the right reasons."