Do Diligence
Lessons From Los Angeles - The Time Warner Transition
By Linda Haugsted -- Multichannel News, 4/22/2007 8:00:00 PM
Time Warner Cable had big plans for its Los Angeles cable division once it took over systems with 1.6 million subscribers in August 2006 from former area operators Adelphia Communications and Comcast.
The second-largest U.S. cable operator would be the dominant provider of subscription television and related services in the second-largest metropolitan market. It planned to swiftly realign channels, standardize pricing and introduce advanced services, such as digital phone service and more high-definition channels.
The Los Angeles division could use mass media to advertise the arrival of advanced services to the 1.9 million customers it would begin to serve across five counties.
But now, in an April 13 letter to the city of Los Angeles, the company states that it “moved too rapidly” with all the changes necessitated by the system integration.
The lesson for cable operators: There’s much to gain from taking over a valuable franchise. But more than money is at stake. And it can take more than time to recover from trying to do too much at once.
“Time Warner came to town and fragile networks crashed. Instead of being the white knight charging into town, they’ve become the troll under the bridge,” said Jonathan Kramer of Kramer.Firm, an attorney and engineering consultant to cities in the area.
The cable operator has told Los Angeles city officials it will “slow the pace of change” while focusing on core business operations. Those tasks include making sure all parts of its physical plant are operating properly and improving the performance of call centers so customers can swiftly reach a live operator who will resolve requests on the first call.
The company will also “demonstrate its commitment to the city of Los Angeles” by engineering and constructing a new fiber backbone and network within the two towers that comprise City Hall, at no charge to the city.
The report was a response to a request from the city’s Board of Information Technology Commissioners. That panel had called on the cable company to account for the service failures during last fall’s takeover of the Adelphia and Comcast systems, part of Comcast and Time Warner’s joint purchase of the bankrupt Adelphia. The change in control resulted in 1,997 complaints to the city between August 2006 and February 2007, compared to 984 complaints in that period a year earlier.
Time Warner’s regional task was to integrate the operation of 16 headends, 69 hubs, 30,000 miles of plant in five counties, three different billing systems, 100 channel lineups, eight different models of set-tops in the field, four brands of cable modems and three different video-on-demand platforms.
| Time to Take Stock |
|---|
| Lessons for cable operators from Time Warner Cable’s attempts to deliver advanced services to as many former Adelphia and Comcast customers in Los Angeles “as quickly as possible.’’ Culled from interviews with consultants, engineers and marketers and from Time Warner Cable’s report to the city. |
| Keep Doing Diligence: Planning based on the kinds of due-diligence inspections that are done before an acquisition doesn’t provide the key ground-level details needed to fully anticipate possible problems in existing physical assets. |
| Allow Extra Time: Time Warner Cable says the first remedial action it’s taken in Los Angeles is to “slow the pace of customer-facing change” and focus on physical plant integration, call-center performance and resolving customer issues on the first call. |
| Clean Up First: Carve out time to clean up billing databases and systems, before launching other physical changes, regulatory officials and consultants interviewed said. |
| Do It Yourself: Time Warner Cable used contractors as field-service technicians, following past practice in the systems. Now it’s shifting to using company employees “to further ensure quality control” and has added to that workforce by 10%. |
| Think Regionally, Act Locally: Time Warner is adopting a “community-based structure” that uses smaller, neighborhood work areas that get field-service employees “closer to the communities they serve.” |
| Don’t Overpromise: Make sure DVRs or HD-enabled set-tops are in stock before marketing new services to customers. |
| Take It Easy — On Yourself: Time Warner’s marketing slogan was “It’ll Be Just That Easy.” It wasn’t. |
NOT THAT 'SIMPLE’
The operator’s report to the city indicates that its timetable was too ambitious. The multiple-system operator could not live up to consumer expectations, fostered by advertising, that promised the transition would be “just that simple.”
Ads showed a service truck changing from Adelphia to Time Warner in the blink of an eye, and the system’s Web site assured consumers the transition required no action on their part.
Consumers would complain the quality of bedrock services, such as the TV picture itself, suffered. And delivery of new products was stymied when potential subscribers couldn’t get through on the phone or were told, once they reached a live operator, that popular items such as digital recorders were not in stock.
Time Warner found out that the basics matter. Most complaints to city officials surrounded the rearrangement of channel lineups, as well as service interruptions.
Channels were moved around the dial as Time Warner tried to unify the 100 different lineups it inherited, grouping networks in the regional lineup according to genre. Former Adelphia customers found themselves wholly without the NFL Network, which did not have a carriage agreement with Time Warner.
Many of the service problems were attributed to the condition of the plant inherited from Adelphia, according to the report to Los Angeles. Despite “rigorous due diligence” prior to the acquisition, “the cable infrastructure we had acquired was neither robust nor reliable enough to support these services,” according to the report released 10 days ago.
City officials around the region, though, insist they told Time Warner executives about some of the Adelphia operation’s problems at the time of the local franchise transfer.
Officials in Redondo Beach warned Time Warner about degraded grounding wires attached to Adelphia plant. The infrastructure, which prevents the cable plant from becoming an electrocution danger, would have to be replaced before the new owner could launch new services in the city, said Maggie Healy, assistant to the city manager.
“They knew about this; we let them know,” Healy said. “They underestimated how quickly they could have it done.”
Time Warner began repairs last November, but the improvements themselves prompted a round of angry consumer calls to the city, according to Healy.
The New York City-based cable operator hired subcontractors to do the repair work, she said. The city official said field workers are required to give a consumer an explanatory letter when they enter private property to access easements. This was not done and when homeowners challenged the strangers on their property, the workers were rude, according to Healy.
Now, Time Warner is trying to correct mistakes, using its own technical crews, Healy reported, but damage has been done.
“Redondo Beach is very unhappy with Time Warner,” she said.
WELCOMED CHANGE
That was a frequent refrain among regulators, their consultants and the engineers interviewed for this story.
Time Warner officials declined to comment, beyond the text of its report to the city.
Prior to the acquisition, Time Warner enjoyed a good reputation in the Los Angeles market, and was noted by city officials and for its cooperation and responsiveness to problems. Most communities — and especially those where Adelphia was the incumbent — welcomed the change in system ownership.
But by moving too fast, the company has damaged its own good name, local officials said.
“They had a plan for melding the systems that was ambitious and probably feasible,” had Adelphia plant been comparable to that of other operators, Kramer said.
But maintenance had been deferred while Adelphia operated under the protection of the bankruptcy court. The company filed for chapter 11 bankruptcy protection in June 2002, in the wake of a massive accounting scandal that landed its founder, John Rigas, in prison for 15 years on fraud and conspiracy charges.
According to Kramer, who handled communications between cities and the operator’s engineers, Time Warner discovered problems with degraded plant, especially between local distributions hubs and the neighborhood nodes, where the signal are converted off of fiber optics and onto coaxial cable for distribution to individual homes.
The links could not handle the data traffic that would result from providing high-speed access to the Internet, videos delivered on the demand of any customer and all the other products planned by Time Warner. The plant needed to be replaced or upgraded before it could handle the traffic of new products, according to Kramer.
Decisions on the integration, such as timing of customer transitions and product launches, are driven by regional and divisional management, not corporate executives, according to Time Warner.
UNANSWERED CALLS
In March, local president Roger Keating was replaced. New York division president Barry Rosenblum is now assigned to run the Los Angeles unit, aided by Stephen Pagano, former head of the Albany, N.Y., division.
City officials such as Healy said the biggest problem became, and remains, access to customer-service representatives. Calls to 1,350 service agents in six regional centers began to escalate almost as soon as the new owner took over in August 2006. The company added 300 agents to respond.
The terms of the merger transaction prohibited Time Warner from contacting or training Adelphia and Comcast employees it inherited until after the deal actually closed, Time Warner said. Once that occurred, it hired the workers and launched in-house training.
The staffing challenge and high call volumes led to unanswered calls, unacceptable hold times and “admittedly unacceptable service,” according to the company’s report to Los Angeles officials.
To retain customers while the deal was pending, Adelphia offered discounted video and Internet service packages to keep consumers from fleeing to satellite providers, according to company employees.
Direct-broadcast satellite providers DirecTV and EchoStar Communications targeted Adelphia customers during the bankruptcy, playing on consumer fears about continuing operation by the financially troubled company. Satellite has had great success in the Los Angeles region against all cable providers: analysts put the regional DBS penetration rate at 28%, a high percentage for an urban market.
When Time Warner took over and instituted its pricing, the first wave of calls hit those centers, as consumers called to complain or change their packages. Those calls may have reached the new Time Warner employees who weren’t up to speed on the new owner’s billing software or familiar with all of its prices, leading to long transaction times, according to consumers.
Then, from September into February, the operator began revising channel lineups, changing set-top hardware for customers who upgraded and physically migrating customers from Adelphia and Comcast’s high-speed services to Time Warner’s Road Runner service, necessitating a change of e-mail addresses.
Consumers complained to regulators and the local press of Internet outages of up to two weeks, of e-mail misdirected to old Adelphia or Comcast addresses instead of new Road Runner addresses, and of an inability to reach Time Warner to seek help with the problems.
SOFTWARE ISSUE
Some of the Internet outages were caused by Time Warner provisioning software, according to an individual involved in the changeover. The software wizard for activating Internet service failed to recognize the former Comcast and Adelphia customers, he said.
Exacerbating the problem: the operator’s marketing department sent out a mailing which specified the day when all consumers should activate service via the new servers, the person said. Because of the size of the market, not all Internet customers could be activated on the Time Warner computers on the same day. Nor did engineers intend for Internet customers to move all at once.
Customers also had to reconfigure their e-mail program. If they did not properly complete the process, the Microsoft Outlook program would freeze up.
Time Warner declined to describe how it rectified the problems. Some were resolved with remote diagnostics and software changes. Some required visits by service technicians.
Because of the Adelphia transport problems, Kramer said, integration changes resulted in Internet outages; pictures that disintegrated into meaningless forms, went dark and then spontaneously resolved; and channel drops for video customers.
Steve Grace of the Eagle Rock neighborhood of Los Angeles woke up Jan. 12 to find that his TV selections had diminished to channels 2 through 15 and his Internet connection was inoperable.
Grace, who runs a regional sports Web site, said he had welcomed Time Warner, telling all his friends the company would be the best fit for Los Angeles.
“Given the huge market share here for DirecTV, it seemed the perfect time for [Time Warner] to come in and hit it out of the park,” he said.
But his praise died after he had to make multiple calls to get Internet service restored. During one call, he was told the problem was his computer, only to be told later that service to 15% of his neighbors was out, too. He drove to a local cable office to get the “straight story,” he said, only to discover his Thursday repair appointment was the following Thursday, 10 days away. He called AT&T to sign up for its high-speed Internet service instead, he said.
Difficulties also surfaced in the conversion of billing systems. Comcast, Time Warner and Adelphia each used a different vendor. Ed Hession, a Brentwood Hills real-estate investor, signed up for Time Warner service when it was announced that company would take over from Adelphia. When his cable service disappeared, he found out Time Warner had disconnected its own, new connection, rather than Adelphia’s old hookup.
He also found himself accused of nonpayment. He hunted down the local office and drove there, he said. His Internet bill payments from his bank had been credited to the old Adelphia account and were not cross-referenced to the Time Warner billing system, he reported.
Hession’s home is in the coastal hills. He needs cable service just to watch broadcast TV and the telephone companies don’t even offer digital subscriber line Internet access where he lives.
“If this was a true free market, I wouldn’t be with Time Warner,” he would fume.
Complaints to the city of Moorpark in Ventura County caused that city to declare Time Warner in breach of contract for failing to live up to customer-service standards.
“They’ve been woefully out of compliance for six to eight months,” assistant city manager Hugh Riley said. Local rules mandate that consumers get live help within 30 seconds of calling in 90% of the time, among other standards. Riley said 50% or fewer calls reach that standard.
INROAD FOR AT&T
Aggravation with Time Warner could prompt quicker negotiations with AT&T, which has approached the city to launch U-Verse TV, its Internet Protocol television service. But Riley said that provider won’t get its approvals until Moorpark has seen a master plan for deployment.
“If they’re going to cut streets, we want to know right away,” he said.
Moorpark is not expected to use its contract breach process to try to get rid of Time Warner. Instead, the city is “harping” on the only power it has left: customer-service enforcement. Officials just want Time Warner to fix it, Riley said.
Time Warner has until the end of this month to respond to the city’s official notice, indicating how it will cure service deficiencies noted by Moorpark officials.
Other cities, including Palmdale and Simi Valley, have determined that the amount of complaints there do not warrant action by local regulators.
Time Warner officials said customer-service calls are decreasing. Complaint calls spiked in March but have declined by 38%, according to the company. The company attributes the decline to increased service personnel and completion of some of the integration steps. The Comcast e-mail migration has been completed, according to the company.
Time Warner added hundreds of customer-service representatives during the spike. It now says 1,650 service agents are in place, each of whom has completed 160 hours of instruction and 80 hours of on-the-job training.
In the field, the company is now employing its own technicians for field work, rather than relying on contract labor. To get technicians closer to the communities they serve, the company is breaking its organization into neighborhood work areas, the report to Los Angeles added.
Time Warner’s recovery in the Los Angeles market is vital to the cable division. During a Feb. 28 conference call, chief operating officer Landel Hobbs noted the Los Angeles and Dallas markets now represent nearly half of all Time Warner Cable’s subscribers, following the Adelphia acquisition and related swaps with Comcast.
Both Dallas and Los Angeles were hit hard by transitional challenges: of the 52,000 customers lost by the company in the fourth quarter, 80% were in one of those two markets.
Hobbs said Time Warner expects to add 200,000 digital phone subscribers in the acquired markets by year’s end. The systems also need to focus on another corporate goal Hobbs identified for 2008: narrowing the $18 gap in average revenue per unit earned by the former Adelphia systems, compared with traditional Time Warner systems.
Achieving that goal could turn on such questions as: Will consumers who have suffered the loss of video and Internet services, some for as long as a week, trust a cable operator to provide vital telephone services?
Time Warner “may have poisoned the well before anyone even had a chance to drink,” Kramer said.
But jumping to another provider isn’t always a panacea. Grace, the customer who said he’d jump to DSL? He’s still a Road Runner customer. AT&T promised immediate delivery of a self-install kit, but it took repeated calls to get the kit and get it working. He’s using both DSL and Road Runner now.
The plan to provide an upgraded cable network to Los Angeles City Hall, contained in the report to the city, may raise eyebrows among officials elsewhere who are clamoring for Time Warner to focus on service issues.
According to the report, the company recently supplied the office of Los Angeles Mayor Antonio Villaraigosa with digital-cable service and digital video recorders to “facilitate news gathering” by his staff. As a result, there have been requests from other municipal offices for access to advanced services.
Some of those services were in place last week, but it will take two months to complete construction of the network in City Hall. Municipal offices will have access to services including basic and digital cable, high-definition television, DVRs and video-on-demand at a discounted rate, according to Time Warner Cable.
Time Warner, demonstrating its local commitment, will maintain and repair this “state of the art system” at “no cost to the city.”
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