News

Somers Pleads Anew for Investor Patience

12/10/2000 7:00 PM Eastern

NEW YORK -AT&T Broadband chief Dan Somers dismissed any speculation that the MSO would leave the cable telephony business at an analysts' conference here last week. But at the same time, he informed the investment community that slow and steady would ultimately win the race.

About six weeks after AT&T's announcement that it would split into four parts-including a separate Broadband unit-Somers stressed that cable telephony was still a top priority for the company.

"There was some thought that post the announcement of the redistribution of the assets of AT&T that we may back off of telephony. No way," Somers told a group of analysts gathered for the UBS Warburg Media Conference.

Last Thursday, AT&T said it had reached its goal of 500,000 cable telephone customers, signing on 100,000 new subscribers in the past 42 days.

He also answered criticism regarding AT&T Broadband's plan to offer five months of free telephony service in certain markets in order to boost subscriber numbers. That promotion ended Nov. 15.

Some analysts feared the promotion-which gave subscribers free telephone service until January-was just a method to artificially inflate customer numbers. Some also feared that those who signed on for the free promotion would cancel service when it expires.

"The objective this year was to build market share and bring the company to scale," Somers said. "We've been very successful. Our volumes are continuing. It hasn't slowed growth."

Customers have strong incentive to stick with the service after the promotional period, Somers said, and not just because of pricing that is between 15 percent and 20 percent lower than that of the regional Bell operating company.

"We don't expect significant churn," he said. "In 95 percent of the cases, when we hook up a customer, we disconnect the RBOC lines.

"If a customer wants to make a decision in February to change, they have to make two decisions: one, they have to reconnect to the RBOC and pay an installation charge, and two, they have to pay 15 [percent] to 25 percent more per month for their bill. We don't think that's a likelihood."

Somers also defended AT&T's less-than-rapid rollout of telephony, adding that a measured introduction of service through beta tests and pilots is the proper way to go.

"We're spending more time in our markets, with new initiatives, developing them in beta or pilots before we try to roll them out to 16 million customers," Somers said. "That may have been why we were a little bit slower in getting the telephony ramp than originally would have been thought.

"But once we did it, we now can do the ramp at levels that are pretty impressive, rather than throw it at the customer, have install times of three hours and higher service outages than one would like," he added. "It's much better to take the time to learn it and then begin to roll it and roll it aggressively."

Aside from telephony, Somers also touted AT&T's digital cable rollout and its successes in high-speed data.

AT&T Broadband should finish the year with 2.8 million to 3 million digital subscribers, an increase of 300,000 to 500,000 customers from the third quarter, according to Somers. High-speed-data service attracted 888,000 customers in the third quarter and crossed the 1 million subscriber mark in late November.

"What we've done in high-speed data is awesome," Somers said. "One of the things we need to do is go for market share now. We don't want our customers to even think about DSL [digital subscriber line]."

AT&T will do that by pushing online orders for cable-modem service and stepping up retail availability of the product, Somers said.

He added that 40 percent of customer transactions are handled in an electronic environment and that the company will beef up its retail presence in Best Buy Co. stores, expanding to other retailers like Circuit City Stores Inc. and RadioShack Corp. in the first quarter of next year.

Other presenters at the conference, including Adelphia Communications Corp., Charter Communications Inc., Comcast Corp. and Cox Communications Inc., emphasized their success in digital cable.

Comcast executive vice president and treasurer John Alchin said the MSO would bring in an additional $110 million in incremental revenue this year.

"In 1999, we went on the offensive [with digital]," said Alchin, who added that Comcast should end the year with 1.35 million digital subscribers.

Charter and Cox focused mainly on interactive services and their rebuild plans, with Charter expecting to end the year with at least 900,000 digital customers and possibly 1 million digital customers.

Cox chief financial officer Jimmy Hayes said all of that company's markets should be digital- and data-ready by the end of next year. Cox, which also has a substantial switched telephony subscriber base, also will focus on bundling voice, video and data packages to customers.

Adelphia, although later to the digital game than its MSO peers, nevertheless said that digital service will be available to 100 percent of its customer base by April 2001. Vice president of finance Jim Brown added that the company's competitive local-exchange carrier-Adelphia Business Solutions-is poised to dramatically contribute to the parent MSO's overall cash flow next year.

However, Brown hinted that capital expenditures over the next couple of years for the business telephony service-about $450 million-would be limited to markets where Adelphia also offers cable service.

Adelphia had planned to spend about $650 million in capital expenditures for the telephony division, mostly for expansion into new markets.

"The most flexibility we have in our plan is to scale back that introduction into new markets," he said.

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