Charter Tiers Say Need Isn't Always for Speed

8/18/2002 8:00 PM Eastern

While other cable operators are just starting to venture beyond a single-speed cable-modem offering, Charter Communications Inc. already has its tiered data service in full gear — and has learned some interesting lessons about that market.

In particular, the St. Louis-based MSO has found fully half of its data customers are opting for the lowest tier of service, which offers an "always-on" connection but not the vaunted lightning speed that characterized early cable-modem marketing.

Tiered service made its debut in select Charter systems as early as 1999. For almost a year now, three levels of service have been offered throughout the MSO's cable-modem footprint.

Charter has recently standardized its data offerings, which once varied widely among systems. That included taking back some 20 percent of customers from Excite@Home Corp.

While prices and speeds still vary slightly, the Charter Pipeline service generally includes an entry-level offer for 256 kilobits per second upstream and 128 kbps downstream ($30); a 768-kbps downstream, 128-kbps upstream service ($40); and a top-level 1.5 megabits-per-second downstream, 128 kbps upstream service (from $50 to $60).

For all tiers, modem rental runs between $3.95 and $5 per month, depending on the market. Installation is often free.

But Charter's marketing focus isn't on speeds and prices. Instead, promotions try to match the tiers with common uses. The entry-level 256K product, for example, is pitched to customers as a way to surf the Web, send and receive electronic mail and pay bills online, while the upper-end 1.5 mbps service is touted as ideal for real-time gaming, large file transfers or home networking.

"We talk about what the levels are and what the speeds are, just in case customers want to know, but we really try and translate that into what you can do with the speed," said Charter vice president of marketing for new products and channels Shahid Butt.

The consumer response may teach operators a major lesson. Within the tiers, half of Charter's 905,000 customers have opted for entry-level service, about 35 percent have selected the middle tier and 15 percent have bit on the highest-speed tier.

That might seem troubling to other MSOs worried that lower data rate offerings will siphon off customers, but Butt points out Charter started with the lower two tiers, and only later added the 1.5 mbps option.

"I don't have any data that speaks to customers trading down," Butt added. "We are watching that. As long as they stay within the broadband category, we are pleased, and churn for this product is very, very good."

Charter's experiment with tiered data rates aimed at a wider market has been mostly successful, according to Jupiter Media broadband analyst Dylan Brooks.

"One of the interesting things is after a few quarters, they remain the only MSO for the past six quarters running that has 20 percent or higher quarter-over-quarter growth, and they have raised their average modem revenue back to its original levels," Brooks noted. "Their tiering efforts, at least in my mind, are clearly successful in driving higher growth rates without sacrificing revenue."

Charter has indeed raised its revenue per subscriber consistently for the past five quarters, from $28.22 in the first quarter of 2001 to $33.64 in second-quarter 2002.


While it's reasonable for cable to fear that a low-speed option might bring in less revenue for the same provisioning expense, operators should also listen to what the consumers are telling the industry, said Brooks. A recent Jupiter survey indicated that 20 percent of consumers would bite on broadband if it were offered between $25 and $30 per month, but only 5 percent said they would pay more than $30.

"It is important to understand is that the tiered data services that we are providing are not something we are doing just to do it," Butt said. "It is something that customers are wanting and expecting. People have different needs, and what we are finding is the tiers we have developed seem to be working for customers because they are buying them, and they are working for us as well because the more customers that get involved with the broadband experience and the more they use it, the longer they stay with Charter — and the happier we all are."

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