BLUES IN MEMPHIS4/09/2000 8:00 PM Eastern
Going digital isn't always easy. Just ask executives at Time Warner Communications of the Mid-South, the 230,000-subscriber Memphis, Tenn.-area division.
The system said it came up short in its expected number of Scientific-Atlanta Inc. digital set-tops, which led to $500,000 in lost budgeted revenue during January and February. Compounding the situation, it has lost about 10 percent of its 206-person technical team to resignations, which has contributed to $448,000 in higher-than-expected contract labor and overtime costs, executives said last week.
"We were short boxes, which made us short on the revenue side," said Dean Deyo, the Mid-South division president. "At the same time, the boxes that we did get cost us an extreme amount of money to put in the field."
Time Warner corporate and officials with Scientific-Atlanta downplayed the set-top shortage, noting that S-A has stepped up production of Explorer 2000 boxes.
But the digital-box shortage in Memphis may indicate a bigger problem for other MSOs. Hardware vendors say they are increasing production, but operators will have to step up digital installations for the rest of the year in order to meet their initial projections, some executives said.
"Manufacturing at the beginning of the year was definitely not what it should have been," said John Pietri, senior vice president of engineering at Charter Communications Inc. "But if you take the first quarter in total, the first quarter is meeting our expectations."
Other MSOs and vcndors are also feeling the sting of a digital set-top shortage-a situation that has also affected direct-broadcast and C-band satellite providers at times.
For example, at a recent Digital & Pay-Per-View Conference sponsored by the Cable & Telecommunications Association for Marketing, Adelphia Communications Corp. digital video services product manager David Smoulder asked his fellow panelist, a set-top box vendor, to "give us more boxes, Dwight, and we can definitely accelerate deployment."
Dwight Sakuma, the Motorola Inc. Broadband Communications Sector director of market development, responded that his company had accelerated the production of digital set-top boxes dramatically over the past three years and would continue to do so. "We keep opening up new lines," he said.
But Sakuma also called for more open communication from cable operators-some of whom on the panel admitted that they have trouble in accurately gauging their equipment needs.
"I want to know what you guys are doing, so we can say [to production], We need more boxes,'" Sakuma said.
As cable systems evolve into two-way, interactive digital networks, a lack of skilled labor is also endemic. Time Warner in Memphis even lost some of its people to Cox Communications Inc., another MSO in a different market.
The Memphis division's original digital-rollout plan relied on the operation's eight payment centers to distribute digital set-tops to subscribers for home installations, said Deyo.
But because the system "didn't have a feel for the boxes coming in," it didn't start distributing them from its main service center until March 27, Deyo said. Before then, the system relied heavily on contractors to install the digital set-tops for subscribers who had requested the service, he said.
The Memphis system has installed 7,000 to 8,000 set-tops so far this year-"well less than half" of what its original plan called for, Deyo said.
While the set-top shortage left the system $500,000 short of its original revenue projection for January and February, Deyo said the company expects to meet the $160 million revenue projection budgeted for the year. He said, "$500,000 is nothing to sneeze at, but it's not exactly the end of the world."
As of last week, Memphis installers were placing 1,200 digital set-tops per week in subscribers'homes. Time Warner plans to increase the rollout to 2,800 per week by May 1, Deyo said.
Though the division is short-staffed, "from now on home installation will be done by our people at less than half of the cost of what a contractor would do it for," he said.
Some other Time Warner Cable markets faced similar supply issues earlier this year, but spokesman Mike Luftman said that's no longer a problem.
"There have been some cases where the supply was a bit less then what we would have wanted, but we've solved the problems," Luftman said. "It's really more of a good-news story than anything else. Any time you're rolling out a product that has strong customer acceptance, you have supply glitches along the way."
Time Warner signed up 430,000 digital-cable subscribers nationwide last year. The company will announce the number of digital-cable subscribers it added during the first quarter this week, along with Time Warner Inc.'s earnings report, Luftman said.
Time Warner is deploying a mix of S-A and Pioneer New Media Technologies Inc. set-tops. Next year, it will add Pace Micro Technology Plc digital set-tops to the mix, Luftman said.
S-A spokeswoman Peggy Ballard acknowledged that demand for the company's digital set-tops has increased, but insisted that the vendor has met its supply commitments to cable operators. The company met with cable companies in November to receive updates on their forecasts, she said.
"There is some catch-up based on their revised forecasts, and we have indicated to the market that we will meet the forecast of what people needed," she said.
In January, S-A said it would step up production at its Juarez, Mexico, plant, predicting it would be able to produce 800,000 Explorer set-tops per quarter by mid-year. In July, the company will increase capacity, enabling it to produce up to 1 million digital set-tops per quarter, Ballard said.
Meanwhile, Time Warner Cable Memphis is looking to fill more than 20 positions, mostly on its technical staff, including a handful of middle managers. In recent weeks, director of technical operations Joe Agostini left the system for a job at data-over-cable provider High Speed Access Corp.
Deyo said three other employees quit to take posts at Cox Communications Inc.'s New Orleans system: lead technician Mike Causey, training specialist Charlie DeArman and technician Bobby Breland.
Field-operations manager Joe Agostini resigned on March 31. And 16-year veteran Tammy Kelber, another field-operations manager, informed management that she would like to leave the system "shortly down the road" to start her own business, Deyo said.
"The technical personnel here are overworked and severely understaffed," one source said last week. Morale at the system has also dropped in recent weeks, the source added.
But Deyo insisted the numerous departures aren't unusual. The company suspects the turnover level has increased since the beginning of the year because many staffers waited until recently to resign in order to collect their 1999 bonuses, he said.
"It certainly impacts our workload a little bit, but we are very strong internally. It leaves some opportunity for us to promote from within a number of people to management positions," Deyo said.
On its Web site, the system last week advertised positions from 19 classifications, including director of marketing, community affairs manager, information technology technician, premise and construction technicians and account executives.
The system's problems have not led to any increase in complaints since the predicted flurry at the beginning of the year, when rates were raised. At that time, the basic-cable charge rose to $11.46 from $9.95 a month.
The hike helps pay for ongoing upgrades throughout the Mid-South cluster. The improvements, including fiber-to-the-node architecture,will improve reliability and signal quality, according to a proof-of-performance report on technology that the operator submitted to the city last week.
Monica Hogan contributed to this story.