Had any other cable operator been caught trying to surreptitiously gather intelligence from a competitor, perhaps the public-relations debacle Time Warner Cable faced last week wouldn't have been that big of a deal.
But Time Warner's acknowledgment that a manager at its Houston system asked employees to sign up for Southwestern Bell's high-speed Internet service, then quickly dump it in order to find out where the product was available, couldn't have come at a worse time.
Just as the dust from the company's bitter retransmission-consent dispute with The Walt Disney Co. was beginning to settle, Time Warner Inc.-which is still seeking regulatory approval of its planned merger with America Online Inc.-spent last week apologizing for the incident to key officials on Capitol Hill.
Southwestern Bell parent SBC Communications Inc. filed a complaint against Time Warner and Road Runner with the Texas Public Utility Commission. The company also asked Federal Communications Commission chairman William Kennard to launch an investigation and to consider the incident as the FCC reviews the AOL-Time Warner merger.
The dispute began after the 1,200 employees at the Houston system found fliers with their May 12 paychecks. They read, "We need your help in accomplishing our objective, which is to locate areas in Houston that Southwestern Bell (our competitor) can and cannot service with their high-speed online service, DSL [digital subscriber line]."
Employees were offered free Road Runner subscriptions or the chance to win $100. The fliers, emblazoned with the Road Runner logo, instructed employees to sign up for DSL, then cancel the service once they received a confirmation letter from the telco. The flier also instructed employees to "indicate how far you are from Southwestern Bell's central office (they will tell you)," and the full name of the representative who took the order.
Time Warner spokesman Mike Luftman said a midlevel marketing manager at the Houston system came up with the idea, and top-level system and corporate executives were not involved with the program.
When Time Warner Houston president Ron McMillan found out about the program the week after the fliers were sent out, he put an end to it, Luftman added.
"There's no question that this was an inappropriate program," Luftman said, adding that only 20 employees pursued the offer before Time Warner canceled the program. He declined to name the person who came up with the idea or to discuss if disciplinary action was taken, noting that the company doesn't discuss personnel issues in the press.
SBC spokesman Selim Bingol said the telco found out about the scheme after it received two copies of the flyer from Time Warner Houston employees.
Although Time Warner said only 20 employees went for the offer, Bingol said SBC couldn't confirm exactly how many fake orders were placed. He said each order costs up to $300 to process.
Time Warner sent apology letters last week to the offices of Rep. Billy Tauzin (R-La.), chairman of the House Telecommunications Subcommittee, and Rep. Ed Markey (D-Mass.), a member of the committee.
"I want you to know that Time Warner Cable sincerely regrets that these actions occurred. In addition, we intend to toughen and extend awareness of our existing compliance programs, which guide franchise practices, to ensure that events such as this are not repeated," assistant general counsel Jeff Zimmerman wrote in a May 25 letter to Tauzin's legislative director, David Marventano.
Zimmerman took a much less conciliatory tone, and admitted no wrongdoing, in a May 18 letter to SBC general counsel James Ellis. It was a response to a letter Ellis had sent the day before.
Ellis had asked Time Warner to confirm that the company was responsible for the program, noting, "Sham orders increase our costs, tie up our systems and prevent our employees from dealing with real customers."
Zimmerman responded, "Time Warner employees have not been engaged in an anti-competitive campaign, and no Time Warner employees have engaged in any activities with the intent to burden SBC's staff and systems or to hurt SBC's performance in the marketplace."
Zimmerman added, "I have been assured by our Houston division that its employees have been instructed not to engage in any course of behavior that involves signing up with Southwestern Bell for DSL service and then canceling the scheduled installation after receiving a confirmation letter."
While it's common for companies to have employees gather information regarding rates and areas where rivals offer competing products, Time Warner crossed the line by having its employees actually order and subsequently dump the DSL service, said Stephen Miller, a spokesman for the Alexandria, Va.-based Society of Competitive Intelligence Professionals.
"That's not obtaining information-that's harassment and theft," he added.
Saying that it "sounds like much ado about nothing," Cable & Telecommunications Association for Marketing president Char Beales downplayed the incident. "You always use your employees for competitive intelligence in corporate America," she said.
Ted Hearn contributed to this report.