Cable Continues Retail Web Push

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Cable Internet services continued to test the retail waters
last week, as @Home Network announced that it had shipped @Home-branded pre-installation
kits to 25 CompUSA stores across the country.

The news came just one week after MediaOne Express launched
its own test with national consumer-electronics chain Circuit City in 17 of its
Boston-area stores, selling asymmetrical Bay Networks Inc. modems for $250.

Unlike Circuit City, however, CompUSA is not actually
including cable-modem hardware in its initial sales. Instead, @Home is marketing a $39.95
box that offers consumers $90 in savings, including one free month of the @Home high-speed
Internet service and discounts on the cable-modem installation.

Both cable-modem services are courting the retail channel
now so that they'll be better prepared to move to a model where the consumer buys,
rather than leases, cable modems once DOCSIS-compliant (Data Over Cable
Service/Interoperability Specification) hardware becomes readily available next year.

In the long term, cable operators want to move the cost of
modems off their balance sheets, rather than holding equipment costing $250 to $350 per
unit as capital expenses.

Retail's more immediate benefit for cable operators
and their high-speed-service providers is increased consumer awareness.

Once people who are qualified to get the service actually
see a product demonstration, a good percentage buy it, said Paul Salzinger, director of
business development for @Home.

"If you put it in computer stores, that's a great
demographic," Salzinger added.

CompUSA stores have set up merchandising displays combining
@Home boxes piled high, eye-catching point-of-purchase signs and online demonstrations at
personal computers.

Next to the PCs are telephones that connect directly to
local cable operators, so that interested customers can sign up for the service or find
out if they can get it on the spot.

In addition to its Circuit City program, MediaOne Express
works with local computer stores in Jacksonville, Fla., and Detroit, according to Mark
Kelly, director of marketing for MediaOne Internet services. Kelly said MediaOne Express
has set up demonstration kiosks in local malls in Boston and Florida.

But using retail to drive consumer awareness for high-speed
Internet service is a double-edged sword, because the service is not yet widely available.

"It will create an expectation and a
disappointment," said Steve Effros, president of CATA (the Cable Telecommunications
Association), "but there's virtually nothing that we can do about it,"
other than explain to consumers that cable is spending money to upgrade as quickly as
possible.

"Because you cannot deliver it everywhere at once
doesn't mean that you shouldn't market it," Effros added.

Marketing a product at retail creates the perception of
instant gratification, whether or not it's justified.

"People want to buy something, take it home and play
with it that day," said Michael Harris, president of Phoenix-based Kinetic Strategies
Inc. "Some operators may have a two-week waiting list for installations."

The @Home pre-installation kit addresses that issue
somewhat by including a CD-ROM preview that allows the subscriber to experience certain
features before the operator installs the service.

It's not just consumer expectations that cable
operators need to monitor, however. If operators look to retailers to shoulder the expense
and inventory management on the hardware side, they must make sure that the retail channel
stays interested in the category, analysts said.

"Retail will work much better once there's
[service] ubiquity," said Bruce Leichtman, analyst with The Yankee Group. "You
don't want to turn the retailer off before the market is even started. That's
the potential downside."

Cynthia Brumfield, senior analyst with Paul Kagan
Associates Inc., predicted that cable modems wouldn't appear at retail in any great
number until 2001 or 2002. Meanwhile, modems will soon start to incorporate such new
features as telephony.

"The lease model isn't going to go away
overnight," Kelly said, adding that MediaOne's long-term objective was to move
away from a leasing model.

Besides helping the balance sheet, getting out of the modem
business will allow operators to focus more of their help-line attention on Internet
services, rather than on hardware problems, Kelly said. And without a monthly lease fee,
cable Internet-service prices can come down closer to those of competing ISPs, such as
America Online Inc..

A monthly service fee of $29.95 "seems to be a magic
price point to consumers," Kelly added.

In Boston, Circuit City and MediaOne Express are
advertising a proprietary Bay modem for $249.99, including installation, telephone and
online support by MediaOne. Subscribers who buy the modem also receive a $10-per-month
discount off the MediaOne Express service, making the cost $29.95 for those who also
subscribe to the operator's cable-TV service.

The service discount gives consumers an incentive to buy,
rather than lease, the hardware. Industry views varied on whether consumers were willing
to fork over their own money for modems, especially before standards exist that will allow
them to take the equipment with them when they move.

MediaOne is directing its Boston-area customers to Circuit
City through newspaper and television ads, as well as direct-mail pieces. Consumers will
start to hear these messages not only from their cable operators, but from their local PC
retailers, through newspaper ads and Sunday circulars.

It's the additional foot traffic that may be enough to
keep retailers interested in cable modems today, even if the stores don't see
high-volume sales initially.

Leichtman likened the situation to retailers who display
high-definition television sets. "Retailers might want to do this now for the
'oohs' and the 'ahs,'" he said.

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