Cox Communications Inc. is rolling out a $24.95 per month, 256 Kilobits per second high-speed data package in most markets, while raising the speed of its mainstream 3 Megabits per second service to 4 Mbps, and its premium 4 Mbps service to 5 Mbps.
The widespread rollout of the lower-speed service — which doesn’t even require the consumers to buy video service from Cox — is seen as a way to grab further market share from dial-up Internet-service providers and to provide a retention tool for would-be cable-modem dropouts.
While consumers in Cox markets might cheer, Wall Street took a more cautious view, with one analyst saying the move could “spook” investors in cable and America Online parent Time Warner Inc.
“We view this as a direct attack on AOL’s [$23.90 per month] narrowband service,” wrote Fulcrum Global Partners analyst Rich Greenfield in a research note. He said the news could “spook” cable investors fearful of more widespread price competition with digital subscriber line providers.
The move to 4 Mbps affects the vast majority of Cox’s nearly 2 million modem subscribers.
Those subscribers won’t pay extra for the additional speed — the tier is now priced at $39.95 per month and features upstream speeds of 512 Kbps. Cox said it now offers the fastest download service of any cable operator (4 Mbps) for a price point lower than $40.
Cox’s premiere $54.95 a month package was increased to 5 Mbps downstream and 768 Kpbs upstream. That also represents a drop in price, as the 4-Mbps service had been priced at $79.95 a month. Service at both speeds will be discounted if consumers buy video or phone services from Cox.
In a departure from past bundling strategies, the $24.95 package will be available to non-cable subscribers, and is squarely aimed at the dial-up market.
“This is a great way for us to further leverage Cox High-Speed Internet as a customer acquisition tool,” Joe Rooney, senior vice president of marketing, said in a statement. “At $24.95, the Value package will appeal to even the most price sensitive dial-up users, helping us to further penetrate the base of dialup customers in our footprint and establish customer relationships with those who may never have purchased Cox services before.”
The $24.95 package is just $1 more than AOL’s price, but at five to eight times the speed and with an always on connection
Steve Gorman, vice president, product management and marketing for Cox High Speed Internet, said the $24.95 package became “operational” in the second quarter, with CSRs selling it on a case-by-case basis. Last week’s announcement increased the ante in that Cox will be more visible is marketing the lower-priced tier.
“It’s all about segmenting,” Gorman said. “We are meeting a customer segment need.”
The number of $24.95 tier subscribers is in the low-single digits, Gorman said, but some systems will begin broadly marketing the product later this year. And Cox hopes once it snares a data-only subscriber, it may be able to sell home voice or video service to that consumer.
Cox is launching a “Fast Is Beautiful” marketing campaign to promote the tiers, including a Web site (www.fastisbeautiful.com). That site offers rich broadband content, detailed service information and current packages and pricing offers. Las Vegas, Gainesville, Fla., and Middle America markets won’t see the speed increase at the moment, Cox said, but implementation is planned for later this year.
While DSL subscriber growth fell 22% on a sequential basis in the second quarter, cable-modem subscribers fell 29%, Greenfield said. Cox’s move “may indicate that it fears a sustained slowdown in broadband additions at its flagship $39.95 offering,” Greenfield wrote, noting that Cox saw a 40% sequential decline in cable modem numbers from first to second quarter.
“We believe investors will be concerned that a significant number of new Cox high speed data adds will come on at the value tier, pressuring ARPU [average revenue per unit], and in turn, resulting in an accelerated slowdown within its fastest-growing segment,” he said.