A Houston Liftoff

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To understand how far Time Warner Houston has advanced the business of cable, one only has to look back about five years. At the time, the city was split between two operators: Time Warner Cable, serving about 35% of the community, and Tele-Communications Inc., which had 65% of the community. Then Time Warner took over the TCI system, whose aging, all-analog plant made it imperative that the new owner improve customer perceptions.

Not enough of a challenge? On top of that, it was one of the markets where operators dropped the local ABC station for a short time during a retransmission dispute with The Walt Disney Co.

Still not enough? Houston, where the TCI system was already being “killed by DBS” according to Time Warner executives, became ground zero when direct-broadcast satellite companies began delivering local-in-local signals. The DBS companies spent an estimated $5 million to advertise their product over a three-month period in 2000, says Time Warner.

The result of the confluence of challenges: a net subscriber loss of 25,000 cable-TV customers.

“It was a bad year,” says division president Ron McMillan.

But the system began a quick rebound, regaining those customers and adding 75,000 more between 2001 and the end of 2004. That improvement has been duly recognized. “We are obviously very proud of our Houston division,” says Time Warner Cable chairman and CEO Glenn Britt, who recognized McMillan and his team with the MSO’s Chairman’s Award for their performance in 2004. “Last year, Houston provided an example for the entire company by delivering great financial results, customer satisfaction, new product successes and providing a great working environment.”

Aggressive Goals for ’05

System management isn’t resting on its laurels. It has set aggressive goals for 2005. Houston is gunning to improve cash flow by 11%, with the addition of 60,000 digital customers (through acquisition or upgrade), 70,000 high-speed data customers and 70,000 phone customers. Part of the new growth will come from the completion of its phone network, which now passes only 70% of Time Warner’s service area. Executives say that year-to-date results are already ahead of their budget trend line.

So how has the system won back the community since 2000?

“The fact that we were upgrading went a long way,” McMillan says. Additionally, the launch of what proved to be an extremely popular product — high-speed data — contributed to growth and retention.

Houston has priced creatively, too. Currently, the most popular package is a $99 bundle including cable, high-speed data and unlimited local and long-distance calling. In fact, 90% of telephony customers buy the product in the bundle. A six-month rate guarantee is included in the offer, and retention rates have been high even after the price increases.

Bundle Draws Imitator

Time Warner Houston’s chief telephone competitor, SBC Communications Inc., recognizes the power of the MSO’s bundle: The telco has started offering a DBS-digital subscriber line-phone bundle for $98.83. (“Wal-Mart type pricing,” quips one Time Warner marketer.)

The most important factor in the system’s success, the local executives say, is the “culture of execution” communicated from the executive offices to each employee.

“We make sure people understand what the task is and how to measure what we’re doing and that they will be held accountable for the results,” McMillan says. Once people buy in, the results are measurable, he adds.

Employees are taught to adopt “The Fish! Principles.” This workplace-training program is based on the success of the Pike Place Fish Market in Seattle, which attracts business in part because of the happy banter from the sellers and the entertainment they provide, throwing fish at one another. The program urges employees to choose to have a good attitude; to “be there” emotionally for one another; to strive to make a good day for each other and the customers they touch; and to have fun at work.

That philosophy is linked to several other programs executed by the Houston division, rewarding top performers in all areas (see story, page 22).

That culture really helped when Time Warner swallowed its larger cross-town rival.

“A lot of times in [a merger] situation, companies tend to clean house. Instead, everybody was assimilated. There are people that spent their entire careers on either side of the fence, and they’re all still here,” says Keith Coogan, vice president of operations.

Expanded Family

McMillan says he wanted to integrate and streamline the TCI/Time Warner operations as soon as possible. He didn’t want an “us vs. them” culture, he explains, so executives communicated with the entire work force to “make us a family as quick as we could.”

McMillan has been a visible force during the transition through each day-to-day activity, his employees say. When Time Warner Houston won the Chairman’s Award, McMillan attended every breakfast, lunch or dinner celebration at division offices, individually thanking all 2,000 employees, says Ray Purser, vice president of public affairs.

The workplace environment contributes to getting, and keeping, quality employees. Time Warner is one of the more stable employers in a community buffeted by the ebb and flow of the utilities sector, and the failure of Houston-based Enron Corp. Last year, the Houston Business Journal featured Time Warner among the best places to work in the city.

“For every job posted, I must get 100 applicants,” says vice president of human resources Marla Barnard. “My problem is finding time to screen them all.”

Many jobs are filled through referrals: current Time Warner workers get a $100 bounty for every successful candidate they refer.

Once they are hired, they tend to stay, too. The system experiences an average 14% turnover, compared to 25% to 30% industry-wide in comparably sized systems with a large call-center operation.

Dangling Carrots

Barnard helps design programs that help retain workers, such as the Houston incentive program bonus plan for salaried employees. Those workers establish three to 10 “stretch goals.” By attaining them, they qualify for compensation from a bonus pool. For technical and call-center employees, there is a certification program. Those workers get on-the-job training, and if they pass a certification test, they qualify for a 10% wage increase, plus a 5% promotion-linked compensation increase.

“Our biggest challenge is keeping up with training,” she says, adding the division has four task forces to monitor and improve processes.

There are a lot of products to keep up with in the Houston division. In addition to digital and high-speed data, Houston is aggressively marketing HDTV service, video on demand and digital video recorders.

Those three products got off to a fast start, in part, because of decision by local executives to utilize a technology overlay created by Scientific-Atlanta Inc. that allowed the system to retain their installed Motorola Inc. set-top technology but also rent S-A boxes that included the advanced features that Time Warner wanted to make available to their customers.

The strategy has been “incredibly successful,” according to Coogan. The division placed DVRs in 40,000 homes in 90 days. Potential subscribers were forming lines at the pick-up centers, he says.

While they may line up for the “new toys,” executives are aware that the quest for new subscribers and upgrades to its core video product never stops. For that reason, Time Warner remains one of the top six business advertisers in the market, in addition to using its own media, according to executives.

One of the selling strategies being tested places a salesperson in local H-E-B grocery stores, “intercepting people wherever they are in a buying mood,” says Darrel Hegar, vice president of marketing.

The program has been activated for less than two months and has provided good upgrade results.

“People who are already customers are saying, 'I didn’t know you did phone,’” he says. A future goal is to equip such point-of-presence sites with the facility to calculate, on the spot, a potential customer’s savings over buying the same services from competitors.

Sticker-Shock Remedy

While consumers are adopting the bundling concept, Hegar is thinking of ways to combat downgrades related to sticker shock. Fearful that itemized services may lead consumers to pick off one or more services to lighten the billing load, he’s researching the possibility of bills with a single price that would be tagged with a message reminding the consumer that they just saved over multivendor, a la carte pricing.

The division is also looking at new products and presentation, such as the addition of home-security services, which are already for sale in the system, as part of a bundle. Hegar also sees calling cards as a natural extension of telephone services. A possible product would be a card that allows low-cost long-distance calls to the cities most often called by Hispanics in Houston: Monterrey, Mexico City and Guadalajara, Mexico.

The system is in talks with a potential partner, but that hasn’t progressed along far enough to identify the vendor, he says.

Hegar also hopes for a product-integration strategy, which would be offered as a value-added to high-value customers. That would allow caller ID on the television set, or allow a subscriber to review incoming e-mail while watching their favorite show. There is no timeline for introduction of such a product, though.

But product sales would be hard for any of Time Warner’s services if the community didn’t know and trust the brand. The division spends an estimated $20 million a year, in cash and in-kind services, to support local charities and cultural institutions.

'Symphomaniac’ Campaign

That has made a big difference to community resources such as the Houston Symphony. It suffered a terrible year in 2001 when its offices were flooded by Tropical Storm Allison; a major donor, Enron, declared bankruptcy; and its performers went on strike.

Time Warner stepped up its support of the symphony, and is a co-sponsor of its current “Be a Symphomanic” campaign. Purser says his division has aired $1 million worth of commercials for the symphony.

“They’ve run with the campaign much longer than any of the other partners,” says Kristen Tilson, assistant manager of media relations for the symphony.

The operator’s support of a program bringing schoolchildren to classical music concerts “is a big deal for us,” she adds.

Due to the “Symphomanic” campaign, the symphony has seen an increase in their customer-service rating and more awareness of symphony programs, she says.

Time Warner doesn’t just give money: it gets its people involved too. For instance, the division created a calendar at the end of last year with pictures featuring its workers, which was sold to benefit the Gulf Coast Chapter of the Make-A-Wish Foundation. Purser says the idea came from an employee who was inspired after watching the movie Calendar Girls.

“It was a wonderful project,” he says, adding it earned $10,000 for the charity and an estimated $250,000 worth of publicity for Time Warner. The system’s “calendar men” were featured in a local Thanksgiving parade, and even did autograph sessions.

“We’re thinking about it again for next year, but it’s an awful lot of work. How can we make it better?” he says.

Purser adds that the employees are great ambassadors, volunteering their personal time, an effort supported by the company that provides grants for things such as baseball equipment for teams coached by Time Warner employees.

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