Marketers Ring Up Phone Customers

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While some cable operators are only beginning to wade into
the competitive telephone market, the ones already selling telephone service are finding
the business lucrative, if not altogether friendly.

MSOs struggling to adapt to the pressures of competition
are now aiming to take customers away from incumbent telephone companies that have enjoyed
monopolies of their own for decades longer than cable.

"Incumbents need to work with us very closely to
coordinate a change of service," Cox Communications Inc. vice president of marketing
Joe Rooney said. "It's a very sensitive area. We cannot get new customers without the
cooperation of the local phone carrier."

Adelphia Communications Corp. offers telephone service for
business and residential customers. According to Adelphia Business Solutions director of
product marketing and development Laurie Ann Simms, it is easier to market against the
incumbent local-exchange carriers when it comes to selling commercial to clients.

Kevin Curran, vice president of consumer telephone products
for Cablevision Systems Corp. -- which markets residential phone service in Connecticut
and Long Island, N.Y., under the "Optimum Telephone" brand -- said the MSO has
had some difficulty with telephone incumbents when trying to port phone numbers for new
customers. "We promise customers that they can keep their phone number," he
said.

Curran added that it's taken quite some time to coordinate
the process with Bell Atlantic Corp. in New York, and he's concerned that matters could
take a turn for the worse once Bell Atlantic gains the right to provide long-distance
service.

"Up until now, they've been incented to be helpful
with the competition," he said. "The carrot at the end of the stick was long
distance."

MediaOne Group Inc. corporate vice president of
digital-telephone services Greg Braden conceded that incumbents have not been as
cooperative as he'd like them to be.

"We have to spend a lot of time with them and with the
regulators -- sometimes in court -- to gain their compliance," he said. "But the
payoffs are of such magnitude that it justifies the work involved."

MediaOne generates about $47 to $48 per month in
incremental revenue from each of its telephone customers, Braden said, adding that it's
more monthly revenue to the MSO than those customers bring in either through video or
high-speed data.

"As we add more customers, the total value of the
telephone business begins to quickly approach the size of the video business for us,"
Braden said. Business models are based on relatively modest penetration rates of 15
percent to 20 percent, and some of MediaOne's nodes have already exceeded those rates, he
added.

"If you can get 8 percent to 9 percent penetration,
that's the breakeven point," Braden said.

Telephone revenues industrywide average $20 to $25 per
month, according to Cox Digital Telephone product-marketing manager Tom White. "We're
seeing above those numbers," he added.

Rooney said the way Cox prices its phone service helps to
encourage big spenders to buy their telephone service from Cox because the company deeply
discounts the cost of second phone lines.

Cablevision's telephone service not only brings in
additional revenues from current cable subscribers, but also helps to attract first-time
customers, Curran said.

That's because Cablevision sells the service as a package
deal, offering a sliding discount off cable television based on the customer's monthly
phone bill. Those who pay $50 per month for phone service get 10 percent of their phone
bill applied against their cable bill; anyone who spends $250 or more on phone service
gets free cable programming.

"[About] 5 percent of those who buy the phone service
have not had cable," Curran said. "We find that we're getting customers who can
now afford to get cable or upgrade their package."

Cablevision still markets its service primarily
door-to-door, spending 30 to 45 minutes with potential customers, looking over their
current phone bills and letting them know the kinds of savings they can expect if they
switch services.

"It's an expensive process," Curran said,
"but it's worth it because customers are less likely to churn" after spending so
much time with a salesperson.

Curran added that Cablevision agents can't always promise
discounts because roughly 15 percent of the MSO's customer base already takes aggressive
calling plans from Bell Atlantic. But if Cablevision agents do get in the door and conduct
a bill analysis, he said, "We close 50 percent of the people we talk to."

The MSO backs up its door-to-door efforts with
cross-channel spots and weekly newspaper ads. It also plans to start telemarketing homes
following three unsuccessful visits.

Cox supports its telephone offer primarily with direct
marketing. It hasn't pulled out all of the stops when it comes to marketing because it
hasn't had to yet.

"One of the real pleasant surprises in launching
telephony has been how easy it is to sell," Rooney said. "In some markets,
one-quarter of our sales come from neighbors telling neighbors. In other markets,
one-quarter come from cable customers calling with video questions and CSRs
[customer-service representatives] upselling them to digital."

Because demand is so high, Cox would be challenged to keep
up with installations if it advertised its phone service more aggressively now, Rooney
said.

When it does market telephony, Cox plays up the simplicity
of its price structuring, such as no hidden surcharges. It also aggressively markets
vertical features such as call-waiting, call-forwarding and three-way calling as a
convenience for customers because the features also provide extra profitability for the
company.

"We try to package the features in ways that make
sense," Rooney said, such as five features for $5.95 under offers named "Active
Lifestyle" and "Phone Control."

Adelphia markets some of the same calling features for both
residential and commercial customers, Simms said, but the marketing varies according to
the audience.

On the business side, for example, Adelphia wouldn't call
attention to long-distance conferencing because it's considered a standard feature.
"It would be like advertising a car and saying it has tires," she said.

In the future, Adelphia plans to play up its interests in
both the residential and business markets by offering a service called unified messaging.
The feature would provide one place for a customer to access any type of communication --
including voice mail, e-mail and fax messages -- for home or business use.

"One interesting thing customers can do with unified
messaging is switch on the cable TV and have their messages show up there," Simms
said.

Adelphia plans to test unified messaging once its national
fiber backbone is complete. Trials of the service start next year.

Adelphia currently sells only long-distance service, but it
plans to add local by the end of 2000. It sells residential phone service in parts of
Pennsylvania, Virginia, New Jersey, New York, Ohio, Michigan, Massachussets, Florida,
North Carolina, South Carolina, New Hampshire and Vermont.

Cablevision offers both local and long distance in its
suburban New York City markets. AT&T Corp. recently announced that it will sell local
telephone service in that area, although initially not over its own plant.

Cox markets both local and long distance in eight markets:
Orange County, Calif.; San Diego; Phoenix; Connecticut; Rhode Island; Hampton Roads, Va.;
Omaha, Neb.; and Oklahoma City.

MediaOne launched its first local phone-service market in
January 1998, and it now serves eight markets: Atlanta; Los Angeles; Jacksonville, Fla.;
Pompano Beach, Fla.; Richmond, Va.; Boston; Detroit; and New Hampshire. The company
announced earlier this month that it would also sell long-distance service.

AT&T Broadband & Internet Services, which began
testing local phone service in eight states earlier this year, is expected to close its
merger with MediaOne in the first quarter of next year.

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