Modem Sellers Hit Op Policies

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Electronics retailers last week joined a debate about the cable industry's cable-modem strategies, backing up another group's claim that MSOs are hamstringing the market.

The Consumer Electronics Retailers Coalition, representing heavy-hitter outlets such as Best Buy Co., Circuit City Stores Inc. and RadioShack Corp., wrote Jan. 27 to Federal Communications Commission Chairman Michael Powell, backing the Cable Modem Coalition's claims that cable-operator policies are hindering a healthy retail cable-modem market.

Composed of unnamed modem manufacturers and retailers, the Cable Modem Coalition in August urged the FCC to establish price controls on cable-modem service to prevent MSOs from damaging retail cable-modem sales.

"Retailers can confirm that even though a (Data Over Cable Service Interface Specification) modem product has been offered to them, they have to get assurances from local MSOs that it will be supported on their systems, which seems to be inconsistent with the basic idea," said Robert Schwartz, legal counsel for the CERC.

In particular, the groups cite a recent trend among MSOs to reduce or end discounts to cable-modem customers who buy their own modems, minimizing any incentive for customers to buy modems, the group argues.

"If they are simply adjusting the credit based on the fact that the product at the retailers is costing less than it used to for the consumer, then that's understandable," Schwartz said. "If they are doing away with the credit, then for that to be understandable the modem would have to be free to the consumer. The question is, what's the rhyme or reason?"

One example cited by the groups is AT&T Broadband's May 2002 price hike, which raised rates $7 for high-speed data subscribers who owned their modems.

Comcast spokeswoman Sarah Eder replied: "AT&T Broadband — and Comcast [Corp.] for that matter — price their service according to the value of the market, and the AT&T Broadband pricing for modems and the change it made last year reflected the retail environment and the cost of modems in the retail space."

The two retail groups also argue that the DOCSIS certification process overseen by Cable Television Laboratories Inc. is hard on modem makers, requiring long test cycles that increase the time to market.

With so many options and new developments, "this is something where three months, six months and some extra money for certification that might not be necessary from a small entrant could be the difference between getting onto the market or not getting onto the market," Schwartz said.

NCTA: Stats speak

On behalf of CableLabs, the National Cable and Telecommunications Association issued a blunt reply. The NCTA said the sheer number of cable-modem products that have won certification proves otherwise.

"More than 350 cable high-speed Internet access devices from 69 manufacturers have received certification or qualification status from CableLabs since 1999," said Brian Dietz, NCTA's senior director of communications. "The cable industry has and will continue to support a competitive market for broadband-modem devices. CERC's claims to the contrary simply are not borne out by the facts."

It's also not clear that all modem makers agree with the two groups' arguments.

Toshiba America Information Systems, which holds the No. 2 spot in cable-modem shipments behind Motorola Inc., isn't finding much of a barrier to retail, according to Chris Boring, Toshiba's marketing communications manager.

Toshiba has a healthy business in that sector, moving between 15 percent to 20 percent of its modems via retail outlets.

"We see a significant number of modems move through retail, but in the end the MSOs control their own pricing and rate structure," Boring said.

That said, Toshiba would back any efforts to increase cable modems' retail visibility.

"We're firmly committed to retail in that we feel it will help the category," Boring said. "The more people walk into a

CompUSA or a Costco or a Best Buy and see a cable modem on the shelf, the more exposure we have for the technology and the more benefit to the cable industry as a whole, and that includes the MSOs."

MSOs say they do like retail cable-modem distribution, which reduces their capital expenses. In the fourth quarter, almost 80 percent of Cox Communications Inc.'s new high-speed data customers opted to buy their modems.

"We love retail — we actually think it's a very good thing," said Beth Denning, Cox's director of sales and distribution. "We are a service provider, and retailers are experts at retailing the hardware, so I think we need to focus on what our core competency is."

Cox also has not pared down or eliminated its monthly discount for customers who buy their modems, which ranges from $10 to $15 in the MSO's markets.

"Which, in today's market, is a great incentive to purchase a modem," Denning added. "I am unaware of any look to reduce that in the near future. It is our strategy."

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