New York -- Bundling advanced services like digital cable,
telephony and data may sound like a good idea to most MSOs, but beware the failure to
deliver on already-hyped promises, executives said last week.
At the Kagan Seminars Inc. "Cable in the Broadband
Millennium" conference here, MSO executives on a panel said bundling isn't the
be-all and end-all.
"Not everyone wants bundling, and not every bundling
experiment works," Comcast Corp. treasurer John Alchin said. "Look at the
'MCI One Plus' plan -- it totally bombed out," referring to the attempt by
long-distance carrier MCI WorldCom Inc. to bundle long-distance and paging services.
NTL Inc. -- an MSO and phone operator based here with
properties throughout the United Kingdom -- learned about the perils of bundling by
talking with customers.
"We spent a lot of time talking to customers in
Britain," NTL president and CEO Barclay Knapp said. "No. 1, they don't want
cheap telephone service, and No. 2, large packages were not working in the U.K. Going from
four channels to 40 wasn't seen necessarily as an advantage."
Instead of bundling service, NTL approached the market by
offering a telephone- and cable-service package for the same price its competitor --
British Telecommunications plc -- charged for a single telephone line.
"That started us on a path. It presents a no-brainer
for the consumer. You have to create a no-brainer that focuses the consumers'
attention on something," Knapp said.
Keeping the message simple, NTL quickly increased its
penetration rates in the U.K from the high-30 percent range to the low-40 percent range
for the package. The company now has 3 million subscribers, with incremental penetration
rates of 60 percent in some markets.
"The biggest problem we had in the U.K. was
inertia," Knapp said. "People were comfortable with what they had."
Alchin said the key is to focus on operations, pointing to
his company's decision to spend about $2 billion on upgrading its systems before
rolling out advanced services on a wide scale.
"Make certain that the product is ready for primetime
and that it is done in a very sequential way," he said. That's the way Comcast
has been doing it with both high-speed data and digital cable, he added.
Alchin said that when the company first started rolling out
its high-speed-data service, it spent the first year taking care of about 10,000
customers, even putting the service on hiatus during its first summer to work out some
bugs with back-office operations. Now, the service is expected to have some 135,000
customers at the end of the year.
Digital video has also been a success for Comcast. The MSO
-- which began launching digital service in late June 1998 -- expects to have 450,000
digital subscribers by the end of 1999, and it is currently doing 8,000 to 10,000 installs
Digital service is also a big moneymaker, Alchin said.
Comcast charges about $10 extra per month for digital service, and it costs the company
about $3 per month to provide. In addition, digital customers buy an average of one
pay-per-view movie per month, further adding to the revenue stream.
"Going into 2000 with 450,000 customers, if we add no
new digital customers, that is still $50 million to $60 million in incremental cash flow
that we otherwise wouldn't have," Alchin said.
And the cost to provide the service may be getting lower.
Alchin said that in Comcast's Indianapolis and Baltimore markets, customers are
driving to their cable offices, dropping off their old converters, picking up new digital
boxes and installing them themselves, eliminating the need for truck rolls.
Partly based on that success, Comcast is taking a very
cautious approach with telephony.
"Telephony is still evolving," Alchin said.
"We still have to do more, but it is too competitive a product with the RBOCs
[regional Bell operating companies]. The only thing we can offer is what they are offering
now. If we can hold off until IP [Internet protocol] telephony is ready for primetime, the
product will be better than what the RBOCs have today."
Alchin added that Comcast will test IP telephony by the end
of the year in selected markets.