MSOs Fear Churn Burn From @Home Turnover

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With the bulk of Excite@Home Corp.'s MSO partners working to take over their cable-modem customers from the failed ISP by Feb. 28, the "C" word worrying them most isn't conversion.

It's churn.

With Comcast well under way and Cox set to start its major conversion push as of last week, the stakes are high. Botched conversions will produce frustrated customers, and telco digital subscriber line competitors hover close by, eagerly offering free service and equipment lures to those willing to defect.

While these losses won't begin to emerge until fourth-quarter subscriber numbers are released by MSOs later this month, the conversion process does come at a time when the potential for defections is at its highest level. Jupiter Media Metrix estimates that of the 70 million U.S. households that can get broadband, about 40 million have a choice between cable and DSL.

"It's really hard to separate out what that effect is, but what we are seeing here is the beginning of the churn bugbear raising its head. There is kind of this assumption that because churn on broadband products has been low historically that it will stay that way forever," said Dylan Brooks, a broadband analyst for Jupiter Media Metrix. "And while it absolutely is true that very few customers actually go back to dialup after being on broadband, the number of households with a choice in broadband providers has risen dramatically over the last 18 months, and that is the kind of churn that broadband providers have to watch out for."

Comcast is well under way toward its goal to convert its 800,000 customers by the first week of February, but the MSO has encountered some problems. Some 7,000 customers in Union, N.J., were temporarily cut off in the last week of December when a server problem cropped up. And a couple hundred former Road Runner subscribers in Detroit also experienced problems with their conversion to Comcast's new network.

Dave Watson, Comcast's executive vice president, said such problems are to be expected in any task of this size. "This is again a new network," he said. "You roll it out and you uncover these things early on. The good news is we have identified that and made good progress as we go forward."

But Watson is also aware that his DSL competitors are circling.

"First off, it is a very competitive environment," he said. "We recognize that. I don't think we take it lightly when any service issue comes up, just as when DSL has issues, which they've had . . . We are trying very hard to quickly identify these things and we've done that."

Mediacom Communications Corp. said last week it signed a multi-year agreement with AT&T Corp. to provide Internet protocol network backbone and some core support behind its Mediacom Online high-speed data service.

The Middletown, N.Y.-based MSO had been an affiliate of Excite@Home's @Home Solutions unit.

Mediacom said the relaunched service would beef up electronic mail functions and add local content for subscribers. Customers will start being moved over to the new service later this month. The company previously agreed to pay Excite@Home $10 million to maintain network access through Feb. 28. That agreement will allow Mediacom's 113,000 cable-modem customers to maintain access to their @Home e-mail accounts along with new @mchsi.com e-mail accounts.

For Cox, meanwhile, the threat of cable-modem defections to DSL can be lessened by treating the customer well during the conversion process, according to the company's senior vice president and chief information officer Scott Hatfield, who is coordinating Cox changeover project.

"I don't know that [defections are] a big fear of ours," Hatfield said. "You clearly do have to do a good job of the transition, and you do have the potential for some disruption there. You are changing a domain name and you are touching software on the PC, and any time you do that there is certainly room for things to go wrong."

DSL providers, meanwhile, have been cagey about exact numbers of customers lured in by their various promotions. Witness Qwest Communications International Inc., which jumped in to the fray in late November offering frustrated cable-modem customers a package worth $300 in services, including a DSL modem, activation and up to two months of service on its 640K and 256K MSN Broadband powered services all for free.

Claire Maladon, senior manager of corporate communications at Qwest, said the telco isn't releasing exact figures on how many new customers the promotion has drawn in, but she said, "We are very pleased with the results."

The promotion has drawn "thousands of customers" via phone calls and Web site visits," she added.

While it also didn't release exact numbers, BellSouth Corp. claimed part of its best-ever fourth quarter DSL results, was due to 157,000 new subscribers. While no specifics were given, Ralph de la Vega, outgoing president of BellSouth's broadband and Internet services group, told analyst during the company's fourth-quarter conference call that response to its free modem and one month of free service was high, and the telco "probably did get a little bit of a lift" from Excite@Home's woes.

For operators including Comcast, DSL's own weak spot — the length of time needed to provision a service order — could be an important defense.

"If Comcast can iron out problems between the time that somebody orders DSL and still doesn't have it provisioned, then they might be safe," Brooks noted." But if you start going out into that three or four-week period where even troubled DSL installs tend to get done, then there is quite a big risk."

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