Operator Of The Year: Battle For New York

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If you happen to live anywhere near the New York metropolitan area, chances are you’ve seen the ads — “Time’s Up, Time Warner” — touting Verizon Communications’ much anticipated entrance into the New York City video market.

Time Warner Cable has known about the coming onslaught for more than a year, and it has direct competitive experience with the telco’s TV product in other markets to draw on — not to mention that of other cable companies that have competed effectively against Verizon for more than three years.

In the coming battle for New York, Time Warner Cable has had ample time to get its troops in order.

TWC chief operating officer Landel Hobbs said that while the media and the cable industry are watching with bated breath at how Manhattan’s competitive landscape will shake out, at the MSO, the coming fight has the sense of been there, done that. That confidence is fueled by a sense of preparedness throughout the company.

Hobbs said that when a competitor enters a market, TWC has a standard playbook. It is no different with FiOS.

The company has implemented a multitiered approach: initiating a “Price Lock guarantee” that offers customers the chance to receive services at a fixed price over one or two years; focusing on increasing the number of HD channels and taking the plant all-digital to facilitate the introduction of new services; beefing up customer service; and increasing its marketing spend.

All three prongs have been completed in Staten Island — the first borough Verizon rolled out FiOS TV — are nearly finished in Brooklyn and Queens and should be completed in Manhattan by the end of the year.

Currently TWC has about 58 HD channels in the outer boroughs, a little more than half of the 100 HD channels that FiOS touts.

But by going all digital, that can be increased substantially, Hobbs said. And he added that the cable company is focusing on quality, not just quantity.

“If that’s 100 [HD channels] and they’re out there, good, we’ve got that capability,” Hobbs said, adding that in addition to expanded HD, Time Warner is launching its popular Start Over service in Manhattan by the end of the year and has made several changes to beef up customer service. That includes shortening appointment windows to two hours, bolstering retention marketing, educating TWC customer service reps with regard to the FiOS product and increasing the company’s marketing spending.

“The entire customer experience is the key,” Hobbs said. “That’s why we focused on the appointment windows, making sure our call centers were up to snuff and ready.”

This month the operator kicked off an outdoor media campaign aimed at “influencers” in Manhattan, revolving around the theme “Newer York” and emphasizing Start Over, Road Runner High Speed Online with PowerBoost (available to all high-speed Internet customers in the Big Apple), HD On Demand and other innovations.

“It’s trying to really counter the notion that FiOS and a network are going to somehow trump the things we do” in the Big Apple, said Sam Howe, TWC’s chief marketing officer. “This is our town, has been our town, and we have innovations that are here [or] are coming.”

Cable operators generally haven’t pushed one- or two-year contracts, but in a competitive environment it can be important to figure out the right price point that will encourage a customer to commit beyond month to month. TWC has offered the Price Lock Guarantee in the borough of Staten Island — an area of mostly single-family residences that TWC rightly assumed FiOS would target first — for two years and now offers it throughout the New York and New Jersey metropolitan cluster.

“As we’ve said in some of our earnings calls, Price Lock Guarantee in Staten Island is definitely showing demonstrably less churn,” Howe said. “Our overall churn is down about 23% and our voluntary churn — that is those who choose to churn, not for non-pay — is down over 40%. So it’s demonstrably what customers want. Over 90% go into a two-year contract. They have a choice of a one or a two. Almost all pick two.

“We give them a good value and they lock themselves up,” Howe said. “It has now become a major program and sales rates have gone up demonstrably since we’ve started advertising it.”

New York City being a city of immigrants, TWC also has promoted International OnePrice, a plan that enables calls to more than 100 countries for $19.95 a month to customers that take home phone service and another service from the operator. In the company’s last earnings call, it said more than 50,000 customers have signed up for it — one-third of them in the New York City area.

Howe also said about one-third of customers buying International OnePrice are new customers overall to Time Warner Cable.

Howard Szarfarc, executive vice president of TWC’s New York City Region operations, said another ace in the hole is NY1, the company-owned local news channel and its Spanish-language sister channel, NY1 Noticias. It’s not available to competitors, he said, and has increased its coverage of Staten Island and Queens with local bureaus. “Those key differentiators are the reason customers will stay with us,” he said.

Verizon’s New York City franchise was approved July 16 and the company has said it expects to put FiOS in front of 300,000 homes initially, expanding to 500,000 by the end of the year. The telco is rolling out the video service in stages — its goal is to offer FiOS TV to 98% of the residences in Staten Island by the end of 2008 and 57% of residences passed in Manhattan by the end of the year.

Hobbs is also quick to point out that while New York City is TWC’s second-largest market with 1.5 million customers — Los Angeles is first with 1.7 million subscribers — it represents about one-tenth of the company’s total 13.3 million customers. Verizon claims to be in front of about 300,000 customers in New York City, again about one-tenth of TWC’s 3 million homes passed in the market.

“It’s not a huge portion,” Hobbs said.

But Hobbs also realizes that the New York market is the most high-profile in the country — not to mention the financial and media center of the world. A poor showing versus Verizon and FiOS in Manhattan could have further implications, especially on Wall Street.

For the most part, analysts are confident that TWC has the firepower to repel the Verizon onslaught. Part of the reason is because New York City is a tough nut to crack.

Collins Stewart media analyst Tom Eagan wondered about Verizon’s claims that it would pass 30% of the homes in the market by next year, adding that it might be a very difficult number to reach.

“I think it’s a misnomer because although their fiber may pass in front of a building, it’s not technically a home passed in the context that we know it in.” Eagan said. “Being in front of a single-family house is very different than being in front of an apartment building — you have to get by the managing agent, you have to get by the co-op board. I think some of the numbers that they are throwing out in terms of what they hope to get at, isn’t necessarily apples to apples.”

Miller Tabak media analyst David Joyce pointed to some initial snafus encountered by Verizon — billing glitches where some FiOS customers received bills of $300 or $400 per month — and longer-term problems involving the length of time the service can take to install, 10 to 12 hours in some cases.

“That’s going to be an uphill battle for the telcos,” Joyce said.

Hobbs agreed that the Manhattan market will not be easy on a new entrant. But despite the technological upgrades and customer service improvements, he understands that another factor may play the biggest initial role in determining a winner in the Battle for New York. “Realistically, it’s going to be a lot about marketing,” Hobbs said.

But that is an area that TWC has focused heavily on too. In the second quarter, marketing spend for the company was up about 14% to $151 million — for the first half of the year it is up in the mid-teens. Hobbs said that the money is being spent not only on more professional looking TV ads, primarily the spots featuring comedian Mike O’Malley, but in other areas as well.

“You’ve seen what we’ve done in marketing this year — we’re spending more year-over-year, it’s much more aggressive, it’s cleaner, it’s very targeted and direct,” Hobbs said. “I feel very good about where we are about marketing. We’ve made some substantial changes not only in the creative, but in our ability to do database marketing, understanding our customers so we can do campaigns that are more effective, learning about our customers, scripting the right products that we should sell to them. We’re becoming much more sophisticated in our marketing approach.”

Hobbs added that TWC isn’t just doing cross-channel marketing to its own subscribers; it has expanded into broadcast ads targeting non-customers, and is placing a significant focus on the VOD market.

Another segment that the MSO is targeting heavily is Hispanics. Nationwide, about 46% of the country’s Hispanic population is within TWC’s footprint. And the two largest Hispanic communities in the country are located in New York and Los Angeles.

Kent Gibbons and Todd Spangler contributed to this report.

To read more of  the Operator of the Year report, check out the Sept. 29 issue of Multichannel News or click here. 

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