Retail Mentality Sinks In with Cable

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A cable-operator mentality is emerging that centers on
getting new products and technologies to consumers via retail, reflecting proliferating
cable-modem certifications and new advanced-service availability.

Cable service centers are now assuming a retail-store look
and feel, and MSOs such as AT&T Broadband & Internet Services, MediaOne Group Inc.
and others are forging new co-marketing strategies and designing in-store trials with
national retailers such as Best Buy and Circuit City Stores Inc.

Cable's hardware manufacturers are beginning to think
retail, as well, with cable-modem and set-top makers such as Motorola Inc. and
Scientific-Atlanta Inc. nurturing relationships with a growing number of
"big-box" retail chains.

Even with significant issues remaining -- such as service
and product maintenance, pricing and the cable industry's insistence that new
digital-television sets include an IEEE (Institute of Electrical and Electronics
Engineers) "1394" set-top interface -- the inevitable move to retail is under
way. And it is fundamentally changing the way cable views its customers and how they buy
advancing technologies and services.

"Our industry hasn't had a lot of people calling on
Circuit City or Best Buy, so there needs to be an influx of skill sets from the marketing
side. And it's starting to happen," AT&T Broadband senior vice president of
marketing Doug Seserman said.

Best Buy, Circuit City and other large consumer-electronics
retailers offer cable a new channel of distribution for its new services and products, and
it better pay attention to the retail model, Seserman said.

"We can't ignore where customers are shopping,"
he added. "And we now have products that can compete through retail stores. We must
have presence there. So when they make product-purchase decisions, we want to be
there."

The new retail mentality for cable operators also means
transforming their front offices into what look and feel like retail stores.

"Our whole concept is to transform our centers into
retail stores. We must expand our range of distribution," said Rob Calgi, regional
director of new business for Comcast Corp.

Comcast's retail strategy, Calgi said, includes layering
its products and services onto retailers' shelves.

"It's not about just selling set-top boxes. It's part
of the education process for retailers," he added. "Retail is something we're
experimenting with, and we're pushing our local people into roles to better understand how
retail works."

Yet for cable-modem makers such as 3Com Corp., the retail
experience has gone beyond mere experimentation, and it is now a crucial part of its
business strategy.

"The retail channel is where we excel, and that's
where we've wanted to be all along," said Michael Pula, director of product
management for 3Com. "The cable-modem retail strategy is just an entry point for new
services that we don't even know about yet. Right now, there's no model to work with. It's
uncharted territory."

3Com recently sailed into Cablevision Systems Corp.'s The
Wiz electronics chain, where it will provide setup and instant installation of the MSO's
"Optimum Online" high-speed-data service for customers on Long Island, N.Y.

The deal calls for 3Com's external two-way cable modem to
be bundled with an installation starter kit, which includes a splitter, cable optimized
for data over cable and an instructional video.

Said Pula: "We've taken up the mantra of helping MSOs
to get modems off their books, but every retail aspect is in the infancy stage. The early
proposition is that functionality will allow more services down the road and modems will
accelerate those services."

Yet for some, the retail model has a long way to go before
it can truly be considered a winner.

"Retailers want to test-market modems in select
cities, but MSOs aren't ready," said Lief Koepsel, director of corporate marketing
for Com21 Inc. "Questions remain about how to fill the modems and tie services to
them and how you install. It just hasn't happened as fast as we thought it would."

Com21 is in the process of having its standards-based cable
modem certified as meeting the industry's Data Over Cable Service Interface Specification
version 1.0 for interoperability and other protocols.

Koepsel also pointed to the pricing issue as an obstacle to
the full-scale rollout of products and services by cable operators to retailers.
"People want to hit certain price points for retail products, and from a hardware
perspective, retailers will say, 'If you bring me new technology, bring it to me under
$200.' That's the rule of thumb," he said.

Yet the retail experience for a growing number of cable
operators is vital to their next-generation business models, which include the
availability of their products and services at the retail level. And some insisted that
it's happening faster than people think.

"There's more than a gradual integration of retail
techniques into cable," said Kenna Smith, general manager of Comcast's
68,000-subscriber system in Tucson, Ariz. "It's now a very competitive world, and
we're vying for people's attention, and with more products to offer."

As those products and services become more commonplace in
the retail market, industry experts said, the traditional one-dimensional product mind-set
of the cable industry will change forever.

"All of a sudden, MSOs find themselves in a
distribution arena that they have no experience in," said Jimmy Schaeffler, CEO of
The Carmel Group, a media-research and consulting firm. "Now, they've been mandated
by Congress to make boxes available, and they will have to compete in the retail market,
where their competitors -- DBS [direct-broadcast satellite] -- have already learned how to
handle retail."

That competitive environment, along with the availability
of new products and services, drives cable's new retail mentality.

Said Seserman: "In the past, our call centers reacted
to new customers. Now, with the new retail mentality, we're taking a much more proactive
approach and acknowledging that we have to find new ways to sell all of these new
technologies and services, and we think retailers can help us do that."

Successfully merging into the retail market isn't expected
to be easy for traditional cable operators, however.

"When they have to compete head-to-head with DBS and
other competitors, they must be nimble, quick and creative," Schaeffler said,
"because their competitors, like DBS, have a head start."

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