Survey: Where Ops Stand on Data, Modems


Cable modems and digital-video programming are virtually
neck-and-neck when it comes to which advanced service cable operators are introducing
these days.

A Multichannel News survey of 34 systems found that
deployment of data services was slightly ahead, but digital video was reaching more
consumers due to a push by Tele-Communications Inc., which rolled that service out to 11.7
million subscribers last year.

By comparison, research indicated a total of 165,000
cable-modem subscribers as of March, with Time Warner Cable leading the way, totaling
29,000 subscribers in eight states for its Road Runner service.

Meanwhile, 21 systems, or 62 percent of operators
responding to the survey, inaugurated some new offering in 1997, with nine launching
cable-modem service and seven rolling out digital video.

Topping the list was InterMedia Partners in Nashville,
Tenn., which introduced both services.

Other launches included an Alabama operator that became a
pseudo Internet-service provider thanks to a partnership with a local broadcaster, and a
long-distance carrier with extensive cable holdings that began offering local telephone
service in Anchorage, Alaska.

The 38 percent that failed to launch any new services
included everything from systems that hadn't gotten the go-ahead from their corporate
management to upgrade, to an Iowa operator that was struggling with the financial pinch
that goes with serving 168 subscribers.


How each system was marketing its new product depended on
which new service was launched.

TCI's Southeast division, which unveiled TCI Digital
Cable at systems passing 2.7 million households in six states, began by bundling each
system's analog lineup, including premium services, with one of three digital

The new digital packages -- designated as "Blue,"
"Green" or "Gold" -- sell for between $43.99 and $69.99 per month,
depending on location, according to MSO officials.

To support the launch, TCI is saturating markets with
broadcast, newspaper and direct-mail advertising designed to tout the enhanced value of
the combined services.

Although it won't discuss specific numbers, TCI said
the strategy has gotten the public's attention.

"It hasn't been difficult to sell," said
Kathy Roberts, executive director of communications for TCI's Southeast division.
"The phones are ringing."

However, Wayne Vowell, regional director for InterMedia in
Nashville, believes that cable modems are the trickier sell.

"Digital cable is an extension of regular cable.
It's video. There's no new news," Vowell said. Nevertheless, his system has
added 1,500 customers with a new digital-video product.

But marketing cable-modem service offers a bigger
challenge, since there are two pools of potential customers and, therefore, two different
strategies that must be employed, he said.

First, there are the computer novices -- consumers who
don't understand cable modems or the Internet, and who must be educated from the
ground up.

Second come the technologically savvy consumers, who are
already online and who must be convinced that cable modems offer more speed than their
existing service.

"It's a complex sales opportunity," Vowell
said. "But it's reinvigorated the business. For a while, all we had was more,
more, more [video offerings]. Now we have more, but with some uniqueness to it."

Although committed to offering modem service at $44.95 per
month for cable subscribers and $49.95 for nonsubscribers, Vowell has not been afraid to
experiment with discount pricing in target areas where consumer resistance has been
running high.

The MSO has also been marketing cable modems at "mall
exhibits" -- a costly, labor-intensive proposition that involves renting storefronts
and allowing consumers to drop in and "test-drive" the service.

So far, the results have been nothing short of spectacular.

In just under a year, InterMedia has signed up 1,800
cable-modem customers in Nashville, with penetration rates expected to hit the
low-double-digits sometime next year.

On tap: bundling cable, modem and digital-video service in
a package appropriately named, "The Works."

"Research indicates that there is a one-cable-bill
mentality out there," Vowell said. "There's a case to be made that it makes
a lot of sense."

New services will be essential to operators in Tennessee,
where a legislative move to allow municipal utilities and rural cooperatives into the
state telecommunications market was beaten back recently but expected to resurface next
year, Vowell said.


Meanwhile, some operators that only launched one service
last year found that deciding which one to launch was a no-brainer.

Time Warner Cable's 185,000-subscriber system in San
Diego had more than its corporately owned Road Runner service going for it when it decided
to roll out cable modems.

It was also operating in a market that research indicated
was fourth in the nation in ownership of home personal computers and first in Internet
usage, said Jim Fellhauer, president of Time Warner's San Diego division.

A year later, Fellhauer has 10,000 new modem customers on
the books, despite limiting discounts to a $5-per-month break for cable customers who sign
up for the Road Runner service.

However, Fellhauer said, the rest of the story consists of
hours spent following up with new customers.

"If the customer's new product doesn't work,
word-of-mouth will kill you," he said. "You have to deliver what you


One intriguing story emerging from the survey was that of
Cable of Alabama, a five-franchise system near the Tennessee border, which decided against
trying to hawk $395 cable modems to residential consumers.

"We haven't been able to crack that nut,"
said system general manager Bill Lewis. "People want speed, but they don't want
to pay for it."

Instead, Lewis entered into a partnership with Hiwaay
Information Services, an ISP owned by a local broadcast affiliate. The ISP uses the
operator's fiber optic cable to deliver Internet access to commercial accounts in the
Huntsville, Ala., area, then it splits the revenues with the cable operator.

"We're just the plant-provider," Lewis said.
"For us to do it, we would need [high speed] T-1 telephone lines, which can run up to
$4,000 per month, per line. If you don't have a lot of subscribers, that will eat you
up quick."


Typical of a system with major MSO ties that hasn't
rolled out any new services is Comcast Corp.'s system in Knoxville, Tenn.

In its case, however, it's a former Scripps-Howard
system that came into the Comcast fold after the latter's rollout schedule for
enhanced services had been set.

"But we'll catch up," said system general
manager Barbara Lewis, who believes that the city's above-average penetration rate
for PCs makes it a candidate for cable-modem service.