TCI Loyalty Program Prompts Debate

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Tele-Communications Inc. launched its first national
loyalty program earlier this month, offering steady customers an opportunity to accumulate
points and receive gifts, discounts on TCI products and services and frequent-flyer miles
from United Airlines.

The "TCI Rewards" program appears to be the most
extensive one in the cable industry, and it comes at a time when MSO-marketing executives,
facing slowing subscriber growth and increasing competition from
direct-broadcast-satellite services, are examining loyalty programs more closely than
ever.

Marketing executives are divided, however, on whether the
"relationship" and retention benefits of the rewards programs are worth the
considerable time and cost needed to run them.

Tom French, senior vice president of corporate marketing
for TCI, maintained that loyalty programs are critical for cable systems in a competitive
environment. He described TCI Rewards as a logical extension of the operator's role
as "the relationship between the customer and the product."

The loyalty program would, he said, help TCI to
"attract new customers, to get more out of current customers and to reduce
churn."

After a beta-test of the program earlier this year, TCI
systems in markets such as Denver; Portland, Ore.; and San Jose, Calif., have begun
mailing brochures and enrollment forms to targeted higher-end customers.

TCI is offering subscribers 50 bonus points to join, and
they can earn additional points each month based on the levels of service that they buy.
For example, purchase of basic and expanded-basic service is worth 25 points a month.
Basic plus additional premium services earns a range of points from 45 for one pay service
to 265 for six. And every pay-per-view service earns five additional points.

Customers can redeem points for discounts on their cable
bill; branded merchandise, such as an ESPN jacket, Discovery Channel videotapes or a TCI
tool kit or golf bag; or United Airlines frequent-flyer miles.

According to the MSO's handbook for local systems, the
program is targeting customers who have at least one pay channel or who have ordered a PPV
movie in the last four months.

The program is structured, according to the handbook, so
that "more points are incorporated into each incremental level to reward increased
behavior." Conversely, "if a customer downgrades, their points will decrease
relationally."

Additional TCI systems and clusters are scheduled to
institute the program throughout the year. Since the program is "fairly
generic," French said, TCI may eventually open it up so that "any MSO can
participate," with TCI possibly charging a license fee.

Char Beales, president and chief operating officer of CTAM,
the cable industry's marketing association, said loyalty programs have sparked a
debate among MSO executives for years.

"Conceptually, they like it," she said,
"Executing them -- they're not sure."

Julie Berg, executive vice president and chief marketing
officer at MediaOne, called loyalty programs "essential" in today's market,
although she cautioned, "I don't think that you can create one standard program
across your customer base."

Berg and other proponents stressed the importance of
database research as an essential "building block" for loyalty programs.
MediaOne has hired Mark Bovoril, former vice president of marketing information at Sprint
Corp., and the MSO plans to launch regionally oriented loyalty programs later this year,
she said.

Rifkin & Associates Inc. is also inaugurating loyalty
programs this year that are based on sending occasional gifts as "unexpected
thank-yous" to customers, rather than on compiling points, according to Lee Clayton,
vice president of marketing for the Denver-based MSO.

Virginia Gray, Cox Communications Inc.'s new vice
president of marketing after a two-year sales-and-marketing stint at Cablevision Systems
Corp.'s Connecticut systems, said she has "always been very leery" of
loyalty programs.

"Once you institute them," she cautioned,
"you can't take them away. They're also costly and operationally
complex."

Falcon Cable TV Corp. looked into loyalty programs, but it
"didn't find enough interest" from customers, said Skip Harris, its vice
president of marketing.

Other MSO marketers complained that rewards programs were
difficult to launch, and they asserted that "people don't get real excited"
about the prizes. In fact, one executive questioned whether giving away a cable
system's products lowered their value to the customer.

Loyalty programs do "have to be proven out," with
a cost-benefit analysis, responded TCI product manager LeAnn Carlson. But if cable systems
want to curb controllable disconnects and downgrades, they have to spend the money on
loyalty programs, "and do it right," or they will never know, she said.

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