Excerpt from WSJ re: Q and COX in Phoenix
Defending Their Turf - WSJ, 18sep00, pg R16
Cable companies are taking the offensive against upstarts offering competing video services
by Leslie Cauley
<snip intro and stuff re: satellite, digital cable, and DSL>
Some Bells are even fiddling with ways to use their copper phone lines to transmit video. The technology, which has been bumping around for years, has proved potent in a handful of markets.
All of this has translated into extra headaches for incumbent cable-TV operators, who must come up with competitive responses quickly.
One of the most pitched ground battles is in Phoenix. Cox Communications Inc., the big Atlanta-based cable TV operator, and US West, the big Denver-based phone company, have been duking it out all year there for video customers.
Phoenix is Cox's largest cable-TV market, and thus an important revenue center. So when US West, now owned by Qwest Communications International Inc., started offering video services over its own copper phone lines, Cox basically went, well, ballistic. The two wound up offering dueling bundles of discounted communications and entertainment services, and plenty of freebies. Consumers were the clear winners.
Some discounts cut right to the bone: US West initially offered, on a test basis, free video service to about 100 customers. (Qwest says it normally doesn't offer free video service to entice customers.) It also offered free installation on multiple products, including high speed services. More recent packages include wireless service and calling features such as caller ID. A stunned Cox fired back with freebies of its own, including free HBO and digital cable, unheard of in the cable-TV world.
As of August, US West, which now markets under the Qwest name, had snagged more than 50,000 customers and was continuing to add new customers at a rapid clip. Cox still dominates the Phoenix market with more than 600,000 customers, but the defections have hurt nonetheless.
Indeed, Cox's second quarter results included a sharp drop in quarterly earnings, a direct result, Cox said, of the competitive situation in Phoenix. Shares of Cox fell more than 15% the day the earnings were released.
Qwest considers Phoenix proof positive that competition is good for consumers. "Phoenix has been a living laboratory for competition and integrated packages" of entertainement, data, and video, a spokesman says. "This is ground zero for convergence".
Cox's experience in Phoenix is unusual. The technology being used by US West (Next Level's of course. RP) turns regular copper phone lines into conduits for high-resolution video. Most phone companies don't use that approach, because it is costly and has so many technical limitations.
Still, the competitive melee in Phoenix sent a shudder down the spines of many cable investors. It has also provided the cable industry with a wincing reminder of how much pain a well-financed rival can inflict on an incumbent cable operator, even one as well-prepared as Cox.
But some investors saw a silver lining, however tiny. Cox's aggressive response "is sending a message - good or bad - that incumbents are not going to roll over," nomatter what the consequences, says Douglas Shapiro, an analyst with Banc of America Securities. So if a rival's "business model assumes that an incumbent will let them take a healthy slice of the market ... based on Cox, that would be overly optimistic," he adds.
Cox, for its part, says US West's intrusion has left the company undeterred. US West "cost us some momentum," says Joe Rooney, Cox's vice president of marketing, but it "forced us to be more aggressive, to spend more in marketing, to focus our retention efforts, advertising, marketing." Competition, he adds, "makes us smarter. It makes us more aggressive in making sure the network is up to speed with new products."
On that note, Cox has a lot to brag about. The company was among the first in the cable-TV industry to recognize the importance of upgrading networks for new digital services. Cox was also among the first to offer phone-over-cable services, rolling out its first phones services in Orange County, Calif. in 1997. As late June, Cox had almost 250,000 lines in service across the country.
Cox is also aggressively pushing to sell high-speed services under the At Home Corp. brand name. (Cox is one of several cable companies that own a stake in Excite At Home.) At the end of June, Cox claimed about 320,00 high-speed customers, a 50% increase over last year.
Seeking to expand its high-speed reach, Cox is looking at offering a slower version of cable-modem service, Mr. Rooney says. He says the service would be geared to people who aren't willing to pay $45 a month for Cox's At Home service, considered pricey by most consumer standards.
"Not everybody will consider a $45 Internet product," he syas. "It may make sense to offer a slower service that isn't as robust" but still a vast improvement over traditional dial-up services.
<snip Cox pricing vs. Bells>
RP |
