Data Moves Fast in San Francisco Bay Area
PacBell, others ramp up services since half the region's residents are online
By Alan Breznick
A little more than two years after launching cable modem service in selected regions across the U.S., cable operators no longer have the high-speed data market all to themselves.
In city after city, regional phone companies, competitive local exchange carriers (CLECs), wireless cable firms and other telecommunications companies are introducing their own quick Internet-access services to compete against cable modems. While largely charging higher prices than cable operators, they hope to lure residential and business customers with promises of dedicated bandwidth, greater service reliability and more choice of Internet service providers (ISPs).
Nowhere is this more evident than in the San Francisco Bay area, where Pacific Bell and such lesser-known upstarts such as Covad Communications, NorthPoint Communications Inc., Rhythms NetConnections and RCN Corp. are busily rolling out digital subscriber line (DSL) data services that challenge Tele-Communications Inc.'s early lead in the region. Like TCI, which began offering service in Fremont, Calif., in September 1996 and now has an estimated 30,000 to 40,000 data subscribers here, the firms are attracted by the area's heavy concentration of affluent, technically savvy people, including hundreds of thousands of Silicon Valley workers.
"The market for Internet access is very high," said Steve Dimmitt, VP-consumer marketing for Pac Bell, a subsidiary of SBC Communications Inc. "It's easily the top market (in the state) for this."
He estimated that Internet users make up close to 50% of the Bay Area's residents, as opposed to 25% to 30% nationwide.
TCI's high-speed data rivals also consider the Bay Area particularly ripe because of its surging army of telecommuters. With rush-hour traffic tieups growing each year, more and more people are working at home at least part of the time to avoid the delays.
"Telecommuting is exploding in the Bay Area," said Dimmitt, who figures that the region accounts for the largest portion of the estimated 3 million-plus Californians who now work from home at least some of the time. "They're using the Internet to do that."
Despite TCI's two-year-plus head start, Pac Bell and the other data players hope to catch up quickly through aggressive deployment schedules, price cuts, targeted marketing and pledges of superior service. They're trying to take advantage of highly publicized technical glitches, communications breakdowns and other customer service problems that have plagued the MSO and its @Home Network offering in recent months.
Most notably, in mid-January, Pac Bell announced that it was slashing the cost of its high-speed Internet service to $49 a month, just $9 more than what TCI charges. The Baby Bell initially charged $89 to $339 a month when it launched ADSL service in California last summer.
Pac Bell also said it would accelerate its rollout of ADSL service throughout the nation's biggest state. By the end of the year, it plans to offer super-fast Internet connections to 5.2 million residents and 600,000 to 700,000 businesses in California, up from about 2.5 million phone customers now.
"The biggest growth will come with splitter-less modems, especially in the fourth quarter," Dimmitt said. "I think the holiday season this year will be huge (for DSL)."
The regional Bell declines to break down its California numbers by specific markets or project the number of DSL customers. But, with DSL call orders now flooding into the telco's switchboards four times heavier than before the price cuts, Dimmitt predicted that Pac Bell will exceed TCI's high-speed data distribution in the Bay Area by the end of the summer, if not earlier.
"We (already) have more customer reach than cable modems in the state of California," said Dimmitt, who's relying on a mix of targeted direct mail and electronic mail to pitch the service now and plans a more mass-market campaign later. "By August, we'll have a much broader reach in the Bay Area than cable modems."
In the face of this DSL onslaught by Pac Bell and others, however, TCI isn't exactly rolling over and playing dead. The MSO, which now offers @Home to 600,000 homes in 36 Bay Area communities, aims to double the number of households passed to 1.2 million by the close of 1999.
Most recently, for instance, TCI began offering service to four more towns in the region-Los Gatos, Milpitas, Belmont and San Carlos. The company intends to extend service to all 2.3 million homes passed in the area by the end of 2000.
In addition to high-speed data, TCI's new owner, AT&T Corp., also plans to try out local phone service over cable wires in the Bay Area later this year. TCI's model Fremont system is one of 10 targeted for the initial phone trials.
In spite of the steep price cuts by Pac Bell, TCI officials said they have no intention of cutting their own fees to compete. Instead, they're relying on a wide array of marketing techniques to hawk @Home, including TV commercials, newspaper ads, direct mail, Web ads and, especially, product demonstrations.
"The best marketing tactic we can use is hands-on demonstrations," said a TCI California spokesman. "It's the ultimate word-of-mouth product."
The word-of-mouth hasn't been all that positive lately, though. Reacting to persistent consumer complaints about bandwidth problems, poor technical help and slow response times over the past few months, Fremont regulators are now weighing new customer service standards for @Home and stiff fines against TCI for not meeting the town's current standards.
TCI executives insist that they haven't lost any customers because of the complaints. Without revealing figures, they stress that @Home has a very low disconnect rate.
"We don't have much of a churn in the product," the company spokesman said. "It's (still) faster and cheaper than anything the competition has."
Nevertheless, under pressure from regulators, TCI officials are scurrying to bolster their beleaguered @Home customer service operation by the end of March. Among other things, they're adding scores of customer service representatives, increasing staff training, installing call-routing systems and striving to resolve individual problems within 24 hours and group complaints within 48 hours.
"We're obviously trying to meet the demands of the high growth we've seen," the spokesman said. "We are becoming much more of a hands-on help center.
(March 15, 1999)
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