RCNC termed a "scrappy upstart"
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In Hopes Nothing Succeeds Like Access
By Alan Breznick
Special to The Washington Post
Monday, March 1, 1999; Page WB10
Marc Simoncelli is an unreformed speed addict.
But don't call the police just yet. Simoncelli, an information technology developer with Cable & Wireless USA in Tysons Corner, likes to do his speeding in cyberspace. He loves to zip along the Internet in high gear, hopping from Web site to Web site, checking on stock prices and his beloved New York Giants, tuning into marathon Grateful Dead concerts and downloading complicated software in minutes rather than hours.
These days he's surfing in a new way, because of a new offering from his cable company, Media General Cable in Northern Virginia. The service, known as Road Runner, provides subscribers with Internet access through cable TV wires that is hundreds of times faster than current service. Road Runner also provides glitzy multimedia content that other online users can't easily retrieve, all for $50 to $60 a month.
"I love it," said Simoncelli, a 30-year-old resident of Vienna who has had the service at home for nearly two months. "It's so much quicker."
Road Runner is ambitiously trying to establish itself as a leading national player in the emerging market for high-speed Internet access, but it has a long way to go. The company, which moved from Stamford, Conn., to Northern Virginia last summer, is targeting millions of personal computer owners tired of waiting for slow phone hookups to the Internet or venturing onto the global computer network for the first time.
Road Runner and Media General officials are eager to tap Fairfax County's well-off, educated, computer-savvy consumers like Simoncelli who are anxious to log onto the Internet at faster speeds than are currently available. Today, Simoncelli remains a rare breed, one of about 200 Fairfax residents using Road Runner.
In its race to market, Road Runner may get hobbled by tough competitors inside and outside the cable industry. It may also stumble because of long-simmering tensions between its two, often bickering cable owners, Time Warner Inc. and MediaOne Group. Emblematic of that problem has been the company's six-month-long search for a permanent new chief executive. Road Runner President Tim Evard stepped down to become a senior vice president of marketing, in large part because one of the few things that Time Warner and MediaOne could agree upon was their need for an outside CEO.
"From my perspective, Road Runner is in something of a suspended animation until they hire a chief executive," said Cynthia Brumfield, principal analyst at Broadband Intelligence Inc., a new-media analysis and consulting firm in Bethesda. "It will be hard to gain momentum unless they have leadership."
Road Runner, which takes its name from the fleet-footed, beep-beeping bird of cartoon fame, is a 200-employee joint venture of Time Warner and MediaOne, two of the three largest cable operators in the nation. The privately held firm is also partly owned by Microsoft Corp. and Compaq Computer Corp., which each sank $212.5 million into the venture for 10 percent stakes last June.
Since launching operations 2½ years ago, Road Runner has signed up roughly 200,000 customers in more than two dozen markets around the country, mainly on cable systems owned by Time Warner or MediaOne. It's shooting to enlist at least 200,000 more cable-modem subscribers over the rest of this year, each paying at least $40 a month plus one-time installation fees. Road Runner takes a 30 percent cut of the subscriber revenue, with the local cable operator keeping the rest.
In Fairfax County, Thomas E. Waldrop, chairman and chief executive of Media General Cable, says his system and Road Runner can sign up more than 10,000 cable-modem customers by the end of the year.
"We think this is going to be a very good business for us in this market," said Waldrop, whose cable system began offering the service to its 242,000 cable customers in late January. "I clearly think it's a mass market [product]."
As a private company, money-losing Road Runner guards its financial figures and projections. But, based on the 30 percent revenue split it takes, its 200,000 subscribers generate at least $28.8 million in annual receipts and its projected 400,000 subscribers would bring in at least $57.6 million.
"We're growing at the rate of 5,000 subscribers a week," said a Road Runner spokeswoman. "We expect to at least double our growth in 1999."
At the same time, Road Runner officials are scurrying to recruit more cable systems, particularly those other than Time Warner and MediaOne. In recent weeks, they've announced affiliation deals with Media General and two mid-sized cable operators, Multimedia Cablevision Inc. in the South and Midwest and Fanch Communications in Johnstown, Pa. As a result of these and other distribution pacts, they now have a potential reach of nearly 30 million homes across the country.
Moreover, company officials are counting on the adoption of open technical standards for cable modems to make high-speed data a cheaper, more popular service. With the first standardized cable modems scheduled to be unveiled this month, the modems could start selling in retail stores this summer, lowering costs for both cable operators and consumers. Currently cable modems can only be rented as part of the monthly charge.
"The next step is building cable modems into PCs," said Bob Rusak, vice president of business development for Road Runner. Several computer manufacturers, including Compaq, are now working on that development.
But, even with such aggressive moves and deep-pocketed owners, Road Runner faces a lot of competition. Other deep-pocketed telecommunications firms are seeking to control the still-developing market for broadband (or high bandwidth) data services, including such leading regional phone companies as Bell Atlantic Corp. and scrappy upstarts like Princeton, N.J.-based RCN Corp.
Bell Atlantic, for instance, is now rolling out its ultra-fast digital subscriber line (DSL) technology throughout the Northeast. The Baby Bell, which now offers DSL service to about 2 million homes in the Washington, Philadelphia, Pittsburgh and northern New Jersey areas, plans to extend its reach to 7.5 million households by the end of this year and more than 14 million homes by the close of 2000.
"DSL is certainly a threat," said Gary Arlen, president of Arlen Communications, a new-media consulting firm in Bethesda. "DSL is only held back by the fact that the phone companies are the ones offering it."
Road Runner faces plenty of competition from high-speed online services within the cable industry, too. Its leading rival is @Home Network, a joint venture of cable powerhouses Tele-Communications Inc., Comcast Corp. and Cox Communications Inc. that recently swung a deal to buy Excite Inc., a leading Internet search engine and portal site, for $6.7 billion. With far more cable systems in its fold, @Home now has more than 330,000 subscribers in the United States and Canada and aims to reach 1 million customers by year's end.
Road Runner has "certainly been overshadowed by @Home at the corporate level," said Michael Harris, president of Kinetic Strategies Inc., a new-media analysis and consulting firm in Phoenix. "Road Runner looks weaker because @Home is doing so well."
Road Runner also faces a competitive and regulatory threat from America Online Inc., one of its early content and marketing partners. AOL is spearheading a lobbying drive by leading Internet service providers (ISPs) and regional phone companies to open cable's high-speed lines to other ISPs. Currently, Road Runner or @Home customers who want AOL must pay at least $9.95 a month on top of their cable-modem fees.
In addition, AOL is teaming with Bell Atlantic to market high-speed Internet access to customers over phone lines, starting this summer. The deal, the first of its kind, will allow AOL to offer Bell Atlantic's DSL service as a premium upgrade for AOL's 4 million-plus members in the Northeast.
But Road Runner officials, preparing for their move into permanent offices in Herndon this spring, are undeterred by such threats. "I'm quite optimistic," said Stephen Van Beaver, senior vice president in charge of operations for Road Runner. "We spent 1998 kind of setting up things. Now it's a matter of executing."
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