Cable gets its chance

Marketing will be key for cable operators hoping to grab a share of the integrated broadband services arena

Competition, technology advancements and end user demand for communications services have all converged to enable cable operators to quickly move beyond entertainment video and into high-speed data and telephony.

During the last decade, cable operators have made significant advancements in preparing their hybrid fiber/coax networks to support these new services. Challenges still exist, however, in fully transitioning cable systems from the downstream-only video services of the past to the truly interactive, multimedia services of tomorrow.

A number of factors - ever-changing market dynamics, increasing competition, the need to better understand consumer preferences and the rapid rollout of new products and services - all come into play. For cable operators looking to capitalize on what Forrester Research indicates could be a $60 billion opportunity, such issues must be addressed through targeted marketing.

The new market environment

Everyone knows the statistics: Internet use has doubled during the past year; some 37 million homes accessed the World Wide Web in 1999. By 2002, this number is expected to rise to 250 million users, all requiring better and faster access. Read any business publication today, and you'll also see e-commerce on the rise, with some experts predicting that industry to grow to $400 billion within three years.

What do all these numbers mean? Lifestyles are changing as the Internet influences daily activities, from research to shopping to entertainment. But perhaps most significantly, the way people work has changed, with telecommuters now in 26.8 million households. In fact, a recent research study by the Society of Human Resources Management showed that 28% of the top companies surveyed offer telecommuting as an option for employees. The 37 million-strong small office/home office (SOHO) market also is expected to grow to more than 50 million by the end of 2000.

So whether they want to telecommute, run a business from home or just use the Internet for fun, customers across the board are asking for improved communications that include voice, data and video.

With such dramatic societal changes, new communications capabilities and network alternatives are rising to meet this tremendous growth. Cable modems, which offer customers access speeds at roughly 35 times that of a traditional telephone line, have grown by some 350,000 installations in the past six months alone. Industry analyst firm Paul Kagan & Associates estimates that the number of cable modem users could grow to 14.5 million within the next five years.

But it's not just high-speed links to the Internet that customers are demanding. Cable telephony is not far behind and is expected to grow rapidly (Figure 1). The "first-to-market" advantage already achieved by cable operators in bringing high-speed Internet access to residential users has put them in a unique position to exploit new service opportunities today through existing connections to virtually every household in America.

All of this sounds like a great market opportunity for cable operators - they're deploying the right technology at the right time to serve customers demanding multiple services. But what happens when the incumbents and other telephone companies begin offering more widespread DSL and voice-over-DSL service or even video service using very high bit-rate DSL? And what happens when satellite or wireless providers begin offering multiple services? As competition heats up, cable operators will need to examine the different services they provide, their costs and how reliably they can deliver each to differentiate themselves from competitors. In the end, most customers are loyal to services, not service providers, and most markets still are up for grabs.

To help solidify their market position, cable operators' challenge lies not only in controlling their infrastructure costs while increasing the number of services and the bandwidth needed to support those services but to do so without increasing the overall complexity of the broadband network. A second issue lies in the migration from a non-competitive environment to today's market. Traditionally, operators sent information - video programming - downstream and presented users with a fixed-price bill every month. The number of fixed-price services didn't vary too much - basic service, premium channels - so there wasn't a great deal of billing complexity. Now, operators of two-way, multiservice networks, particularly those planning to offer telephony services, will require higher reliability with incremental and time-based billing.

In response to these needs, industry vendors are developing less capital-intensive, robust solutions, including IP offerings that, in the case of telephony, significantly can reduce the costs of implementation over today's existing circuit-switched overlay systems. And through the efforts of industry groups such as CableLabs' PacketCable initiative, standards and protocols are being hammered out to establish an interoperable, multivendor IP platform. Although real-world installation of IP technology and cable telephony has yet to fully mature, the cable industry's move to substantially upgrade its networks and capabilities to offer these services ultimately will provide the same look and feel of today's telecom services, with similar reliability and enhanced services.

Penetrating the marketplace

Despite these technological advances, today's cable operators remain in somewhat of a start-up phase as the industry explores new service categories. Cable operators have prepared for this new broadband world by pushing fiber optic technology into consumer neighborhoods, with cable modems placed at the home and additional equipment placed at the headend. But even if the network is ready, are the customers?

The first step in enabling cable operators to better understand their customers is to build stronger relationships with them. This will require a clear focus on market segmentation: the need to separate customers based on past and future needs and marketing services to these various types of customers. This approach steps beyond just identifying the general residential, SOHO and telecommuter markets. It also involves identifying divisions within each segment and requires an analysis of any number of factors affecting customers within that segment, including price-sensitivity, value and convenience (Table 1).

To improve the operator's ability to segment the market, enhanced, integrated operations support systems (OSSs) can help. As this new multiservice environment emerges and technology alternatives continue to advance, it will usher in a new wave of enhanced, integrated OSSs. The new systems will provide not only the network management, provisioning and customer care capabilities required but also systems that give operators the means to truly capture, analyze and understand customer buying patterns.

Today's broadband OSSs are getting far more intelligent in how they can capture customer data and allow operators to analyze that information. Data mining in particular relies on the power of these enhanced OSSs, allowing operators to analyze customer segments to fully identify, support and maintain the highest-value customers - and do so proactively. Integrated OSSs can help to match segments to buying habits, providing a glimpse into how to market particular offerings to particular segments.

How does an operator discover which households fall into which segments? Much of this segmentation relies on capturing accurate customer information. And to take the lead from the consumer goods companies, this effort means actually talking to customers in a variety of ways: direct marketing to existing customers, mall intercepts to gauge interest among non-customers, focus groups to access demand for a variety of services, etc. Such market research will be key to understanding the economics of the various services to pre-determine their viability and assess consumer preferences on how those services can be marketed effectively.

In addition, as operators gauge market interest and prepare new services for deployment, external customer education will be key. This will rely on branding efforts, live demonstrations and possibly even a local storefront or other means to improve awareness and illustrate how the services themselves work. Building awareness will help prepare the market in its early stages to drive and build penetration. Such visibility can be heightened in many ways: Public, media and community relations efforts will raise awareness in the local community among business leaders, government officials, the educational community and consumers. This would build on the strong outreach programs cable operators already have initiated around cable modem introductions.

As education drives awareness, it also will drive penetration, which then can lead to the development of any number of new applications. As penetration levels increase, providers can leverage their new and existing customer base to extend their service offerings.

Cable operators also can use the concept of "try and buy." Particularly with telephony, end users know what to expect but might question whether such services will be reliable from cable operators. In a "try-and-buy" scenario, a cable operator could give a customer enhanced caller ID or a second phone line free for a month. Often, once customers begin using a service and see the value in it, they then are willing to pay for it.

In the future, cable operators will have the ability to target specific end users with new products and services - incrementally and based on past purchase habits - because of new access to critical customer data. With high-usage, highly profitable customers, operators then can test particular service offerings to determine market acceptance prior to full networkwide deployment. Deployment, testing and analysis of these sample results can provide the cash flow requirements operators demand and give the industry new insight into customer preferences.

A move to transactional services

In addition to the external initiatives designed to improve consumer awareness, internal OSSs will help operators manage these new services and clearly identify the "gold," "silver" and "bronze" customer categories. Service offerings then can be tailored to these segmented groups to continue to build customer relationships and loyalty - particularly among high-value customers.

For instance, the information captured in the OSSs also could be used to proactively let the high-value customers know they qualify for certain service plans - based on their past usage patterns - that may save them money or prove more convenient. But it also creates a stronger relationship with the cable operator. Figure 2 provides an example of an intelligent OSS responding to a customer's routine billing inquiry with a proactive marketing offer targeted just at this customer, based on his or her profile. This interaction could result in a Web-based bill presented along with an OSS-generated proactive offer of a new service plan for this customer, saving them a certain percentage on their monthly bill.

As more customers demand faster, more robust services, cable operators' converged networks are getting ready for the onslaught of broadband services. The day will come when all users can see caller ID on their TVs or view a recent Hollywood blockbuster on demand via their PCs. By fully integrating services via a flexible, robust network platform - and supplementing it with intelligent, integrated OSSs - cable operators will be positioned to understand their customers. Through this understanding, cable operators can respond pro-actively to their communications needs, creating the foundation for building long-term relationships with customers across a variety of market segments that will be the ultimate advantage in a highly competitive marketplace.