Good things in cable packages

The theme at last week's Paul Kagan Associates cable conference in New York turned out to be bundles - whether they're wanted, what they contribute to the bottom line and how good they are at fending off the high-speed challenge from RBOCs and competitive local exchange carriers.

Cox Communications markets circuit-switched cable phone to about 25% of its current cable base because all areas are not equipped to offer the requisite network power and redundancy, said David Woodrow, vice president for business development at Cox. Revenues from Cox's cable phone subscribers average $55 to $60 per month - higher in areas such as San Diego, where long-distance use is heavier. The average Cox phone subscriber has 1.6 phone lines, and 75% of subscribers opt for Cox-branded long-distance and local service. For cable subscribers, Cox's price for a first line is 10% less than the incumbent LEC - second lines are 50% less - and discount phone features are 10% to 30% less.

Meanwhile, British cable operator NTL bundles cable and phone for many of its 3 million U.K. customers. The typical "buy more, save more" bundling model is too complex for most consumers, said Barclay Knapp, president and CEO of NTL. "You have to create a no-brainer that focuses the consumer's attention but isn't complicated."

But U.S. consumers already handle bundles for their voice services, said Douglas Seserman, senior vice president for corporate marketing with AT&T Broadband and Internet Services. "We happen to believe that the notion that the more you buy, the more you save is a pretty compelling construct. To the degree that we create bundles, we just make it easier for people to identify value."

AT&T research showed that 60% to 70% of consumers would opt for bundles that carried some discount, and 50% want them even without the price break because it would simplify their dealings with a single provider, Seserman said.

But bundling also presents multiservice operators (MSO) with unique billing problems, said Woodrow. For example, when a customer pays only half of a monthly bill, which part of the cable company - video, voice or data - gets that revenue?

Perhaps the biggest reason for MSOs offering phone service is that it gives them a tactical advantage against telcos encroaching on the high-speed data market with DSL, said Dee Dee Nye, vice president for cable technologies with Lucent Technologies. "For your competition, telephony is not just incremental business, so any cable telephony penetration eats away at a DSL provider's existing business," she said. DSL also is limited to the 25% to 30% of homes online, while telephone penetration is close to 100%. "For an existing LEC, the entire cost justification for DSL has to be on that customer base, not spread over telephony and high-speed access as it is for MSOs."

The biggest arena of contention between cable services and DSL will be the commercial market, Nye said. Local DSL facilities known as closet points of presence can be installed quickly. "There's no reason why cable can't do that, too," she said.

Executives from Cox and Comcast agreed that the business market - particularly the small business space - holds promise for converged cable services. Small businesses often are in strip malls in residential areas, and their employees likely have cable at home, Cox's Woodrow said. "We don't have to explain who we are, and we can leverage the investment we've made for the last four years in upgrading our network." He predicted that combined video, voice and data revenues from small business in Cox's 10 largest market clusters could be around $10 billion annually.

Mark Coblitz, vice president of strategic planning for Comcast, said that cable-based Internet can act as a Trojan horse to bring phone services to small and medium-sized businesses. "We can say, `Here's your high-speed data service, and by the way, we can sell you low-cost phone, too,'" he said. "It's a flip of the residential market, where you can market phone first and then go for the data business."