Here's How Cable Will Win the HSD War: Features Beat Price

Cable World, Jan 24, 2005

By Mavis Scanlon

Last August, Cox debuted a new animated commercial for its high-speed Internet service that was a departure from its typical advertising. Part of a new campaign called "Fast Is Beautiful," the ad's funky, retro graphics included the message: "Do more on the Internet than ever before." The new ads coincided with an increase in the download speed of Cox's highest data speed, to 5 megabits.

The marketing campaign was an important one for Cox. Investors thought the MSO's high-speed data numbers in the second quarter were mediocre;

Cox needed to bolster their confidence that it could continue to bring in new broadband customers in the face of DSL price cuts.

"We obviously want to be maintaining our fair share of the broadband category growth," says Steve Gorman, Cox VP, high-speed data.

The campaign resonated with consumers, Gorman says. And he has the numbers to back up that claim.

During the third quarter, Cox added more than 184,000 data customers to bring its broadband penetration up to 23.4%, among the industry's highest. That was up from the 98,000 customers Cox added in the second quarter, and the 145,000 customers added in the third quarter of 2003. August was the company's best month ever for high-speed Internet customer additions, Gorman says.

Between June and September of last year, as DSL became more widely available and telcos pushed lower prices for the service, cable revved its own marketing engines to court high-speed data customers, new and old. Operators touted higher download speeds and beefed-up security and content packages. In some cases, they made the service available sans an accompanying video service. Perhaps most importantly, the biggest operators, Comcast and Time Warner Cable, aggressively pushed promotional pricing.

By now, most are familiar with the third-quarter results: The top cable operators added 1.28 million new high-speed customers, or 55% of the total new high-speed customers added during that those crucial back-to-school months. Those numbers represented a rebound compared with cable's slightly disappointing second quarter, when DSL captured the majority of new subscribers. The big numbers underscored another phenomenon as well--the number of consumers signing up for broadband appeared to be accelerating, not decelerating, as many industry observers had predicted.

For cable, protecting its current base of close to 19 million modem customers will grow in importance as DSL continues pushing its lower-priced product. A deeper look at some of the successful marketing tactics MSOs relied on the third quarter reveals how they plan to continue adding new customers--and retain current ones.

"As much as everybody focuses on acquisition, the real key now is retention," says Bruce Leichtman, principal of Leichtman Research Group.

MSOs view broadband service as a pipeline to sell other advanced services, such as voice over IP. Telcos, cable's biggest competitors in the HSD arena, are poised to fight harder than ever for those subscribers.

With more than 30 million Americans connected to the Internet via a cable modem or DSL, high-speed access has moved beyond the early adopter stage. There is still a lot of room for growth, however, especially as more consumers download music, play games, create personal websites and send and receive big photo files. Eventually, dial-up will become virtually obsolete. Bernstein Research estimates broadband will account for 77% of total Internet access subscriptions by 2008, and 85% by 2010. But as the service spreads to the mass market, price sensitivity will become more of an issue.

Cox's "Beautiful" Campaign

Cox's third-quarter Fast Is Beautiful high-speed marketing campaign was planned out well in advance of the commercial's debut and of the speed changes to the network. The engineering changes to the network were completed over a weekend in August. The following week, Cox launched the campaign. It e-mailed customers, telling them of the speed changes, and it even made an official announcement on DSL Reports, the Internet forum where users discuss minute details of most broadband service providers.

Cox hopes to build on that momentum by looking for ways to make an emotional connection with customers. "When customers have the opportunity [to sign up with] many different providers," Gorman says, "it's important to consider things beyond price."

Time Warner's Upsell Strategy

Time Warner Cable plans to use "a combination of many, many things" to ensure it keeps its market edge over DSL, says Greg DiPaolo, VP, marketing, for Road Runner. Applications, content and service always are being improved, he adds.

Currently, Road Runner includes virus protection, firewall and anti-spam software. This year, it will look to add more parental controls and spyware to bolster the security of the product. With a VoIP phone offering in every division, the MSO will focus more on bundling this year. It also will target what DiPaolo calls "transactional marketing"--upselling and cross-selling customers into different product lines.