Houston Yields a Digital Sub Gusher

Cable World, June 9, 2003

Byline: MAVIS SCANLON

They grow 'em big in Texas, and Time Warner Cable's Houston division is no exception. Laid out in a straight line, the system's 16,600 miles of cable plant would stretch from New York to Hong Kong - and back. With over 700,000 customers, it's Time Warner Cable's second-largest system, after New York City.

As Houston has grown, so has the cable system. The population in the metropolitan area, which includes the eight counties surrounding Houston, grew over 25% between 1990 and 2000, to about 4.8 million. The city of Houston has just under 2 million residents.

In the early 1990s Time Warner knew that to serve its customers, it needed to upgrade its network. So in 1993, the company set out to transform itself into a state-of-the-art operator. Four years later it had upgraded about 6,000 miles of plant. But then it formed a joint venture with systems then owned by TCI, the forerunner of AT&T Broadband, which was acquired by Comcast last year. That joint venture, called Texas Cable Partners, serves some 1.2 million customers throughout Texas. In addition to the Houston division, the partnership includes about 100 smaller markets in the state, from El Paso, with about 120,000 subscribers, to systems in Harlingen, McAllen, Corpus Christi and Beaumont. As the operator, TWC counts those customers in its own sub counts and receives management fees from Comcast. The TWC systems in San Antonio and Austin are wholly owned by TWC.

In 1998, the company undertook an upgrade of more than 9,000 miles of cable plant owned by TCI. At one point, a team of about 168 contract workers worked on the upgrade, while a back-office staff of nearly 100 helped coordinate the work throughout the three-year project.

"It was a very difficult time for us, but we knew it was something we had to do," says Ron McMillan, division president of Time Warner Cable Houston. Node by node, the work was completed.

One thing that made the TCI portion of the upgrade more difficult was transitioning TCI customers from the HITS digital service to a local service. Every single box had to be swapped out, recalls Judy Walsh, the division's VP of marketing and GM.

But all the work that went into the upgrade has paid off. Even with the upgrade of the TCI systems, TWC's Houston division has had somewhat of a head start on other cable systems in offering digital, the platform for advanced services. It also gave the system the opportunity to streamline its channel lineup to one single lineup for the entire service area, Walsh says, which means there is generally one pricing structure throughout the division.

Not only is that easier for the customer to understand, "it makes it much simpler to market and much simpler to sell," McMillan explains.

"We focused everything we do on digital," Walsh says. "The product is competitive." Houstonians have responded. Although declining to give specific numbers, McMillan says digital penetration is close to 50%; that would be one of the highest rates of any system anywhere.

Deep digital penetration is a big competitive advantage. For one thing, the system has been able to offer a broad array of programming to the region's large Hispanic population. According to Scarborough Research, nearly 30% of Houstonians in the Time Warner Cable service area are of Hispanic origin. Throughout TWC's basic and digital tiers, a range of Hispanic programming is offered.

With digital, the system has been able to take a leading role in the rollout of high-definition television. TWC Houston was one of the first systems to offer broadcast channels in hi-def; it currently offers nine HD channels, including ABC, NBC, CBS, Fox, PBS, plus two Showtime and two HBO channels. The system is in negotiations with ESPN, Discovery and HDNet. McMillan says he expects to launch a few more HD channels "soon."

Adds Ray Purser, VP of public affairs, "Those three are being given strong consideration right now."

Operationally, Houston is divided into seven districts. Although there is just one large call center, trucks and technicians are dispatched by geographic region.

The folks who live in the seven counties served by TWC are 25% more likely than the average consumer in the top 75 markets to have a household income of more than $100,000, according to Scarborough. Higher levels of disposable income mean more TV purchases. In fact, 27% of consumers in TWC's Houston area have bought a new television in the past 12 months, according to Scarborough, a percentage that's far higher than the average.

McMillan has taken a page from his satellite competition and is getting word out to consumers at the retail level. TWC Houston has partnered with Best Buy and local large-screen TV retailer Home Theater Store. When customers come in looking for a new TV, they can see demos of HDTV in the store - a big incentive to purchase that HD-capable set.

Video-on-demand is the latest addition to TWC's stable of advanced products. Initially deployed late last year, in March it was rolled out throughout the entire Houston market. As with any new technology - and VOD is especially complex, when you consider there are hundreds or thousands of set-top boxes trying to "talk" to servers - there were glitches at first.