A Hell of a Town To Be the Little Guy

Cable World,  Oct 6, 2003  

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Byline: MAVIS SCANLON

If you live in New York City, chances are you get your cable service, and possibly your Internet service, from Time Warner Cable or Cablevision Systems, the two operators that dominate the city and surrounding suburbs.

RCN Corp. wants to change that.

As the 13th-largest provider of cable services, RCN serves just under half a million subscribers in some of the largest U.S. markets; almost two-thirds of those customers take some combination of voice, video and data. Not only is the Big Apple one of RCN's largest markets, but due to its status as the media capital of the world - not to mention its proximity to RCN's Princeton, N.J., headquarters - New York is considered one of RCN's most important markets.

It also just happens to be the one market where RCN acquired, rather than built, much of its network, through its 1996 purchase of Liberty Cable Television of New York. At first glance, the acquisition looked like a smart way to jump-start its New York City business - speed to market was a crucial part of RCN's business plan - and gain scale. But Liberty's wireless video network, which utilized point-to-point 18-GHz microwave technology, ended up causing RCN more than a few headaches.

In the heady late 1990s, RCN focused on expansion. Laying a new fiber backbone in the streets of New York was a priority as it would enable the company to serve as many properties as possible. Converting the microwave network it acquired from Liberty to the same platform it was building was a project that simmered on the back burner. When the Internet bubble popped, RCN scaled back plans to add new buildings to its network, but that left it with a greater percentage of buildings using the wireless microwave technology. Further, it also acquired contracts Liberty had struck with various building owners.

The upshot? Not every service, such as high-speed data, was available in every building. Making matters worse, since building contracts differed, customer service reps often had to look up individual contracts to answer questions. Not a great way for an impatient New Yorker to be introduced to a company. "It hindered our ability to service customers," says RCN president Mike Adams.

Getting all systems on the same platform and moving to an integrated billing system were major initiatives the company undertook throughout 2001 and 2002. During that time the company lost ground to its New York City competitors, but now it's fighting back.

In New York, RCN has had to deal with the tedious process of upgrading and building out its network to 860 MHz, a process complicated by the different platforms it had been using. The upgrade is halfway done now, and the company expects it to be completed by year-end. But, in its other markets, RCN built a state-of-the-art network that could seamlessly handle local phone, cable TV and high-speed Internet; its strategy from its inception was to bundle those three products.

Individual buildings are connected to the network backbone via fiber extensions. The telephone network consists of high-speed transport equipment and fail-safe interconnections between the building and the network and also includes stand-by power and a full suite of features. Long-distance service was added last year. The video distribution plant is predominantly fiber-based, which RCN says increases the capacity, reliability and quality of service. In a stroke of luck - considering what other cable operators went through when Excite@Home went out of business - RCN built a state-of-the-art TCP/IP network for its Internet service, including all of the networking and computer equipment required for its own ISP service. RCN says its network architecture affords it extra capacity for adding new communications services.

Customer service and back-office operations have been two companywide issues. Despite RCN's $1.7 billion backing from Paul Allen, by early 2001, things started looking bleak. RCN had relied on the debt markets for capital to continue its aggressive expansion plan. Formed in the wake of the Telecom Act of 1996, RCN's strategy was to build new fiber networks and offer a one-stop shop of voice, video and data services. It became the largest of the so-called overbuilders that sprouted during the mid-to-late 1990s with hopes of competing with cable. Investors doubted the company could execute; its stock plunged from a high of over $70 a share in early 2000 to near $5 in 2001. (Shares have been in the $2 range lately.)

Hunkering down, management drastically reduced expansion plans. RCN cut its 2001 capital budget in half, and said it would focus on its big urban markets - New York City, Boston, Washington, D.C., Chicago, Los Angeles and San Francisco. RCN had enough cash to last into 2004, which gave it time to cut costs and grow its customer base. Layoffs have been significant. RCN's workforce totaled about 3,800 in December; that's down from over 7,000 at the end of 2000. Convergys overhauled RCN's billing system, installing the ICOMS solution, a support system that made it easier to provision, manage and bill customers.