Qwest battling cable providers in 6 key markets

Deseret News (Salt Lake City), Dec 24, 2006 by Andy Vuong The Denver Post

PORTLAND, Ore. -- With 2.5 million residents in its metro area, Portland is among the frontline battlegrounds in Qwest's fight against intensifying competition from cable companies.

On a recent afternoon, retired bus driver Harold Alt, holding a Qwest advertising flier, inquired about the company's services at one of its cell phone kiosks at the Lloyd Center mall. Behind him was a Comcast kiosk that features the company's recently launched cell phone service -- not its cable-TV and high-speed Internet -- as the marquee product display.

The wireless service, sold through a joint venture with Sprint Nextel and currently only available in Portland and Boston, is the final piece of a quadruple-play bundle of products that includes cable-TV, Internet and Comcast's fast-growing digital home phone service.

For Alt, 64, the choice was easy.

"I don't like Comcast," he said. "I have a problem with Comcast always raising their rates."

Qwest is doing all it can to hammer that point, and any other perceived weaknesses about cable competitors, into the minds of consumers as it aggressively fights to hold ground in key metropolitan markets.

The company is using TV commercials and direct mail to cable customers. The company's rank-and-file, and top executives, are going door-to-door, occasionally on their own time.

The company shaped its battle plan with lessons learned from its struggles with cable-TV provider Cox Communications in the Omaha market. Cox rolled out its circuit-switched phone service, the same technology used by the Baby Bells, in January 1998. By mid-2004, Qwest conceded that it was no longer the dominant local phone provider in Omaha.

"We have absolutely taken the lessons learned in Omaha and said, 'OK, what do we need to do different?"' said Judy Peppler, Qwest's Oregon president.

Denver-based Qwest is the incumbent local phone service provider in 14 Western and Midwestern states. Much of the company's efforts and marketing dollars, amid the fierce competition, is focused on six densely populated metro areas that analysts say are critical to the company's future.

Along with Portland, the battleground markets are Denver, Minneapolis, Seattle, Phoenix and Salt Lake City. Qwest competes against Cox in Phoenix and Comcast in the others.

In Qwest's territory, Comcast has used Portland as its launching pad for cell phone service, and prior to that, its bundle of cable, high-speed Internet and digital voice service.

Combined, the six markets have nearly 21 million residents, 8.4 million households and thousands of potential business clients.

"They are some of the most profitable assets that Qwest has right now," said Chris King, an analyst with Stifel Nicolaus. "Given their balance sheet, given how important every dollar of free cash flow is to Qwest, certainly their ability to fend off cable competition in those markets is going to be more important than the other (incumbent phone companies) in any of their markets."

Qwest, saddled with about $14 billion in debt, is the only Baby Bell not undertaking a major video initiative to counter the cable companies' attack on its phone business.

But Qwest isn't standing still.

"When Cox first went into Omaha, they were offering effectively a triple play," said Jonathan Chaplin, an analyst with JP Morgan. "And Qwest wasn't really doing that at all."

In May 2005, Qwest launched its quadruple-play bundle in Denver and other markets, ahead of Comcast's launch of its triple play. Qwest resells DirecTV satellite-TV service and Sprint cell phone service with its landline and high-speed Internet products.

Without disclosing specific details, Qwest vice president of marketing Stephanie Copeland said the company's marketing dollars are "heavy" in the six key metro markets.

But beyond spending millions of dollars promoting the bundles, the company has undertaken an aggressive and unique marketing tactic. Coined internally as "quick strike," the program calls for each of the company's local executives to identify market-specific campaigns to counterattack a competitive situation.

"(Qwest chief executive) Dick Notebaert has really said to each state and the state presidents, in particular, 'You're responsible for what's going on in your local area. We can't have a one-size- fits-all marketing approach,"' said John Stanoch, Qwest's Minnesota president.

In May, Qwest tried to capitalize on Comcast's takeover of several hundred thousand Time Warner customers in the Minneapolis area, Stanoch said. Qwest sent letters to the customers, warning them that such takeovers could lead to service interruptions and overcharges on bills.

"This upcoming takeover is a perfect opportunity to avoid the Comcast shuffle and consider other options," Stanoch wrote in the letter. For its part, Comcast says the transition went smoothly.

"From Comcast's perspective, we are heavily promoting our product without disparaging our competitors," said Comcast spokeswoman Cindy Parsons. "We are focused on telling our customers about our products and the added value of our products."