BRACING FOR THE STORM: HOW TO ENSURE YOUR SURVIVAL IN UNCERTAIN TIMES
By David S. Stehlin, President and Chief Executive Officer, OnePath Networks, Inc.

As of late, the state of the telecommunications industry has been summarized in two words - "uncertainty" and "instability." Particularly hard hit have been Private Cable Operators (PCOs).

The roots of these troubles can be traced, ironically, to growing consumer demand for high-speed communications services that began a few years ago. With only five percent of current Internet users estimated to have broadband connections, the broadband market back then held huge potential. Providers of all kinds scurried to build networks and attract new customers, often overextending themselves with expensive advertising campaigns.

The high costs of building and maintaining network infrastructures eventually took their toll. These economic difficulties culminated in 2001, as the financial markets continued to squeeze companies with less than stellar performances.

In order to survive - and thrive - in this new capital-constrained environment, cable providers now need to review their business models, keeping one concept foremost in mind: integration. It is crucial that PCOs adopt an integrated marketing plan and an integrated communications infrastructure. They must develop a cohesive residential marketing strategy, but tailor bundling, pricing and services to the distinct single-family unit (SFU) and multiple-dwelling unit (MDU) market segments. The cable provider also must design and deploy an integrated infrastructure that facilitates the delivery of multiple services, fast Internet access and remote service provisioning.
Unless they strive for this level of integration, even brand-name cable providers will continue to struggle in today's changing marketplace.

Marketing to two different markets
The cable provider that tries to offer identical bundling, pricing and services to MDU and SFU market segments is likely to run into trouble. There are important distinctions in what these buyers want in communications services.
Cable providers generally will incur higher marketing and infrastructure costs when servicing SFUs as opposed to MDUs. PCOs selling to the SFU market are well advised to follow the two-step marketing model of early cable companies:

* First, win necessary local approval to make infrastructure improvements to public streets; this approval is not required with privately owned MDU properties.
* Next, market directly to the single-family homeowner.

One effective technique is to employ door-to-door marketing representatives, who are familiar with the neighborhood, to canvass the area. These representatives must have "their feet to the street" in order to know which services the customer is most likely to want.
Consider an apartment development for middle- to upper-income senior citizens, which is located a few miles from a new single-family neighborhood. Each apartment is home to one or two residents with fairly basic data and other communications requirements. Residents typically use the Internet for web surfing and email.
The nearby single-family neighborhood, meanwhile, houses young families with school-age children. Each family has multiple data users. Children need high-speed Internet access for deadline-driven school projects. Their parents want data connections for their home-based businesses or so they can work at home after hours.
Separated by just a few miles, these MDU and SFU residents sharply differ in the communications services they want most. The single-family buyer wants several family members to be able to be on line or to watch TV, separately and at once, without requiring multiple connections or cable modems. The SFU family also will welcome bandwidth-on-demand, which delivers higher-than-normal bandwidth on a per-usage basis.
Because most cable providers currently use both copper and coaxial cable to deliver residential services, customers who want broadband service now must pay several providers for multiple connections into the home. However, if the cable provider installs an integrated infrastructure, multiple members of each household can have separate, simultaneous television or Internet access, all from a single connection into the home.
The PCO that offers bandwidth-on-demand will appeal to SFU families that want higher bandwidth for future needs, such as special videoconferences with distant relatives and interactive gaming for their children. Bandwidth-on-demand also will interest working-at-home parents who need to telecommute to their corporate servers.

Multiple audiences within the MDU community
While the service provider targeting the SFU segment must market directly to homeowners, the cable provider selling to MDUs must reach the resident as well as the property owner or manager. If bandwidth-on-demand and multiple simultaneous connections attract SFU subscribers, remote service provisioning is a plus in the MDU market.

The average MDU resident moves every 1.6 years. Tenant churn requires the provider to roll costly trucks and crews to the property to turn on and off service. In addition to competitive communications services, the MDU tenant and property owner want easy, quick and efficient service turnaround.
The cable provider that can remotely provision services, without rolling a truck to the property, has a sales advantage that will interest apartment owners, managers and residents alike. With remote provisioning, everyone benefits. PCOs avoid costly truck rolls, property managers offer residents better service, and tenants no longer have to wait for a technician to connect or disconnect service.

MDU property owners and managers also want to be able to offer localized video information to their residents. The announcement might be about a weekend barbecue or upcoming weather. Property mangers would like to augment this localized information with local advertising from restaurants and shops near the MDU community. Most MDU cable systems already have local video channels. However, the provider that allows the property owner to more easily inject localized information, without having to contend with a complicated central head-end facility, has a sales advantage. The provider whose infrastructure supports easy injection of localized information and advertising will appeal to the MDU market.

Specifics, specifics, specifics
An integrated marketing strategy needs to address the individual needs of the SFU and MDU market segments. Such a plan should specifically:

* Identify how the cable provider will attract residential customers with voice, video and data services.
* Detail specific cost-effective marketing tactics to reach the SFU and MDU market segments.
* Determine when to offer which services to each market segment.

Amid current market constraints, providers that deliver smaller, simpler service bundles are outperforming competitors that offer mega-bundles. Cable providers that have targeted smaller service bundles to specific market segments have been rewarded with higher revenues and more loyal customers. After developing smaller bundles, one major provider reported that its customer turnover fell 20 percent for bundled subscribers.
While the industry has moved away from the mega-bundle, at least for now, it is clear that single-service providers are in trouble. Offering a single service - even a
perceived "hot" service such as high-speed data access - cannot produce adequate revenues to pay for the network the service provider must install. Single-service providers compromise their ability to scale, to reduce costs and to increase revenues.

The Yankee Group, a leading market research firm, predicts that over the next year, several stand-alone MDU service providers will expand their offerings beyond just high-speed Internet access. Yankee predicts that video applications will become a critical part of these providers' product portfolios. Attempting to become more competitive, some leading stand-alone, high-speed Internet access providers already have formed partnerships with other system operators to offer additional services to customers.

Employing the integrated infrastructure
To succeed in today's volatile market, the cable provider also must plan and employ from the onset an integrated communications infrastructure. An integrated infrastructure goes hand in hand with an integrated marketing plan, and requires the same level of foresight and strategic thinking.
I have tracked with interest the success of a current provider that not only has an integrated residential marketing strategy, but also owns an integrated infrastructure. Over its built-from-scratch, high-capacity, low-cost fiber network, this provider delivers bundled telephone, cable television and high-speed Internet services. The company targets its service only at customers in the most densely populated areas in the United States. This single network is expected to be cost-efficient today and in the future as new services are developed. The provider anticipates being able to offer more robust products and enriched services without having to upgrade its infrastructure.
With the exploding demand for bandwidth, this provider and others have found that they must be flexible in how they design and deploy their network. Flexibility is required if system operators are to be able to provide the services that consumers will want tomorrow.
Much like developing an integrated marketing plan, strategic thinking is required to design and deploy an integrated communications network. While it may be daunting to aim for this level of integration, consider what happens when a cable provider does not. Let's assume customers sign up for service, perhaps faster than the PCO anticipates.

To increase revenues, the cable provider wants the resident who signed up for cable access to add other services as well. The provider wants to maximize revenues but has not deployed an integrated infrastructure.

Now the question becomes how to cost effectively deliver multiple services. One solution is for the cable provider to install separate data and video networks. This means, however, higher initial and ongoing infrastructure and marketing costs than if the provider had deployed a single integrated infrastructure initially
Besides offering lower long-term costs, an integrated backbone can help the cable provider deliver the localized information that is so appealing to MDU property owners. The provider now has adequate bandwidth from which to offer localized video channels, bandwidth-on-demand and similar services. An integrated infrastructure can enable the provider or apartment manager to remotely provision video and data information and programming to better serve the subscriber.

Finally, by deploying an integrated communications infrastructure before consumer demand exceeds the provider's resources, the PCO can tailor the suite of services offered to residents. An integrated, scalable infrastructure allows for remote service provisioning, which gives the provider an inexpensive way to market to consumers not currently receiving the full suite of services. The service provider can cost-effectively market to the particular consumers it wishes to reach.
Both these essential endeavors - developing an integrated residential marketing plan and deploying an integrated communications infrastructure - require cable providers to think strategically and out of the box, take risks, and above all, plan for an uncertain future. In this unstable market, cable providers that dutifully undertake these preventative measures will reap the sought-after rewards.