BY K. C. NEEL For a city with less than 400,000 people, Omaha is perhaps one of the most competitive telecommunications markets in the country. “It’s truly an example of what Congress had in mind when it passed the Telecommunications Act in 1996,” says Mark Caniglia, Cox Communications’ VP of marketing in Omaha. Cox has been aggressively competing with telephone giant Qwest since 1994 when the telco’s predecessor US West launched cable video service in West Omaha. The regional Bell operating company added cable modem service in 1998. At the same time, Cox responded by launching digital cable, high-speed data and local phone service throughout its entire Omaha area footprint. It was a good move for the MSO. Today, 35% of the residents that Cox passes take local phone service from the MSO. That translates into a 56% penetration rate — or 106,000 phone subscribers — of its basic video customer base of 192,300 customers. Qwest has secured 14,000 video customers in West Omaha, and hasn’t expanded its video offerings beyond that area. Indeed, in 2001, the company counted 20,000 video customers. While Qwest went into the Omaha market with aggressive video plans, it’s the traditional phone and DSL arenas where the telco and MSO are really going head-to-head these days. Cox’s biggest video competitors in Omaha are the DBS providers, Caniglia says. Even so, DBS penetration in Omaha is only 5.7%, he says, less than half the national average. Video growth has slowed this year and DBS penetration is growing faster than in years past since both EchoStar and DirecTV began offering local broadcast signals to customers, he says. Still, Cox is on track to add 7,000 basic video customers this year. The MSO has also overbuilt an area west of Omaha that is also currently being served by Galaxy Cablevision. Cox had considered buying the properties, but then decided that it would be better and ultimately less expensive to build its own state-of-the-art plant and attract bundled customers, says VP/GM Janet Barnard. It’s not a large area — about 1,500 homes — but Cox already has about a 50% penetration rate, she notes. Cox credits part of its success in Omaha to its collection of voice, video and data products. But it’s also worked hard to maintain a high level of customer service, and it’s the company’s commitment to exemplary customer care that will continue to differentiate Cox from its competitors, the executives at the system say. “Our real value proposition is our customer care,” says Bob Sebby, VP of customer care operations. “It’s not our products or prices.” Caniglia agrees. “Qwest began pushing very hard this year by reducing its prices. We’ve taken a lot of their phone customers over the past several years, and they seemed to have finally woken up to that fact. Their prices are now lower than ours, but we made a conscious decision not to get into a price war with them because we know we can’t win that war. But we can talk about our value, and our service and we think we come out on top of that battle every time.” While Cox is pushing the value of its bundle, it rarely uses that term to sell the concept. “The term ‘bundle’ is a great word for internal use, but it’s too complex for the public to embrace,” Caniglia says. “We wanted to create an emotional value and that is how we came up with the Cox Family of Services concept. It makes it easier to communicate and we can have some fun with wordplays. For example, in August, we did an extended family campaign.” Cox may want to stay above the fray when it comes to a price war, but it’s not afraid of playing hardball by rolling out campaigns proclaiming its superiority among its competitors. The company regularly runs ads that tell customers how much better Cox’s video product is compared to the DBS services. And when Qwest began running ads with its employees telling viewers how great their service was, Cox countered by having customers give testimonials. “We felt that having our customers tell people how much they liked their service was more powerful than having our employees do it,” Caniglia says. Cox also is quick to mention its recent Integrity Award from the Better Business Bureau and its ranking as one of the top five companies to work for in Omaha as determined by the Great Places to Work Institute of San Francisco. It’s also very involved in the local community. And while that might not sway customers to switch to Cox for service, Caniglia believes it does help keep Cox customers in its fold when they are pitched to switch to the competition. These awards and kudos also help local ad sales, says Annette Heaton, who’s in charge of Cox’s ad sales unit in Omaha. And unlike other markets where broadcast is the stiffest competition in the ad sales area, the Omaha World-Herald newspaper is Cox’s chief competitor for ad dollars in Omaha, Heaton says. That’s mostly because 85% of Cox’s ad revenue is generated by local advertisers, she says. Cox inserts ads on 58 channels, six of which are digital. Most of the local advertisers understand that broadcast share is diminishing, but the habit of buying newspaper ads runs deep in Omaha. Moreover, Cox is the UPN affiliate in Omaha, so any ad dollars that flow to that station actually go to Cox. The company segments its market into four zones, which is important for the majority of its mom-and-pop customers. Still, about half of the system’s ad revenue comes from agencies. Like the community involvement Cox is actively engaged in, the MSO’s suite of bundled products may not directly affect an advertiser’s decision to buy ads, but it certainly helps, Heaton says. “The bundle certainly enhances advertisers’ opinion of the company,” she says. “And they know Cox is one of the strongest companies in the region.” Cox’s bundling strategy has been successful in Omaha. Over half of Cox’s customers take at least two services and almost 20% take all three offerings, Barnard notes. The company has managed to grow all three segments, including video, every year. That’s somewhat impressive given the trend toward losing basic customers in the industry over the past couple of years. Churn is also down — basic video is about 2% a month, phone service and high-speed data are about 2.5% each and digital video is a tad over 4% — and sales are up, Barnard says. While the digital churn remains higher than she’d like, Barnard believes video-on-demand and DVRs will substantially help decrease the digital churn rate. The Omaha operation was Cox’s test site for HD deployment, having rolled out the service a couple of years ago, and today the MSO offers customers ten HD channels. It’s helped digital penetration and churn, but VOD and DVRs, both on tap for an early 2004 launch, should also improve those numbers, Barnard says. “VOD and DVRs will make the package complete for digital,” she says. “Customers will finally have full control of what they watch, when they want to watch it.” The company’s biggest challenge right now is converting analog customers to digital, Caniglia says. Cox’s analog package is pretty robust and doesn’t require a converter box. “We have a high number of cable-ready subscribers, and it’s difficult to convince them to pay for and install a box in their homes. But with the advent of new services, that should get much easier.” Although the Hispanic population remains a small minority in Omaha — about 5.5% of the area’s total population is Hispanic, according to the U.S. Census Bureau — they are heavy DBS users, and Cox is beginning to fight back. “We are focusing more on the Hispanic market. It’s growing here like it is everywhere,” Caniglia says. “We launched a digital Spanish-language tier last year and we are conducting more grassroots marketing efforts all the time. We are becoming more ingrained in their community, and as we do that, they see us in a different light and are more enticed to look to us for service.” Cox began sending one bill for all three services recently, and the response has been phenomenal, Barnard says. “At first, we were a bit shy about it. We weren’t sure how people would respond. But our customers love it, and the majority are telling us that is one of the main reasons they take all our services.” There are also more customers in Omaha paying their bills via credit card and automatic debit — 17% of the customer base — than in any other Cox market, Barnard says, and the number grows a couple of percentage points a year. Customers like the convenience of knowing they don’t have to worry about paying their bills, she says. Customers also like taking control of their service. Most are self-installing their services. Over 70% of Cox’s new HSD customers install the service themselves, Sebby says. Although Cox has been offering two-hour service windows for years, customers like the idea of not having to wait for the installer to come to their house. And the high number of self-installs hasn’t resulted in a larger volume of tech calls to Cox’s customer service center either. Today, Cox counts about 35,000 HSD customers. “We listened to what people were asking us when we first began the self-install program, and we adapted the instructions to answer those questions and make the installations easier from the beginning,” Sebby says. Cox’s customer calls are divided into two camps: billing and service questions and technical questions. The calls are routed to the appropriate customer service reps to better serve customers, Sebby says. Still, technical customer service representatives can sell service once a customer’s technical issue is resolved. Indeed, Sebby says 25% of the company’s upgrade sales come from those types of calls. Barnard is leaving the Omaha system in January to run Cox’s Mid-America operation, which oversees the company’s properties that serve more than 800,000 customers in eastern Texas, Louisiana, Arkansas, Oklahoma and Missouri. She will replace Richard Hook, who is retiring. No replacements have been named in Omaha yet, but Barnard says the company wants to install a new leader before her departure. Barnard, who has served in the role since 2000, is leaving in January to take over Cox’s operations in Texas. A Nebraska native, she joined Cox in 1988 as accounting manager in a cable system serving 50,000 households in Macon, Ga. Since then she has held positions as controller, director of finance and director of business operations for cable systems in Ocala and Gainesville, Fla. Prior to becoming GM in Omaha, she served as VP, business operations, for two years. During her career at Cox, her scope of responsibility has grown from managing $9 million in cable revenue to over $235 million in telecommunications revenue annually. Caniglia has 22 years of experience with Cox, holding his current position since 1991. The Omaha system has offered video, voice and data services since 1998 and enjoys the highest telephone penetration in the company. Cox has also been competing with Qwest Choice TV (formerly US West) since 1985. Caniglia holds a bachelor’s degree and an executive M.B.A. degree from the University of Nebraska in Omaha. Sebby manages a staff of over 200 at Cox’s customer contact center and front counters in Omaha. He revamped the center to maximize customers’ time on the phone and expanded the Internet service, making it possible to reduce head count by 5% while growing revenue generating units by 27%. Sebby has over 30 years of experience in cable. Cox has received the Better Business Bureau’s Integrity Award and JD Power Award for customer satisfaction of phone services. Heaton has been with Cox for 12 years. She started with the company as an advertising executive in Omaha, eventually working her way through the sales ranks to the top spot. Prior to joining Cox in Omaha, Heaton worked for an advertising agency in Lincoln, Neb. She graduated with a journalism degree from the University of Nebraska in Lincoln. EMPLOYEES: 1,000 MILES OF PLANT: 3,000 HOMES PASSED: 306,000 BANDWIDTH CAPACITY: 750 MHz PERCENT UPGRADED: 100% BASIC CUSTOMERS: 192,300 BASIC PENETRATION: 63% BASIC RATE: $37.05/mo. expanded basic, $13.50 limited basic DIGITAL PENETRATION: 34% to basics DIGITAL RATE: $4.45 to $15.45/mo. plus equipment ($3.50) HIGH-SPEED PENETRATION: 36.5% of basics, 23% of homes passed HSD RATE: $39.95/mo. preferred rate (with another Cox product) TELEPHONE PENETRATION: 56% to basics, 35% to homes passed TELEPHONE RATE: primary line Iowa, $11.39; Nebraska, $15.89 preferred rate (with another Cox product) VOD: Scheduled for first quarter 2004 HD: Ten channels (HBO, Showtime, ABC, CBS, PBS, NBC, INHD1, INHD2, ESPN, Discovery Theater) AD INSERTIONS: 58 channels SOURCE: COX COMMUNICATIONS City: 390,976 Metropolitan Statistical Area: 734,270

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