FIGHTING THE ELEMENTS IS A FULL-TIME JOB

When Mediacom Communications began upgrading its systems in earnest, throughout 2001 and into ’02, it ran into more than a few challenges in and around Mobile, Ala. Since there was limited information on the system — Mediacom acquired several disparate systems before going public in 1999 — the engineering team had to do a walk-through of the entire system before blueprints for the upgrade could be drawn up. “The blueprints just didn’t exist,” says Scott Randolph, senior technical operations manager for Mediacom’s Southern division, which serves 454,000 customers in six states. “It was a very small operation down there, and as someone built a house they would run cable to it.” That was the biggest obstacle to overcome in upgrading the Mobile area to its current 870 MHz, two-way-capable status — that is, until the region was hit with back-to-back tropical storms. In September 2002, Tropical Storm Isidore swamped the Gulf Coast with more than 15 inches of rain, knocked out power to over 200,000 homes and businesses and generated several tornados that touched on the Florida panhandle. A week later, Hurricane Lili forced the closure of dozens of ports. Upgrade construction was interrupted for weeks. These days, Mother Nature may be the least of the issues Mediacom has to face. Sometime over the next few months, EchoStar Communications will offer local broadcast channels in Mobile, a port city of a half million residents situated roughly halfway between Tallahassee, Fla., and New Orleans. Like New Orleans, Mobile’s Mardi Gras is a big tourist draw, as are its sandy, white beaches. But unlike its big bawdy neighbor to the west, Mobile is better known for its low cost of living than its party and music scene. These days, about 69% of the Mobile area population is white and 27% black, according to Census 2000. Over half the population has a household income of over $50,000, according to Scarborough Research. Mediacom’s Mobile system, the fifth-largest in the company, includes some 2,600 miles of plant, much in rural areas where satellite operators try to lure cable customers with lower-priced packages. But Mediacom is contending with more than just competition from satellite. Last month the town of Fairhope, an upscale retirement community on the Eastern shore of Mobile Bay, voted to build its own cable system. The issue has been percolating since the late 1990s, says Dave Kane, Mediacom’s VP, operations, for the Florida and West regions. Mediacom acquired the Fairhope system in early 2001 from AT&T Broadband, holds the cable franchise through 2008 and serves about 5,000 customers in the area. According to reports in the Mobile Register, residents are upset over rate increases and have complained of service problems. More than 150 people were on hand Aug. 7 for a town meeting held in advance of the city council vote to build a cable system. On Aug. 12, the proposal passed by a wide margin. Even so, the town appears unclear on the exact cost of building a broadband system. “There isn’t a lot of consensus over there as to what they really want to do,” says Kane, who has tried to heighten awareness of what building and managing a cable system entails. Kane even gave Fairhope Mayor Tim Kant several case studies of local municipalities that got into cable and floundered. On the satellite front, DBS providers took Mediacom by surprise earlier this year with the intensity of their marketing efforts. Mediacom lost 24,000 customers in the second quarter, mostly in areas such as Des Moines and Cedar Rapids, Iowa, where so-called local-into-local service offerings took hold. Mediacom CEO Rocco Commisso said on a recent conference call he believed that offering advanced services in a bundle would ensure customer loyalty. In the meantime, however, the company may offer discounts or institute a smaller rate increase in 2004. So how is Mediacom’s Mobile system faring amid the uncertainty over just how much pain satellite can inflict? “Only the ostrich would say we don’t have a true competitor in Dish,” says Kane. Customer service and digital are two areas where Mobile is fighting back. The system is offering 40% discounts on the monthly rental rate for second and third Motorola DCT-2000 set-tops. “That is being received with open arms in the field,” Kane says. The Southern division has also increased the number of customer service reps to 82 from 67, an increase of about 22%. That gives customers constant access when they call in for connections or upgrades. The divisional call center also boasts a “tier one” team dedicated to high-speed Internet sales and service. Digital is also considered a success. Last October, for example, a three-day marketing blitz on broadcast TV — the company bought spots on the local late news and early morning time slots — worked “very well,” says Kevin Killen, director of sales and marketing for the Southern division. The spots promised immediate installation for digital and high-speed data. That type of promotion puts tremendous pressure on dispatch and installation crews, he notes, and takes a considerable amount of coordination on the operational side. “We geared up installation forces for that,” he says. Killen’s team is working hard to get out the message that Mediacom is part of the community and satellite is not. They communicate through the myriad local newspapers in the area and by sponsoring local events. “We try and drive home the localism rather than the national presence of someone like DTV or Dish,” Killen says. The $400 dish buyback offer currently in effect ($25 a month over 16 months) doesn’t hurt either. In addition, by using a customer database designed by billing services provider CSG, Mediacom can obtain exact information on penetration rates for all services — this data is used to customize offers market by market. Management is also pleased with the feedback on video-on-demand. After an initial VOD deployment in March 2002 that has ramped up to about 8,000 homes in Mobile County, Mediacom plans to offer it throughout the Baldwin County system in the fourth quarter — a slight delay from previous plans to get it rolled out by the end of September. Plans to collapse a headend to connect the Baldwin and Mobile systems took a little longer than expected to lay out. Killen’s group is using cross-channel promotions and targeted messages (such as text messages to digital customers) to spread the word. Text messaging is a useful tool that will be continued as VOD usage grows, Killen says, but VOD advertising will also expand. Right now, VOD buy rates fluctuate in the mid-to-high single digits, Kane says. To drive usage, Mediacom offers special Tuesday night movies at 99 cents. On those nights, “you see buy rates spike dramatically,” explains Kane. “If you can do that periodically that really gets folks used to using the service.” In total, the VOD offering includes about 600 hours of content, mostly movies. The latest addition to the lineup was Rainbow Media’s Mag Rack. Mediacom is also negotiating with several broadcasters in the area to roll out high-definition TV. On the corporate level, Mediacom has negotiated deals with HBO and Showtime, which will be included in the Mobile HD offering, expected by year-end. Since Mediacom took ownership of the systems in the Mobile area in 1998, it has moved on several fronts to ensure customers a better experience. In addition to upgrades, customer education is a big focus, says Renita Chancey, the director of area operations. Technicians perform digital installations and sit with customers and demonstrate from the home how to order a VOD movie (first one ordered is free). “Literally, you have to speak to every customer about [new services],” Chancey says. “If you show them, that’s the best way.” The entire system moved toward more centralized call center and dispatch operations, in addition to standardizing programming and pricing. In 2000, the company completed nine acquisitions of systems that served about 53,000 basic video customers. About 15,000 of those were in Baldwin County, just outside Mobile. While the acquired systems had many of the same networks, the lineups were totally different. Over the longer term, new services such as VOD, high-speed Internet and eventually telephone should help ensure customer loyalty. “We bundle all of our services whenever we do a campaign,” says Killen. “That really gives us a lot of efficiency.” In the second quarter, Mediacom’s advertising sales were up about 11%. Although the company won’t break out numbers on a system-by-system basis, Pat Quesnel, who heads OnMedia, Mediacom’s in-house ad sales arm in the division, says he is on budget for revenue and cash flow. Buying an advertising schedule to cover the entire Mobile Pensacola area is a little difficult because an agency has to deal not only with OnMedia but also Cox, in Florida, and Comcast for a portion of Mobile. OnMedia, which has been up and running only since January, gets high marks from Jim Grimes, managing partner at agency Southern Media. Mediacom is one of Southern Media’s biggest clients as well, and although Grimes notes that he can’t be “totally objective” when it comes to OnMedia, he says his opinions are shaped by his years of experience. With 35 years in the television business, Grimes has a good historical perspective on the cable advertising business. He says cable systems are just figuring out the ad insertion business from a trafficking and customer-care perspective. “OnMedia has done a better job than most of the systems we deal with,” he notes. In particular, he explains, because many of the folks at OnMedia come from a broadcast ad sales background, they have gotten very sophisticated about providing information about how to best use cable and to create an environment that is customer friendly, he says. Quesnel points out that his small team of ten sales reps do PowerPoint presentations on nearly all sales calls, building the case for cable using research from Scarborough, Nielsen and others. As far as his goals for growing the business, Quesnel says there is plenty of room for growth, with cable getting just 5% to 10% of advertising buys but about 40% to 50% of total audience share. “That in itself,” he says, “tells you quite a bit.” EMPLOYEES: 93 HOMES PASSED: 121,000 MILES OF PLANT: 2,600 PERCENT UPGRADED: 100% BASIC CUSTOMERS: 69,000 BASIC RATE: $44.95 DIGITAL CUSTOMERS: 19,200 DIGITAL RATE: $56.95-87.95 HSD CUSTOMERS: 7,300 HSD RATE: $40.95 (plus $5 cable modem rental) HDTV: Launching in Q4 AD INSERTIONS: 12 to 32, depending on area/head-end SOURCE: MEDIACOM COMMUNICATIONS Kane oversees Florida, Alabama, Mississippi, Arizona and California. Prior to joining Mediacom in 2001, he was area director, mid-Atlantic region for TCI/AT&T. A 20-year cable veteran, Kane has a B.S. from Jacksonville University. Chancey has spent 22 years in the cable and telecom industry. Prior to her current role, she was call center manager for Mediacom’s call center in Gulf Breeze, Fla. Chancey started her career in 1981 with Teleprompter in Mobile. Randolph joined Mediacom in August 2001 and previously served as a transport field engineer for Philips Broadband. He started his broadband career in 1988 with Newchannels in upstate New York. Killen has been in cable and telecom since 1978. Prior to joining Mediacom last year, he was marketing director for Charter’s South Atlantic region. He has also worked for Cox, Continental Cablevision, Liberty Cable and ATC. Quesnel has managed the Gulf Coast region since December 2002. In over 13 years in ad sales/management, he has worked at TCI Media Services in Rochester, Minn., and at AT&T Media Services in Missouri and Texas. Comparison of consumers in Mediacom’s Mobile service area to the top 75 market average.