Meet the System–Chicago: RCN Campaigns for the Windy City’s Goodwill–and Comcast’s Customers

As with an injured dog or an embattled politician, dire circumstances can provoke extreme reactions. In struggling overbuilder RCN’s case, they have provoked product rollouts and a media blitz in Chicago. But if local cable operator Comcast is feeling alarmed by the attack, it’s not willing to admit it. RCN, which competes with cable operators along an Eastern seaboard stretch from Boston to Washington, D.C., has since May commanded its operations in Chicago, as well as in other places, under a cloud of Chapter 11 bankruptcy. As the company completes the reorganization necessary to break out of bankruptcy and reduce corporate debt from $1.6 billion to $480 million, its Chicago overbuild, passing more than 253,000 homes along the lakefront and nearby suburb Skokie, is out to reshape its image and intensify its impact on Comcast, the operator serving the majority of Windy City cable households. RCN’s lakefront territory is also known as Area 1, one of five areas carved out by Chicago authorities for cable franchise development almost two decades ago. Comcast has 1.7 million basic subscribers throughout the city and neighboring suburbs. RCN’s Chicago management team is rolling out one initiative after another to increase the sub base. Since the start of 2004, RCN has launched digital cable, VOD, SVOD, faster high-speed Internet access, interactive TV and VoIP telephony. The day before I arrived in Chicago to meet with system executives, five HDTV channels premiered. More HDTV and digital cable nets, along with digital video recorders and home security, will be introduced in the first quarter of 2005. It’s safe to assume Comcast has plenty to say about this, but Chicago system officials declined to comment by press time. Comcast has responded to RCN’s offensive, however, with some new offerings over the last few months, including VOD; DVRs; a revamped digital Latino tier; digital channels such as NFL Network and selected ethnic premium nets from International Channel; and new high-speed applications, including video e-mail. There’s also Comcast SportsNet, the new regional sports channel that launched Oct. 1—and which counts RCN as an affiliate. Thanks to both the deployment of VoIP and other products, and the plant inherited from 21st Century Telecommunications, RCN in Chicago "is at parity with Comcast on platform and service offerings," says Michael Harris, president of research firm Kinetic Strategies. "The key differentiators over who does best will be marketing and customer service." In a departure for an overbuilder, RCN, as part of its public relations and promotional efforts, is disclosing subscriber counts to local and national media; it hired Edelman, one of the nation’s leading public relations firms, earlier this summer. RCN management views Chicago as a trial run for its companywide post-bankruptcy strategy. RCN’s promotional literature in Chicago pits the overbuilder squarely against Comcast. "We’re RCN," it proclaims, "and we’re proud to be the little guy that stands up for the little guy…when a little guy like RCN challenges a big monopoly like Comcast, you win." "This is the beginning of an open dialogue about who we are, what we’re out to accomplish and the results we’re getting," says Barak Baa-Cohen, RCN’s public relations VP. Can’t Fight City Hall Positive spin won’t fix everything, particularly RCN’s problems with city government. RCN has been at odds with Chicago officials over elements of its franchise agreement: The city wants RCN to honor an earlier commitment, inherited when the company acquired former overbuilder 21st Century in 2000, to operate in the west, northwest and southwest areas (Areas 2-4). According to the Chicago Cable Commission, RCN asked to be relieved of its obligation to serve all three sections after failing to submit adequate construction plans for the task. The commission later charged RCN with violating its agreement and imposed more than $1 million a day in penalties. The company also was fined for refusing to pay funds owed to Chicago Access Corp., the citywide service that occupies two channels on RCN, Comcast and overbuilder WideOpenWest’s basic service. RCN owes the venture more than $1.2 million in back payments, according to local news reports. "How RCN can strengthen its image with us is [by] keeping their commitments to the city," says Norma Reyes, commissioner of the Chicago Department of Consumer Services. "Instead of spending money on PR, I wish they’d take the money and comply with our franchise agreements." "The only thing I can tell you is that we’re working to resolve that in an amicable manner," says Kristin Smoot, the system’s regulatory affairs director. "We’re in a sensitive time with that now." Smoot and Reyes declined to comment on the status of the discussions about the other franchise areas. Overall, relationships with Chicago Mayor Richard M. Daley and other city leaders are on firmer footing than a year ago, Smoot insists. "They better understand the type of corporate citizen we want to be. They see us bringing solid media competition, and they see we’re complying with quality customer service standards." Harris at Kinetic Strategies says that Comcast has some image issues of its own, albeit inherited ones. Comcast acquired the Area 1 system from AT&T Broadband, after AT&T earlier picked it up from initial owner Tele-Communications Inc. Under its first owner, the system earned a reputation for poor customer service and technical breakdowns. "In the TCI days, management squeezed that lemon dry," Harris says. Best Face Forward Radio, outdoor advertising and other promotional avenues RCN avoided in the past, simply because its system covered one portion of the city, now are used regularly. Outreach activity with local authorities and social agencies is on the rise—the better to score points against Comcast. Raising RCN’s public profile is the best way to work through bankruptcy, says Tom McKay, RCN’s Chicago VP and general manager. The mix of new service launches and increased promotion reinforces the company’s intention to stay the course. "You have to provide a bigger face to the customer so they know we haven’t gone anywhere," he explains. The new service rollouts were on RCN’s 2004 agenda all along, with the rollouts scheduled to coincide with a plant upgrade. When RCN assumed control of the overbuild from 21st Century, the plant had upgrade flexibility built in, with minimal impact on city streets. "All that it required was a modification in electronics at hub sites, rather than having to go and change out every amplifier and tap," McKay says. Another plant element 21st Century instituted from the start was the ability to be compatible with any analog or digital set-top converter, as long as the converter accepted software code and smart cards made by NDS Corp. "It gave us the ability to adapt the services to ever-changing technology," says Chicago operations manager Tim Kisley. "If we find the box provided by one vendor outperforms a box we currently use, we make that box switch without changing the software we use or the plant we’ve made an investment in upgrading." The upgrade was completed late last month. As portions of the lakefront and Skokie were upgraded, RCN launched its collection of digital networks, including multiplex HBO, Showtime and Starz channels, 45 audio services provided by Music Choice and VOD. From there, the system launched its "Digital City" bundle promotion, offering cable, 5-megabit Internet access (known as MegaModem Mach5) and circuit-switched phone service (delivered through SBC Communications) for $95 per month. A faster level of Web access, running at 7 megabits, became available this summer. So did Starview, a set of program guide channels featuring content arranged by genre. Interactive applications and VoIP came along in midsummer; the ITV features include AccuWeather reports, blackjack and other casino games supplied by Zone 4 Play and horoscopes. The fast pace of advanced service launches has generated some promising results for RCN. More than 8,100 of the system’s 77,000-plus basic customers have taken digital, an 11% penetration rate. Bundle penetration—subs taking cable, voice and data products—has jumped from 25% to 33% over the first nine months of 2004, and 83% of the new customers RCN attracts each month are buying bundles. At least 30 people per day are taking the VoIP service in its first few weeks of availability, according to RCN. Plan of Media Attack "The biggest problem we face is penetrating this market with enough brand recognition. Mass media becomes very tricky to do," says McKay. Under marketing director Yuni Yang, who joined the system a year ago after a stint with Verizon, RCN has been focusing on radio and outdoor advertising. Messages play on news-formatted WBBM-AM and FM music outlet WXRT. The system also sponsors traffic reports and Chicago Bears football broadcasts on WBBM. For outdoor advertising, the overbuilder uses space on Chicago Transit Authority station platforms, bus shelters and billboards in the lakefront area. As with radio and direct mail, the outdoor promotion initially emphasized Digital City as a valuable bundle, but in recent months the ads have been highlighting the educational benefits of individual bundle elements. "I’m a firm believer that success comes with leveraging several tactics at the same time, because you’re out to touch people in different ways at the same time," Yang observes. "The three key messages for us to deliver among our customers is commitment, responsiveness and innovation. No matter what each new product is, the strategy is the bundle." RCN’s promotions direct customers to the company website, where they enter their address to see if Digital City services are available in their area. The site also offers price comparisons with Comcast, SBC (in the case of VoIP) and DBS providers DirecTV and EchoStar (DBS penetration in Chicago is estimated at 19% by Scarborough Research). Skokie, which has a large Jewish community, has been the focus of a new synagogue campaign in which flyers promoting high-speed, VoIP and other services are posted on bulletin boards, while local rabbis make endorsements in different public forums. Other relationships with ethnic institutions are being explored to promote various offerings among people of color. RCN has a 15-channel Spanish tier; eight premium networks featuring European, Asian and Russian content; and Rainbow Media’s World Picks OnDemand, which premiered Oct. 15. IP and Bust Any internal uncertainty at RCN about how it will overbuild in Chicago and elsewhere following reorganization is not—at least not publicly—affecting the next leap McKay and his team intend to take: the launch of an all-digital/Internet protocol operating platform. The plan is to line up a converter vendor by next fall and institute all-digital transmission by mid-2006. "Because of the platform we have, we’ve got the most flexibility to make that transition," McKay says. "The constant contact with our corporate engineers to plot the all-digital road map here is happening." That’s just a little bit more for Comcast in Chicago and cable operators elsewhere to ponder as they defend their turf against a financially embattled, but still battling, RCN.