Meet the System–Inland Empire, Calif.: Give Me the Simple Life

Sometimes, simple things can assist advanced technologies. Five years ago, Charter Communications’ Inland Empire system used the relatively low-tech transport method of pack mules to bring fiber optics and high-speed Internet into the mountains of Southern California. While the regional cluster located east of Los Angeles eschewed mules when it began offering telephone service last October, a simple pricing strategy remains the cornerstone of the complex operation. The uncomplicated pricing strategy is the brainchild of Ted Schremp, SVP and general manager of Charter Telephone. Charter doesn’t test price points with each new market because Schremp decided early on to run companywide with what he calls the "simple, tight value proposition" of a single $39.99 offer. That package offers existing customers unlimited local and long-distance service to the U.S. and Canada, including call waiting, caller ID, speed dial, anonymous call blocking, voicemail, enhanced 911 and battery backup. Non-customers pay $44.99. The simple price plan gets only a bit more complex. Charter’s goal is to get existing customers to upgrade to a bundle. Subscribing to phone plus digital cable and high-speed Internet costs $119.99. A two-product bundle of phone and high-speed Internet costs $59.98. So far, keeping it simple is paying off. Charter Telephone was available to 2.4 million homes by the end of the third quarter, with 90,000 phone subscribers signed up by Oct. 1. The company’s 2006 goal is to expand the product’s footprint to 6-8 million homes passed across the country. But Inland has found telephone is more than good for business. The new product is "recharging everyone from our frontline folks to the most sequestered analyst in our offices," says Tom Tompkins, Inland Empire’s VP and general manager of operations. "This is fun, it’s new and this is the history of cable—we’ve always been on the leading edge of offering new and exciting services." Imitation—the Sincerest Form of Telephony Within three months of offering phone service, Inland Empire director of sales and marketing Chris Bailey saw the telcos simplifying their phone packages and pricing. SBC (now merged with AT&T) launched a triple-play bundle for about $80. Last month it also started offering a monthly discount of $5 to customers who combine their Cingular Wireless service with AT&T Inc. (the new name for the merged SBC-AT&T). Verizon offers an unlimited local, regional and national long-distance phone package for $44.95 a month, or $39.95 with fewer features. It is seeking franchises to launch its FiOS TV service in 22 Southern California communities, including Inland Empire’s Apple Valley. Inland Empire expected increased competition from the telcos. Fortunately, it hasn’t been nasty, so far. "We haven’t seen the Time Warner/SBC type of ad where there’s a truck jumping on another truck type of thing," Tompkins says. "Obviously their pricing models are changing…It speaks to the fact that they are watching us. And it makes our product all the more attractive in that our offer is very simple." Voice Lessons But offering a simple price structure is only part of Inland’s story. Being the sixth Charter key market area to launch telephone, Inland Empire wisely paid close attention to lessons learned during Charter’s previous launches. Among the takeaways: *It takes at least one year, pre-launch, to interconnect with incumbent telephone companies. This is necessary because Charter Telephone is not a voice over IP-based service—it’s connected to the public switched telephone network. *One year is needed to prepare the two-way cable plant; that includes getting it certified with documentation and records. *Training should begin one year prior to launch; those trained should range from sales and marketing to broadband and system technicians. Charter’s Telephone 101 training lasts from a day to a week; dispatchers’ training takes two days while frontline techs’ complex phone training requires five days to go over details such as warehousing and provisioning batteries. *Focus at-launch marketing on the $39.99 offer. Start with existing customers, and then move to prospective customers and targeted demographics. A Simple Price Helps Marketing, Too By sticking to the $39.99 package and refusing to engage in promotional discounting or local price wars, Inland Empire’s marketing team was able to focus on subscriber retention and upsells. Tactics ranged from the traditional (direct mail, newspaper, radio and door-to-door) to the more sophisticated, like using Navic’s interactive TV overlay technology to customize Charter Telephone cross-channel spots. Subscribers can click an online ad for information about receiving phone service. Another potential marketing tool is using databases and segmentation to pitch phone service to specific communities, such as the 40% Hispanic population in the Inland Empire area. But at its roots, Inland’s marketing approach relies on simplicity—and shoe leather. Bailey’s direct-to-door sales team hit the street to educate consumers about phone. Since Inland Empire’s footprint is spread across three counties, that meant going to 27 communities in 14 franchise areas, including 12 incorporated cities. "One of the biggest changes [in door-to-door marketing] has been moving away from a transactional selling process to more of a consultative selling process," Bailey says. "When we get to the door we talk about how to marry the three services together and also make the linkage between Charter as a cable and broadband provider and now Charter as a telecommunications provider." Bailey finds new-subscriber acquisitions take more time than before phone was available. "It’s a matter of sitting down with that consumer and pulling their bills out onto the kitchen table," he says. "We talk about the service that they’re currently getting from other phone companies and how Charter Telephone saves them money." Just how much does Charter Telephone shave off customers’ monthly phone bills? Charter Telephone head Schremp estimates that the average local-plus-long distance bill in the U.S. is around $50, so the company’s $39.99 presents a $10 savings. But it’s not just about getting an additional $40 a month out of each customer. "It’s a customer lifetime value calculation," Schremp says. "It’s about the dynamics of the customer relationship when we get them into a bundled situation." Telephone and Business Services That relationship can seep into another area that offers a lot of upside: adding telephone to Inland’s thriving business services offering, which is currently focused on selling optical business Internet and local area network services. "We know that telephony drives a lot of revenue," says John Boyd, director of Charter Business for Southern California, who’s evaluating when to tap into the market’s phone launch. "We want to follow the same kind of bundling strategy that Inland Empire is using on the residential side." As Tompkins says of a product that’s still only three months old in his market, "What the future holds is yet to be written. But we’re excited." When VoIP Is Not VoIP Charter’s, and thus Inland Empire’s, brand of telephony uses voice over Internet protocol technology, but it’s not VoIP. It does this to offer a better quality product, although it’s a bit more costly than VoIP service, Charter Telephone SVP and GM Ted Schremp says. Charter deploys a switch in each market and then connects to the local telephone infrastructure (which could mean one or more telcos) directly from that switch, which typically sits in one of its head-ends. "We also deploy a standalone private IP network that rides our HFC [hybrid fiber coaxial] infrastructure," Schremp notes. "And we’ll deploy a second CMTS [cable modem termination system] and leverage a second carrier. We use IP technology from that CMTS out to the home, but that’s a private, Charter-owned IP network that doesn’t even have high-speed data traffic on it. It’s exclusively voice." Charter Telephone is never commingled with public Internet traffic or even Internet traffic on its own backbone, he adds. Other MSOs have taken a hybrid approach to offering phone. Time Warner Cable and Cablevision, for example, use the same CMTS for both phone and HSD services, but like Charter, their voice traffic never hits the public Internet while relying on IP from the household to a switch located at the head-end. —S.B. Charter Inland Empire By the Numbers Employees: 330
Miles of plant: 4,500
Homes passed: 350,000 (220,000 with telephone availability)
Bandwidth: 860 MHz; 450 MHz and 550 MHz in smaller communities
Percent upgraded: 92%
Basic subs (analog video customers): 139,000
Basic rate: $11-$28
Digital penetration: 70%
Digital packages: $54.99-$70.99. Digital tiers cost $5 incremental.
Advanced video services: VOD, DVR with Moxi, HD tier. Approximately 25% of digital subs have HD and/or DVR.
HSD penetration: 47%
HSD rate: $29.99-$39.99
DVR rate: $9.99 incremental to digital
Telephone rate: $39.99 for existing customers; $44.99 for non-subs.
Insertable channels: 40 Source: Charter