Pride Really Means Something in Toledo

BY STACI D. KRAMER Buckeye CableSystem prides itself on meeting or beating customer service standards. But unlike companies that rely solely on call center stats, this one can gauge its performance based on the number of calls to the chairman’s home. Every year Buckeye’s customers get a report from the top brass — and an invitation to call their private numbers. That includes its chairman Allan Block, who heads the subsidiary of family-owned Block Communications. In fact, it was his idea. The custom began in 1990 after the Toledo MSO revamped its customer service operations. “It took us about three years to convert,” recalls David Huey, GM of Buckeye at the time and now president of Block. “We went to same-day service, two-hour appointment windows and phone answering that was among the best in the industry. That was a major change. Allan said if we really do feel we have improved customer service operations, you and I shouldn’t have a problem sending out a letter to all of our customers.” Then Block added a twist. “Allan said if we really believe in this we would be willing to put our home phone numbers on it.” The latest version has contact info for Block, Huey and W.H. “Chip” Carstensen, Huey’s successor as president and GM of Buckeye. The letter concludes with a guarantee of customer service and a reminder to contact them personally “should you encounter a problem not handled properly through normal channels.” At some MSOs that might lead to nonstop calls. Not so at Buckeye. Huey estimates he received a dozen calls just after the first letter went out — including one from a woman who thought her service was out but who’d actually pulled the plug by mistake — and has been tracked down on the golf course, but the calls have since slowed. “It helps you focus on what kind of roadblocks you have,” Huey says. “Any back office problems or anything you’re doing wrong surfaces quickly.” Says Carstensen, “I get calls on my cell phone all the time. I get as many complimentary calls as I do complaints. And I really don’t get that many complaints.” Block says the number of calls continues to dwindle each year. “They usually have a billing problem,” he says. “Many of them are from people…with a credit history about to be turned off. I’m usually pretty generous. I’m willing to listen and give them one more chance. “The customer’s always right — even if we’re not wrong.” That attitude stems from being a hometown system. “We’re long-term owners,” says Block. “We want to provide service, not just have an investment. Our employees have never…had to be worried about negative feelings because they work for the cable company.” Carstensen agrees. “We’re local people serving our neighbors as opposed to Comcast or Adelphia or other large operators who serve many communities and phone calls go to a large community somewhere else. That’s a great strength. Our people live here, our taxes go here, our franchise fees help out communities we serve.” Block’s family founded Buckeye in 1965. Block Communications, which can be traced back to 1900, also owns The Blade in Toledo, The Pittsburgh Post-Gazette and five TV stations. Between cable, high-speed and dial-up Internet access, the newspaper, commercial telephony and other enterprises, Block estimates the company touches 90% of Toledo’s residents. Buckeye is the only division the company built from scratch. “It represents a very significant part of our company’s value, of our company’s operating profits,” says Block, who declined to provide financials. “We originated it and we built it. And we think it still has a bright future. It isn’t a mature business yet. Cable is still a business that is reaching toward the future, that still has more potential.” Buckeye is intent on mining that potential, but it isn’t about to load itself down with too much debt. “We can’t lead every marketing trend in cable here,” explains Block. “We’ll reflect whatever others prove works.” Not that Buckeye is far behind the curve. It’s more than 95% finished with an upgrade to 870 MHz. Plans are underway to roll out Motorola high-definition set-tops during the first half of this year; subscription VOD could be in place by the end of the year. Details of the HD offering are still being finalized although they’ve decided not to try a retail play, as EVP and CTO Joe Jensen puts it. The system hopes to show four or five local affiliates and is looking at several cable networks, including Discovery and HBO. The set-tops are in alpha testing now. “If we had an idea of how many HD sets are in our area we’d know better how to project it,” says Jensen. “It could be 500, could be 4,000. I think the service is going to be very compelling. I’m very impressed with the quality of the signal. It will certainly address high-end customers’ desire for quality programming.” “We want to be known for… being on the forefront,” says Carstensen. “But being a small company we cannot be an experimenter because if it doesn’t work we lose too much.” One example is the company’s approach to telephony. Buckeye TeleSystem Inc., started its telecommunications offering in 1994 with fiber-optic, circuit-switch commercial service and now serves more than 1,500 north Ohio businesses and institutions. This year Buckeye will start trials for residential telephony. “We’re going to be moving into that from a project-team perspective,” says Jensen. “Our intent is to pick a couple of friendly MUD providers and work with them to provide services to their complex.” This began as a defensive move against Ameritech’s plans to mix in cable with telephone service. Buckeye actually tested some circuit-switch telephony in 2001 and wasn’t comfortable with the results. “Residential is a very capital-intensive component. I think it’s been very prudent for us to wait and get the best value that we can,” explains Jensen, who used to work for Ameritech. “We are really at this point looking at two things,” says Huey, “what the ideal technology is, the economies of scale; the second part also is really pulling together your back office.” Jensen is particularly proud of Buckeye’s fiber plant. “We have…about 2,100 route miles of fiber and about 130,000 fiber strand miles. That, I think, puts Toledo, if you were to look at it on a per capita basis, well ahead of most metro areas in the nation. That’s why we’re able to be so successful on the commercial side. We have over 800 buildings on the fiber net now — everything from telephone to gig Ethernet. Our contract renewal rate last year was 100%.” The fiber network also prompted the launch of the high-speed Internet service Buckeye Express in 1999. The company tested proprietary cable modem solutions and deferred the launch until Docsis was ready in what Jensen calls “one of the best decisions we made.” Express has 22,754 subs; more than 90% are cable customers. Buckeye’s concern about customer service coupled with its learning curve in managing a high-speed network caused some static when it went after Internet subscribers who were subverting the 1 meg download and 128k upload limits. Concerned that the practice (known as uncapping) might be degrading other customers’ service, Buckeye decided to prosecute the offenders. Police searches of homes and businesses and seizures of equipment and other belongings followed, as did charges for theft of service. Carstensen is reviewing the cases. “Quite a number we’ve either dropped or recommended light sentences if any. Only the most heinous situations are being taken further.” Experience may help the MSO better manage its resources, but it isn’t doing much to solve Buckeye’s greatest problem outside of the DBS threat: the cost of programming. Block estimates the system loses about 4% of its margin to programming costs. He blames much of that on discrimination against small MSOs and is working through the American Cable Association to challenge the programmers, possibly through legislation. “This discrimination on programming has gone on too long,” says Block. “The big operators think we shouldn’t exist and the program suppliers are greedier.” He wants to see an a la carte approach. Buckeye already tiers as much of its Buckeye Digital Link as possible by offering four “paks” of ad-supported networks and seven premium paks. Customers can add groups of packages or go a la carte on top of a 64-channel standard service and “Gateway Pak” that includes the converter, universal remote, nine basic digital channels (the Discovery digitals, the Fox Sports Diginets and BBC America), Music Choice and digital PPV access. That base package runs $43.94 a month. Buying “Ultra Link” with all of the paks including the premiums — and Buckeye Express — totals $120.99 a month. According to information the company released in November, Buckeye spent $5.4 million on basic programming in the third quarter, an increase of $418,000, or 8.4%. “I do resent the programming price discrimination that a company our size faces. Channels charge more to smaller cable operators, and there is no justification for it,” Block insists. He tossed Univision off the system when the network started charging a licensing fee and he thought the price was too high. Buckeye offers DBS subscribers $250 to $500 toward cable service if they sign a one-year contract. Last year more than 500 households turned in their dishes. Block calls DBS “an enormous challenge” and suggests that MSOs need to do more in the area of local programming to compete. Buckeye is the exclusive home of the WB in Toledo. The best weapon is service. “It is something DBS can’t equal,” says Block. “DBS is your no-service alternative. If it breaks, you’re dead.” On the advertising front, Steve Piller, VP of ad sales, estimates the system captures more ad dollars per household than any of the affiliates in the Toledo DMA. Broadcast sells a total of 436,000 households across a broader territory than Buckeye. Using Competitive Media Report numbers, a base of 130,000 Buckeye customers and an average of five months in 2002, Piller estimates that the cable system received $3.46 per household in local ad revenue compared to $1.96 for its nearest broadcast competitor. Buckeye gets $25 to $30 for a 30-second full-day rotator and $50 to $90 in prime time. A small retailer would probably spend $1,800 to $2,500 a month; a large car dealer might spend $4,000 to $6,000. Buckeye isn’t the only cable system in the area. Time Warner Cable has about 100,000 households in the suburbs. The two don’t offer an interconnect. “The P&L hasn’t demonstrated it would be in our favor to do that,” says Piller, but he plans to explore the option in 2004. He estimates that Buckeye handles 75% of local ad production. “We basically put the affiliates out of local production. The two primary retail agencies use us fairly exclusively. It doesn’t pay for itself, but if you control the production you control the relationship. And if you control the relationship you control the media dollars.” Wendt Rotsinger Kuehnle, an ad agency that uses the production studio, spends a significant amount with Buckeye. “If you’re a local advertiser I’d definitely recommend cable. There’s no wasted audience,” says Greg Kuehnle, the agency’s president. “Buckeye Cable is one of the leaders in how you can place your commercials. They’re going to bend over backward and help us whenever we need it.” Which makes sense for a company headed by executives willing to provide personal service 24/7. EMPLOYEES: 340 MILES OF PLANT: 2,214 fiber; 2,721 coax HOMES PASSED: 217,489 PERCENT UPGRADED: 96.4% BANDWIDTH CAPACITY: 870 MHz BASIC SUBS: 132,507 BASIC RATE: $36.99 DIGITAL CUSTOMERS: 27,736 DIGITAL RATES: $43.94 HSD CUSTOMERS: 22,754 HSD RATES: $44.99 ($54.99 for noncable customers) PREMIUM CUSTOMERS: 26,697 HDTV: Scheduled to launch first half of 2003. TELEPHONY: 1,500 commercial customers. AD INSERTIONS: 32 channels SOURCE: BUCKEYE A native of Toledo, Block is also managing director of Block Communications and a member of the executive committee, and holds numerous other positions within the company. His cable industry board memberships include the National Cable Television Cooperative, the American Cable Association and C-SPAN. He has a B.A. from the University of Pennsylvania. Huey started at Buckeye in 1985 as EVP and in 1990 was promoted to president and GM. He became president of Block Communications in 2001. The Ashtabula native joined what was then Ernst & Ernst after graduating with a bachelor of business administration from the University of Toledo in 1970. A CPA, he was controller and later VP of administration for Nicholson Industries Corp. before joining Buckeye. Toledo native Carstensen is also president of sister company Erie County Cablevision Inc. He also heads Metro Fiber and Cable Construction, a subsidiary of Buckeye, making him responsible for all cable ops and construction. He joined Buckeye in 1990 as senior manager, technical operations. He managed the construction portion of Buckeye’s $130-million investment in fiber-optic-based telecom. Carstensen holds a bachelors in mechanical engineering and a masters in industrial engineering from the University of Toledo. Jensen, who also serves as president of Buckeye TeleSystem, joined Buckeye in 1996. Previously he was director of data, access and transport systems for Ameritech, where he was involved in technology planning and product development. Earlier he was manager of systems engineering for the network systems division of Rockwell International and worked for AT&T Bell Laboratories. His B.S. from Brigham Young and M.S. from Purdue are both in electrical engineering. Piller joined Buckeye in 1981 to launch the ad sales efforts and turned a one-person sales and trafficking operation into what is now a 27-person sales and production department. The local staff also handles ad sales for Erie County Cablevision Inc., in Sandusky, another sister company of Buckeye. A native of Cleveland, Piller is a graduate of Bowling Green State University and holds an M.B.A. from the University of Toledo. Comparison of Buckeye CableSystem subscribers in Toledo to the top 75 market average.