AN INDEPENDENT GROWS IN KANSAS

BY SHIRLEY BRADY Lawrence, Kan., was home to the Beat writer, artist and eternal hipster William S. Burroughs until he was spirited away in a stream of consciousness to some higher, groovier plane. While the Naked Lunch author has split, his spirit lives on in this college town, his think-beyond-the-box creativity is still embodied by local, indie cable operator Sunflower Broadband. But don’t let that hippie-ish moniker fool you. Sunflower VP and GM Patrick Knorr and his team are all business, even if they do try unusual guerrilla marketing tactics to attract the college kids. Consider the roaming “broadband man on campus” just this year: Equipped with coupons and armed with information, the data dude — really a University of Kansas grad student — was paid to wear a Sunflower Broadband tee and cruise the campus to talk up high-speed Internet service. Located in northeast Kansas, Lawrence is about 45 minutes west of Kansas City and 30 minutes east of Topeka. Its population of 80,000 adds about 25,000 students when school is in session. That makes August do-or-die time for Sunflower, which services about 80% of the homes in Lawrence, Eurora and Douglas counties. “We had a great August student rush for data, and we have added 2,000 customers [since Aug. 1], putting us over 13,000 data customers,” says Knorr of the locally owned and operated company. “I think we may be the No. 1 data deployment in the country as a percentage of homes passed — and that was in the face of SBC’s $29.95 [local high-speed data] offer.” Data isn’t the only advanced service doing well, he adds. “Our phone service has also done very well, and we reached our threshold for profitability in August. We’re about 7,000 lines now.” Knorr credits marketing manager Dana Gore with helping spur momentum in the face of competition from the telcos. “I love the different services: It’s such a wide open industry in terms of what we can offer,” says Gore. “Cable is evolving and is all about what it will become in people’s lives. That’s what makes this job so fun. This is such a great market for services such as high-speed data: It’s a student market, a university town, it’s open to new ideas. If we want to get something to market we can do it pretty fast. And if we crash and burn, we brush ourselves off and try something else.” “We’ve really come up with some creative ideas,” says Knorr of Gore’s marketing initiatives. “With such a large student population, you’ve got to do some campy things.” One particular product the company launched with students in mind was Wi-Fi hot spots on and around campus. That service launched in April of this year, building on the soft launch of cable modem service in 1995 and the subsequent DOCSIS deployment in October ’98. “We marketed the Wi-Fi service pretty heavily originally, trying to figure out how to make money with the service,” Knorr says. “We put about 20 hot spots in around town and had it as an up charge for our data customers. We honestly have not had an overwhelming response so we’re going to be revisiting that model, because a lot of companies have been giving that away as a value-added to the data service. We did find it has a fairly low cost of deployment, so as a service I think it’s something we can do as a value-add pretty easily. It’s just a matter of managing the service.” Competition from telcos has brought a number of free wireless Internet access points around town, which would make it virtually impossible to transition wireless Internet customers to a stand-alone subscription model after they sample it as a freebie. “Paid service is difficult, so it will be interesting to see how the model changes,” Knorr says. “There are a lot of unknowns as far as Wi-Fi goes, because I think the hype got ahead of the users, as is often the case. I think handhelds will vastly change the dynamics, whether that’s cell phones or Palm Pilots.” He also thinks Wi-Fi will flourish with more business-based applications. “Where we have been successful is in hotels and conferences, where one or two hot spots isn’t enough and people are willing to pay for access because they want good, reliable access. So we sell daily accounts at those locations. That has been very successful; it’s just a matter of getting enough bandwidth capacity there at the right time to satisfy up to 100 simultaneous users at one location.” In terms of being a value-added upsell, Sunflower may bundle Wi-Fi in a tier of data service to enhance those packages. Sunflower currently offers two tiers of residential service, a baseline 2 Mbps downstream/256K upstream service/6GB transfer limit for $29.95 without modem — “fairly low-end pricing, but we’re trying to drive the take rate,” says Knorr — and a premium service for 3 Mbps downstream/512 Kbps upload/10GB transfer limit for $44.95. “Tiering our data services has been going very well,” says Knorr. “About 20% to one-third of all our new sign-ups take our premium Internet service, so we may include [Wi-Fi] in our premium package at no additional charge. We don’t have any regrets for doing it, because it’s going to be strategically important. And the cost has been low compared to HD or any number of new technologies out there.” The company also offers about a half-dozen different high-speed Internet tiers and packages to about 1,000 business customers, who pay anywhere from $49 to $500 for services such as telephony, Web hosting, networking design and support, wiring and pre-wiring, commercial-free music for retail or office usage and bulk TV services for commercial usage. Sunflower is also building a VPN including doctors’ offices, nursing homes, pharmacies and local hospitals, with a planned rollout in the first quarter that will eventually take it outside the footprint. Sunflower has come a long way since the family-owned company launched TV service in 1970. (It’s owned by the World Company, which also owns the Lawrence-Journal-World, a newspaper founded by the Simons family in 1891.) Offering just ten channels, Sunflower Cablevision quickly grew. In 1975 it launched Channel 6 News, and became Lawrence’s only local TV news operation. Channel 6 now offers daily newscasts weekdays and a broad range of locally produced programming, including replays of high school and collegiate sports events and local election coverage. Knorr has been with Sunflower five years. The Kansas State University grad was Internet manager for the company and led it to become one of the first cable operators to deploy DOCSIS modems in 1998. In his first two years as GM he oversaw the completion of a fiber-optic rebuild, and integrated three systems acquired from Galaxy Cablevision. In September 2001, it became one of the smallest cable systems to deploy switched circuit telephone service; its full commercial launch of the product in June ’02 turned a profit this year. In 2001 Knorr rebranded the company to Sunflower Broadband. Today the company delivers more than 200 TV channels in addition to its range of advanced services. A converged news partnership between the Lawrence Journal-World, 6 News, and World Online provides Lawrence with an unparalleled local news and information resource for a community of this size. Its local origination programming won NCTA Community Spirit Awards in 2000 and 2001 for producing more than 70 hours of programming, including two nightly newscasts and a range of other shows such as The Turnpike, a garage-band music show it now syndicates. As local ad sales manager Mark Kern says, “Our big success has come with our L.O. [local origination] programming, which is why we’re adding four new networks on Oct. 1 including the Food Network, to work along with our local food show for advertisers. Offering Kansas City Royals games this year also proved a home run with clients.” To help steer the company into the future and steel it against its competition, particularly on the telco side, Knorr hired a number of former RBOC employees. “A lot of our former telephone guys vastly underestimated the complexity of cable services,” Knorr says with a chuckle. “They’ve really learned from each other, and I feel we’re a better company for it.” As is the chant at many bigger operators, Sunflower’s mantra is “training.” With telephony, the biggest challenge was “standards of service, especially maintaining the plant, and the concept of maintenance windows in the middle of the night and needing to wait to tweak an amplifier, not doing that in the afternoon,” says Knorr. “You can’t just say, ‘This is off, let me fix it,’ because you can’t pull off telephone customers in the middle of the afternoon.” He has looked at VoIP and hopes “to make a transition on the transport side to where we’re installing DOCSIS-based premise equipment for our telephone services. But the price model on that has not come down as rapidly as we hoped. So we are continuing with the Arris Cornerstone product.” Knorr is looking at 2004 for VOD, having waited for the technology to develop and the price to drop. “I think it’s a great product but I was hoping it would evolve to something more sophisticated. I’d like to see VOD, and set-top boxes in general, utilize DOCSIS more as a transport medium instead of live streams. That would be a more stable and flexible methodology. It would absolutely help manage the spectrum bandwidth on the cable system and allow us to more effectively offer some more creative features for users. You could cue up movies on a PVR box and download top titles during off-peak hours, and do some very sophisticated things with bandwidth management. And there is still grumbling they’re going to head in that direction. But certainly the pricing on VOD has dropped enough that deployment makes sense, even without it getting quite technically where we’d like to see it.” Most of Sunflower’s technical decisions are aimed at the day “when you’ll see more convergence between IP and video.” In terms of knowing when his customers are ready for the next product, “A lot of it is talking to customers and neighbors, asking them what they think.” In the past year Sunflower has conducted its first formal focus groups. “Our core customer base is not the students, it’s the residents and people commuting to Kansas City. So in return for them coming in for lunch and chatting we give them a month’s free services. We try to do that now before we launch anything, but at the end of the day there’s a certain amount of guesswork no matter what we do.” Sunflower did a full launch in August of its HDTV tier. It now offers HDNet, HDNet Movies, ESPN HD and Discovery HD Theater for a $9.95 monthly subscription and an HD/Home Theater digital box. That prompted a Kansas City Star TV critic to comment, “the tiny but progressive Sunflower is way ahead of the curve.” Sunflower is now offering all local over-the-air broadcast signals in hi-def, including the local CBS and ABC affiliates. One problem is still the dearth of HD content, Knorr notes. “With ESPN hi-def, for instance, it’s a fairly expensive product and there’s a lot of interest from consumers. But a lot of them have been very disappointed with the lack of content currently truly being broadcast in HD. Discovery HD, HDNet, HDNet Movies are all HD, all the time, but ESPN is about 10 to 30% [HD].” As an In Demand customer, Knorr now says he is looking at its new linear hi-def services (INHD and INHD2) “as a pay-per-view proposition. We would like to see our HD penetration and our HD take rate at a certain level first before we launch an HD pay-per-view product.” There are still some technical issues “with both the box and the guide, but we’re probably about 95% there, so we are planning to really push our HD product in September and October. We now have just under 100 customers and we’d like to at least double that by the end of the year.” Sunflower is using the TV Guide program guide with National Access Control and the 5100 Motorola box. “The biggest challenge with HD boxes is it’s such a brand-new service, the user equipment is very different. These are very high-end TV sets, very sophisticated systems, so trying to figure out what’s wrong with a customer can be very challenging, whether trying to isolate whether their plasma TV has a problem or their wiring has a problem or if it’s a plant problem or an isolated problem.” Sunflower is also working with three electronics retailers. “With 99% of our customers now leasing boxes, we hope to get a retail model going where people can now purchase boxes.” The winds of change may be strong, but Sunflower has harnessed them. Even a tornado that struck in May inspired what Knorr calls “some excellent coverage by our local origination news channel. A lot of our customers watched us instead of the networks.” With minimal damage to his plant or disruption to service, Knorr figures he was lucky. “The tornado…hopped all over but missed us.” Perhaps being a change agent itself has weatherproofed Sunflower for whatever other changes are blowing its way. Knorr, with Sunflower for five years, was named GM in 2000. In ’98 he became Internet manager and in ’01 Sunflower became one of the smallest cable systems to deploy switched telephone service — a service that became profitable in ’03. He has a B.S. in social science from Kansas State University. After 12 years in the ad sales and marketing for broadcast TV, Gore made the leap four years ago to cable. At Sunflower she has launched digital services, multiple advanced data services and, most recently, local and long-distance telephony. Kern joined Sunflower in October 2000. He previously worked in sales at Midland Broadcasters’ KMAJ AM and FM radio stations in Topeka, Kan. He graduated from Kansas State University with a bachelor’s degree in business administration. Retired from SBC after 30 years, Ryan worked in switch maintenance, switching engineering, network planning and sales. He has been with Sunflower for two years. Henson oversees nearly 40 CSRs. She joined Sunflower from ALLTEL, where she worked for 11 years, beginning as a CSR and working her way up to manager. Before that, she was a bank teller and served in the U.S. Army as an accounting specialist. After 19 years with SBC, Hyde retired in 1999 and did contract work for large RBOCs and long-distance carriers, auditing their switch and power equipment throughout North America. He joined Sunflower in 2001. Woodard is responsible for all video programming and inside fiber distribution equipment. He also retains the position of network engineer. He has associate degrees in computer science and computer information systems from Kansas State University-College of Technology. EMPLOYEES: 177 HOMES PASSED: 43,000 MILES OF PLANT: 742 PERCENT UPGRADED: 92% BASIC CUSTOMERS: 33,500 BASIC RATE: $20.45 for limited basic; $36.45 for expanded basic BASIC PENETRATION: 78% DIGITAL CUSTOMERS: 6,500 DIGITAL RATE: $41.40 includes expanded basic plus basic digital box; digital gateway (includes access to PPV and Music Choice) is $4.95; advanced digital box with integrated S-Video and Dolby 5.1 is $8.95 DIGITAL TIERS: Digital Gateway subs pay $7.95 per variety, sports or movie tier; $12.95 for 2 tiers; $15.95 for 3 tiers DIGITAL PENETRATION: 20% HDTV CUSTOMERS: 200 HDTV RATE: Hi-def Home Theatre digital box is $14.95; HDTV tier is $9.95 HSD CUSTOMERS: 13,500 HSD RATE: $29.95 for basic residential service or $44.95 for premium residential service; monthly cable modem lease is $10 HSD PENETRATION: 41% WI-FI RATE: Hot spot wireless service is $9.95/month to high-speed Internet customers; hot spot wireless cards also available for $5 for 60 min. or $10 for 180 min.; 21 hot spots deployed TELEPHONE LINES: 7,500 LOCAL TELEPHONE RATE: $16.95 with two other Sunflower Broadband services or $17.95 with one other; additional line charge is $13.95; feature packages cost $9.95 or $14.95 LONG-DISTANCE TELEPHONE RATE: 7 cents/min. plus $14.95/month or 9 cents/min. (without a monthly fee) anywhere in the U.S. TELEPHONE PENETRATION: 23% PON: Launched in 2003 with six commercial customers BUNDLED PACKAGE INFORMATION: All video services (except HDTV) and premium data for $121.95; basic service for data, video and phone for $89.95; all services for data (except HDTV), video and phone for $142.95 AD INSERTIONS: 25 channels; adding four more Oct. 1 SOURCE: SUNFLOWER BROADBAND