Betting That Kansans Will Love the Bundle

BY SHIRLEY BRADY The folks at Cox Communications are betting they’ll have a lot of happy customers in Wichita this year. That’s because Cox corporate in Atlanta tapped Wichita as its tenth phone market, the only one scheduled for this year so far. And as Cox CEO Jim Robbins said on the company’s first-quarter earnings call, “Our telephony customers are our happiest customers — and we’ve got a tremendous amount of experience in telephony.” That’s not the only good news in Wichita, which started deploying circuit-switch telephony service in March. According to an analysis of 2000 U.S. Census data released last year, Wichitans now earn more — the median household income rose more than 42% in the previous decade — and are smarter — thanks to a jump in college and high school graduates — than ever before. Heck, they may even be better looking too, only the Census doesn’t track that. Cox hopes that the growth in bank accounts and brain power means its subscribers in Wichita will appreciate the value of — and sign up for — its bundled offerings in the biggest market in Kansas. The 66th-largest TV market, Wichita is the heart of Cox’s statewide operation. Metro Wichita is home to more than 535,000 people, including 445,250 TV households according to Nielsen Media Research. Cox’s Wichita team not only promotes its services to the city’s population, but to the entire state. “We pretty much cover the entire state, except for a bit of the northwest,” says Steve Yates, VP of business operations and acting VP/GM for Cox Kansas. (A replacement has yet to be named for former VP/GM Don Karell, who left in March to run Charter’s operation in Birmingham, Ala.) “More than just a collection of systems, we view Kansas as one cohesive operation with a very far-reaching scope.” How far-reaching? Cox’s fiber-optic network in the state now stretches over 6,000 miles. With so many rural subscribers throughout the state, Cox’s Wichita team is banking on the bundle of video, high-speed Internet and now telephony to compete with SBC Communications, the only other provider in the market to use its own network to carry voice and data traffic. Other providers such as Sprint also offer phone service in Sedgwick County, but they lease parts of SBC’s network at wholesale prices and then resell phone service. This creates a competitive opportunity for Cox, which launched phone service with a flat rate of $14.36 to its customers or $15.95 for one line to non-subscribers. Standard long distance is 10 cents a minute, while packages can lower that to 7 cents. After spending the last two years preparing for telephone service, including getting approval from the county to connect to the 911 emergency system, Cox is now rolling out across the Wichita metro area. The company also received permission from the Kansas Corporation Commission to offer local phone service in any areas now served by SBC and Sprint. UBS Warburg analyst Aryeh Bourkoff said in a research note in March that subscriber additions from Kansas are expected to account for about 7% of Cox’s digital phone subscriber growth for 2003. Wichita joins other Cox digital phone markets such as Oklahoma City, Omaha, Phoenix, San Diego and New Orleans, places where Cox is sweetening the product with new features such as caller ID on the TV screen and unified messaging that integrates voice mail with e-mail. Besides gaining valuable experience in marketing and driving penetration for the product in nine systems before Wichita, Cox has successfully taken on baby Bells in cities such as Phoenix and Mission Viejo in Orange County, Calif. In launching phone service to date, returns have been high and complaints have been low. A year ago this month the Kansas market transitioned its high-speed Internet subscribers from Time Warner’s Road Runner product to Cox’s own high-speed Internet service. Kansas was one of the last Cox markets to convert, enabling its team to learn from any hiccups in other parts of the country. As a result, there were significantly fewer complaints from customers than had been anticipated. “This also gave us an opportunity to go throughout the state and reinvigorate the branding for our data services, which is also important in terms of the DSL competition that’s out there,” says Yates. “In a lot of these smaller, rural communities there really wasn’t a choice for services in the late ’90s, so when we launched high-speed Internet back in 1999 as Multimedia Cablevision we were the first to come to market with a high-speed Internet offering for many communities across the state.” DSL now competes against cable modem service in Kansas, where SBC recently slashed its bundled price for broadband to $24.95 (or half its price two years ago) to thwart Cox. SBC has also been lobbying for legislation to prevent utility authorities in Kansas and all states where it operates from regulating its broadband service, a measure that has already been passed in South Carolina and Oklahoma. But Yates and his team are confident in the strength of their offering. “We got in there first with this next-generation service” of high-speed data, he says. “This was also unique for the company because our footprint was not the typical Cox footprint, which historically has been primarily a large, urban-focused operation.” Cox last year invested in and deployed more than 20 of ADC’s Cuda 1000 compact cable modem termination systems across the state to further improve the delivery of high-speed Internet services. The platform — a compact version of the Cuda 12000s installed in Cox’s larger networks — has reduced the need for truck rolls and has capped IP services management costs. Productivity and efficiency have also been boosted in the last year with the 35,000-square-foot call center in Wichita that opened last summer. Spanish-speaking customer and field service reps were also increased to better service the growing Hispanic population in western Kansas. It’s all part of the continual striving to improve life for customers in Kansas, a market Cox acquired (along with Oklahoma and North Carolina) from Multimedia Cablevision owner Gannett in 1999 for $2.7 billion. Since then, Cox has spent more than $100 million in Kansas alone to upgrade the network. Now, about 95% of Cox’s customers across the state are fiber-connected on a 750-MHz two-way platform that provides anything from core video services to next-generation digital and data services. “One of the great things about the network is, from a customer perspective, it simplifies their lives because they get consistent programming and rate structures across the state,” says VP of engineering Nick DiPonzio. Multimedia Cablevision offered 39 different cable lineups in Kansas, which Cox unified last year to four. That network will also provide services now on the drawing board such as high-definition TV (launching statewide this summer) and VOD, planned for early 2004. “Smaller, rural markets are just as eager to get VOD and HD as the more urban markets — maybe even more so, due to the lack of competitive offers for those services,” says Yates, who is looking at adding Discovery and ESPN’s HD services. “There is not a proliferation of HD set-top boxes out there yet, but the early adopters are eager so we’re looking at launching a tiered service.” Another factor that unites Kansans — think Dorothy and Toto here — is dramatic, quick-changing weather that can wreak havoc in an instant. That’s why the Weather Channel is at No. 2 on Cox’s cable lineup and why round-the-clock weather updates will play an even bigger role. Cox is also launching a 24/7 statewide news channel in July in partnership with Wichita ABC affiliate KAKE. “It’s the first of its kind in the state,” says Chuck Reid, VP/GM of Cox Media in Kansas. “It will consist of live news, repurposed news, weather wraps and paid programming. A big focus will be weather updates. It will have the look and feel of a CNN or a Fox News, providing text news on a crawl and advertising as well video on the screen, plus continuous, round-the-clock updates.” Reid and his team are now in pre-sale mode to build buzz for the new network. “We’re looking for six category-exclusive charter advertisers.” Cox Media is likely to have no problem finding those partners, says Marino Garci, president of Wichita-based Garci Advertising. “A lot of my clients are very interested,” says Garci. “Whether my clients spend a little or a lot, cable always gets the returns. It’s affordable, the ratings growth has been fantastic and you’re buying the ratings that fit your demographic.” Cox Media, which rebranded earlier this year from CableRep Advertising, offers 24 markets of ad insertion across Kansas. The contiguous Kansas market is home to six DMAs, including Wichita, Topeka and Tulsa/Oklahoma. Wichita, the biggest DMA with 65 counties, includes more than half of the 24 zones in Kansas where Cox inserts local advertising, with 40 networks available to 14 zones in the greater city. Cox inserted on 28 networks in Wichita two years ago, while the minimum number of insertable channels in its smaller markets has grown from eight to 12. “Fourteen different zones for Wichita means 14 different methods of ad insertion,” says Reid. “When I got here I had 28 networks, so networks such as TLC and Fox News were added due to tremendous interest. At this point we are not slated for digital insertion, because we have so many networks. For instance, ESPN is in all 24 markets, and they’re offered separately, so theoretically we could feed 24 different commercials running across a single break on SportsCenter. From a traffic standpoint I’m inserting advertising on 350 networks across the state.” Reid’s team also handles ad sales for some smaller operators in the state, and will act as the sole selling authority for ads on the new statewide news channel. In tandem with his boss in Atlanta, Billy Farina, Reid has been streamlining the Kansas ad sales operation to simplify trafficking and billing systems. He’s also focused on custom promotions to drive traffic and revenue for advertisers. That strategy sparked a significant increase in advertising in the categories of furniture, home improvement, grocery stores and fast food, with Wichita area Burger Kings advertising on cable for the first time ever in the past year. “We really appreciated that Cox valued our investment and came to the table with some awesome added-value promotions,” says Jana Day, director of marketing for Day Restaurants, which operates 21 Burger Kings in Kansas. “A year ago we used radio 100% but weren’t too excited about the results. So we had [local affiliates for] Fox, UPN and cable come in to pitch us, and of the three, cable came to the table with the most.” BK’s first promotion with Cox was for ESPN Fantasy Football, which drove traffic to the store through 10,000 spots over ten zones, Day says. Thrilled with the results, she launched ABC Family’s 25 Days of Christmas promotion on Dec. 1, and was also pleased by the Cox campaign to spread the word on the $1,000 scholarships her company funds for 21 local students. “Cox went above and beyond, including writing and producing the spots, and just did a really special job with this campaign,” she notes. This week another promotion launches tied into Nickelodeon’s Rugrats Go Wild movie, featuring a special screening of the film for about 300 area families, prize drawings, free movie passes, Nick-branded giveaways and more. A basketball promotion Reid’s team served to Wendy’s around the National Invitational Tournament was also a slam dunk. “We got a phenomenal amount of frequency with 6,000 customized spots on ESPN, ESPN2 and Fox Sports,” says Jim Cook, VP of marketing for Wendy’s franchisee LDF Food Group Inc. “The registration boxes in our stores overflowed.” The score? “Cable is now a must for us.” EMPLOYEES: 900 (in state) MILES OF PLANT: Over 6,000 (in state) PERCENT UPGRADED: 95% at 750 MHz HOMES PASSED: 209,000 (520,000 in state) SUBSCRIBERS: 123,000-plus basic subs (320,000-plus in state) BASIC RATE: $10.35/month for limited basic; $40.68 for expanded basic lineup of up to 75 channels; analog premium movie channels $10.50 DIGITAL RATE: $49.67 for more than 200 channels including up to 72 movie and sports pay-per-view channels and over 40 digital music channels HIGH-SPEED DATA RATE: $39.95 to customers, $49.95 to non-subs TELEPHONE RATE: Local service costs $14.36 for subscribers or $15.95 for non-subs; long distance is 10 cents a minute (7 cents for a $3.95 monthly fee) HD: Rolls out statewide this summer VOD: Launching early 2004 AD INSERTIONS: Available on 40 channels in 14 zones in Wichita DMA SOURCE: COX COMMUNICATIONS Yates has been in the cable industry since 1985, starting out with Multimedia Cablevision in its Wichita headquarters as controller and business manager for the Kansas and North Carolina cable divisions. In 2000, with the sale of Multimedia to Cox, he was named to his current position. He is a CPA with undergraduate and graduate degrees in accounting and finance. Before coming to Kansas over two years ago, Reid was the manager of business operations for the Cox Media office in Orange County, Calif. While there, he was also responsible for the Cox Media national bill insert advertising division. In his current role, Reid manages a team of 52 employees, covering 24 zones and inserting ads on as many as 40 networks across six markets in Kansas. DiPonzio began his cable career with Cox in 1995 as field operations supervisor at the Myrtle Beach, S.C., system. He left Cox for a short time to serve as project manager for Time Warner Cable in Myrtle Beach, and then as engineering manager with RCN in Philadelphia. In 2001, DiPonzio joined Cox Kansas. He graduated from the University of Buffalo with a B.S. in electrical engineering. Allbaugh manages Cox’s local, state, and federal government affairs initiatives for both Kansas and Oklahoma. He oversees the franchise renewal process for over 156 franchises while serving as chief corporate lobbyist and manager of legislative policy before Congress and the Kansas and Oklahoma legislatures. He began his political career as a legislative assistant to the late U.S. Sen. Dewey Bartlett in Oklahoma. Comparison of consumers in Cox’s Wichita service area to the top 75 market average.