Move to retail fraught with hidden dangers and obstacles

Broadband is booming. Everywhere you look, there is a new report or a new study predicting the millions of subscribers for high-speed Internet services, with nothing but more growth being forecast for upcoming years. Recent research shows consumer demand for broadband will explode, with predictions that 16 million U.S. households, or one-quarter of all online homes, will use high-speed broadband Internet connections by 2002.1 With this surge in demand comes new technologies, new services, increased areas of availability and easier installation. However, one issue that seems inherent to satisfying the consumer demand for broadband services is getting surprisingly little attention. Where does the retail industry fall into this cable modem explosion?

In this age of consumer demand for instant gratification, it seems strange that such a booming business is still focused on a model where customers must sign up and wait for product and installation. Yet, very little discussion is taking place to bring about any significant change to this process. Consumers looking to purchase their modems at local retail stores have few options for service and even fewer chances of being able to correctly install the hardware and related software on their own.

MSOs are juggling a myriad of concerns as they move modems to retail distribution.

There are some very large questions looming over any significant change in the current distribution channel. How can consumers become more informed about hardware and software products and what questions should they ask when purchasing these items from retail outlets? Is product truly user installable? What needs to happen to start the dialogue among MSOs, ISPs, retailers and manufacturers to make retail distribution a viable channel where the elimination of truck rolls can become a reality? These are the questions that need real answers before retail distribution becomes a viable outlet for broadband services.

Modems under the tree?

It's already Christmas time for retail chains. As any tenured retail manufacturer knows, the fall months are the key period for stocking up product at stores in anticipation of the holiday buying rush. Many predicted that retail outlet shelves would be stocked with cable and DSL modems this year, where customers could simply pick out the product they wanted, sign up for service right on the spot, and take home the gift of broadband to place beneath the Christmas tree. Yet most cable companies, as well as manufacturers, have still not completed full-scale retail deployment.

Although most MSOs insist that they are no longer conducting trials of cable-modem retail deployment, the majority of retail partnerships are still conducted on a market-by-market basis. MediaOne has worked with Circuit City to make its service available at their retail locations in the Boston area, Atlanta and Richmond, as well as in Jacksonville, Fla. through Radio Shack. Cox Communications has also made its Cox@Home-in-a-box product available through retailers such as CompUSA and Circuit City and has even displayed its cable modem service through 20 car washes in Southern California.

So, with these various partnerships, does this mean that consumers can walk into their local Best Buy or Circuit City and find cable modem service for their home? The answer for the majority of consumers is still no, even while expectations for Christmas sales continue to rise. Reasons for this slow progression by MSOs into retail chains include shortages in cable modem availability and issues concerning whether or not retailers should get residuals for selling modems and service activations. However, moving cable modems from a leased product, which cable operators must initially purchase and carry on their books, to a consumer purchased item, has long been an industry goal for MSOs.

MSOs have the difficult job of creating the platform for coexistence of both a lease and purchase model within retail distribution. Retailers, manufacturers, MSOs and ISPs can all benefit from the prospect of increased business from people who have broadband service, ranging from marketing products via the Internet that include home audio components which feature the MP3 format, to offering enhanced video applications and Internet telephone capabilities. Cable operators, the telephony industry and Internet service providers are all competing to sign-up new subscribers, which in turn become the new consumer base for multimedia products and services.

Even with these advancements into the retail arena, the question concerning service availability still looms over most retail outlets. If a customer walks into a local Best Buy and notices boxes advertising AT&T @Home service, how can the consumer know if his neighborhood is wired for AT&T's service? CableLabs has offered its solution with a new service, called Go2Broadband. The service locator system will allow users to go online at home or at the point of sale to learn immediately whether they can get cable data service. Ultimately, this information will be made available via kiosks at retail outlets.

However, this may not be the blanket solution that CableLabs hoped Go2Broadband would be. Problems still result from MSOs signing separate agreements with individual retail chains on a market-by-market basis. Let's take the example of a consumer who walks into a Circuit City in Southern California. This consumer walks up to the Go2Broadband kiosk, types in his/her address and learns that Cox is the only carrier that provides service to his/her area. However, this store only carries MediaOne RoadRunner service, forcing the consumer to go to a different retail chain or to return home to contact Cox directly. MSOs have the complicated task of making their products available at all retail outlets within their services areas, going beyond the traditional route of forming unique partnerships with individual retailers.

Consequently, while MSOs and retail vendors continue to haggle over matters like residuals and prices for shelf space, consumers are left with limited choices. This is where the role of the manufacturer becomes important. As a result of the establishment of interoperability standards by CableLabs, manufacturers are in a unique position where they can distribute their modems through all channels, obtaining sales through retail, online stores and directly to the cable operators.

Certification of increased numbers of plug'n'play modems also gives the consumer increased opportunities to complete installation without the typical truck role. Certain manufacturers have the advantage of a recognized presence within the retail market as well as benefits from established relationships with retail vendors, an area that is uncharted territory for most MSOs. In addition, manufacturers have the benefit of their customer database and technical support systems, which are capable of handling daily interaction from consumers.

With competition and increased numbers of hardware suppliers, the price of DOCSIS certified modems will continue to drop, providing an attractive model for the average consumer. Historically, manufacturers have sold their products directly to cable operators. Thus, it once again falls upon the shoulders of MSOs to open the dialogue between themselves, ISPs, retailers and manufacturers to find benefits for each party in establishing retail distribution of broadband services.

So what is the true scenario for the average consumer in the approaching holiday season? In reality, consumers still need to do their homework before they go to their local retail store. Each consumer needs to know which services are available in his area, as well as the configurable requirements of their computer for successful installation of a cable modem. Even with most "service in a box" type promotions, the majority of consumers will get home to find they do not have a cable outlet where their computer is or are lacking the necessary adaptor for installation.

Manufacturers, retailers and MSOs need to work together to inform consumers as well as train salespeople to ensure that customers are not purchasing products that they will be unable to use or that are incomplete. Some progress is already occurring as many manufacturers, as well as ISPs and MSOs, now offer software to help consumers with the installation process. Ultimately, manufacturers who create products that are uncomplicated, efficient and customer-friendly will be the first winners in the move to retail.

If MSOs wish to make use of the additional exposure that retail brings, real discussion needs to begin among all parties on how to make retail availability a mainstream reality. As DSL services increase in availability and telephony companies continue to invest in high-speed Internet service, MSOs find themselves in a race to sign up more and more customers right away. Manufacturers, retailers and MSOs still have the ongoing job of creating products and services that are truly user installable. In the meantime, MSOs must carry the considerable cost of service installations and continue to look for other ways to remove operating costs, such as hardware and modem prices, from their books.

E-mail maggie@bestdata.com

Reference1. Forrester Research