slower speed tiers toentice more stubborn dialup users
While most MSOs these days are using big bandwidth to cream their telco broadband data rivals, some are also delving into the other end of the speed spectrum, quietly offering a low-data rate tier to catch reluctant dial-up customers or subscribers in danger of leaving altogether.
That's the case for Charter Communications Inc., which has been working with data tiers longer than most of its peers. Charter's original tiers supplied downstream throughputs of 256 kilobits per second, 768 kbps and 1.5 Megabits per second, but it recently revamped that lineup to better fit a maturing market.
"Most of our customers came on at that lower speed tier that we were offering, and frankly, the price on that back then was high, just generally speaking, compared to what they were paying for dial-up," she says. "So it was a leap for them just to get into 256 (kbps)."
Charter has now boiled that down to two tiers, offering a high 3 Mbps down/256 kbps up tier at $39.99–a lower price than the original middle tier "in the hopes that if they come into the category, they come into that tier," Hedges says.
For those who don't, Charter's new low tier offers 384 kbps downstream, 128 kbps upstream at $29.99–the same price as the original 256 kbps service. Upping the speed while keeping the price the same was a better enticement to existing customers to make the switch, Hedges says.
But don't look for a big promotional push behind the low-speed service to new customers. Charter plans to offer the low-speed service only as a fallback for prospective customers who still resist an Internet bill higher than $30 monthly.
"Those dial-up customers, I don't believe, are sitting around and waiting for speeds to go to three or four or five Meg. They are sitting around waiting for the price to come down," Hedges says. "So for us to have a price point in there that is amenable to a dial-up customer–they can get into broadband and can try it out at that low-speed tier, which is not that much of an increase from what they are paying in dial-up and a second phone line–we can give them a little taste of broadband."
Much the same strategy is at work for Shaw Cable, which introduced its High-Speed Lite in February 2002, offering 128 kbps down/64 kbps up for $24.95. With the Canadian MSO's cable modem penetration now at 45 percent of homes passed, it is looking to expand to a group of customers who aren't so easy to convince, according to Greg Pultz, Shaw's vice president of Internet services.
"We were obviously very successful in converting a high percentage of those customers to our broadband high-speed base, but what we found is that there is a segment of the market that is price sensitive, as well as somewhat service sensitive," he says. "The reason why they are still on dial-up is that is the level of service that fits their needs at this point in time."
Cox Communications Inc. also was looking to gain a foothold with price-conscious customers when it debuted its new lineup of data tiers six months ago. Its Value low-speed tier offers symmetrical 128 kbps for $24.95 if the customer takes Cox's video or voice services, or $29.95 if the customer chooses only high-speed data. The middle tier is Cox's original Preferred 3 Mbps/256 kbps service for $39.95 (or $49.95 unbundled), and a Premium service offers 4 Mbps/384 kbps at $79.95 (or $89.95 unbundled).
As with other operators, Cox is looking to the Value data tier to cast a wider subscriber net, but it also wants to strengthen its longstanding bundling strategy.
"We've all read the research, and we all understand the price inelasticity of this next wave of customers," Gorman says. "What this is allowing us to do is get operationalized with offering several different flavors of high-speed Internet, being prepared to offer the customers the utmost in choice and convenience when it comes to high-speed Internet offerings–not only just in high speed but also of course to bundle those with other Cox services."Trojan horse?
Then there's Mediacom Communications, which may use a low data tier as a Trojan horse for its cable telephony push.
Up to now, Mediacom has offered single residential service for $42.95 plus $3 for modem rental, and it recently increased the speed to 3 Mbps down/256 kbps upstream in most of its markets. But that may change with Mediacom's plans for cable telephony service, according to John Pascarelli, executive vice president of operations.
"Now as we are starting to look at getting our voice product out into the marketplace, we see getting the modem into the home in a different light," he says. "We are looking at this as a way to expedite the distribution beyond our growth rates today."
Mediacom is using Thomasville, Ga. and Grand Rapids, Minn. as test markets for a 128 kbps down/64 kbps up offering priced at $22.95, plus a $3 modem charge. At just 128 kbps, the offering emphasizes economy over bandwidth.
"These customers are more concerned about price, so let's first and foremost design a product that is better than dial-up–it's easier to use and it is more convenient–and then work on the price point and maybe be less concerned about just the speed," says J.R. Waldon, vice president of Mediacom Online.
Penetration is also a key factor the test will examine. Given the fact that 60 percent of homes nationwide are taking some kind of Internet service, and Mediacom's own broadband penetration is at about 10 percent, it means about 50 percent of the households in its markets are getting Internet service from some other provider.
"We think that is a reasonable market to consider, and especially considering our voice product is coming in down the road," Pascarelli says.
So far, so good. Mediacom has seen increased sales, and there have been cases where customers who were going to leave the service because of price have decided to opt for the low-speed tier instead.The low-data rate lows
But other cable operators are purposefully avoiding low data tiers, worrying that such offerings will wallop average revenue per user levels and lure away customers from upper tiers.
While Shaw doesn't release a breakdown of Broadband Lite's financial or subscriber performance, Pultz says so far that shift hasn't occurred. Lower-speed services do bring in less money per user, but Pultz argues there is a counterbalance in the fact Lite customers cost less to maintain.
"For one, they use less bandwidth, and two, as with any Internet service offering, the expectation for technical support [is lower]. Although we provide all of those levels of support, they call less," he notes.
Shaw also is helped out in customer acquisition costs for High-Speed Lite by the fact it has begun converting from a proprietary system to a DOCSIS platform. Proprietary modems are turned in when customers move or discontinue service "and therefore this provides a very good home for our proprietary modems going forward in the future," Pultz says.
Nor is Shaw seeing signs that Broadband Lite is cannibalizing customers from its higher-data tier.
"We found that it actually works as a bit of a catch, that if someone comes on at a high-speed service and their economic scene changes–they get laid off or they need to cut back on their costs–we've got a product," Pultz says. "They don't have to go back to dial-up."
Cox is seeing a similar pattern after just six months of tiered data in the field. While he couldn't release exact figures, Gorman said results so far indicate the mid-level, flagship tier is still preferred among new customers, and the Value tier is not eroding the subscriber ranks in the upper tiers.
"The best way I can describe it is, there is an extremely small [number] of customers who are willing to go from drinking out of a fire hose to a soda straw," he says. "We really categorize cannibalization as a non-issue."
There is also some evidence the reverse is occurring, with customers moving up to higher-speed tiers. Shaw's customer surveys indicate Lite customers like the always-on feature "and they like the fact that they are now with an ISP–they are always thinking about upgrading to high-speed. Most people want to go up to high-speed, and it is something they have anticipated that they will want to do in the future," Pultz says. "So they don't have to change their e-mail addresses or do anything further to upgrade. They just call, and we reprovision the modem, and in a few minutes they are up and running on high-speed."
As with others, Cox’s data promotion does
not call attention to its low-speed offering.
Reaction to Charter's new tiers, meanwhile, may be temporarily blurred because of a current promotion. From September through March, Charter dialed up the throughput for all of its cable modem customers to 2 Mbps, giving them a taste of the new upper tier product in hopes they will stay. Starting April 1, the MSO bumped the speed of the mainline Pipeline service to 3 Mbps.
Nevertheless, "for our new customers that we have brought on since September when we introduced these two new speed tiers–70 percent of new customers are taking the 3 Meg product," Hedges says.
That may be encouraging news for Mediacom, which will be carefully watching the customer movement trends during its low-speed data trials.
"We're not looking to trade off our existing growth with this," Pascarelli says. "Our Mediacom Online business has been growing steadily for us for a number of quarters–it's really a great story for the company. What we are seeing is this is maybe a safety net for some customers who just can't afford the $46 right now. And if they are going to pay $20 to somebody, why not us?"