Meet the System: Kingwood, Texas

Want to Find the Green? Buy an Upgraded System

By Mavis Scanlon

From afar, one gets the impression that Kingwood, Texas, is a suburban Shangri-la. The two dozen wooded "villages" in the master planned community, built by Exxon subsidiary Friendswood Development Co. in 1971, are linked by miles of greenbelts and manicured hiking trails. Kingwood has been referred to as "the Livable Forest," which, although it may be a marketing term the developers dreamed up to sell homes, is actually not too far from the truth.

Situated about 30 minutes northeast of downtown Houston-the affluent suburb was annexed by the city in 2000-Kingwood and nearby Humble, with its oil industry origins and well-regarded school district, sit on the edge of one of several tracts of land and water that make up Big Thicket National Preserve. This area is otherwise known as "America's biological crossroads," where swamps, forests, plains, pines and desert converge.

When Jerry Kent went looking at Kingwood, however, it wasn't the array of pines, oaks, sycamores, sumacs, sweet gums, hollies, elms, hickories, oaks and black tupelo trees that attracted him. Rather, it was the town's state-of-the-art cable system.

In early 2002, Kent, the former president and CEO of Charter, formed the investment partnership Cequel III. One of Cequel's first deals was buying Classic Communications out of bankruptcy. About a year later, Cequel acquired systems serving 27,000 customers in the Houston area from Canadian operator Shaw, including the former Kingwood Cable. Cebridge Connections, the MSO Cequel formed to run the systems, quickly became the 11th largest cable operator in the country, with 440,000 customers by the time a pending acquisition closes.

Rollout-Ready

Kingwood serves about 16,000 subscribers, or 13% to 14% of the company's customers in its Southern region, which makes it one of Cebridge's most important systems. When Cebridge acquired it, the cable plant had already been upgraded to 750 MHz, with about 125 optical nodes and full standby power to each location. In short, little work had to be done to prep it to roll out advanced services.

"It's kind of a Cadillac-type system in comparison to the average cable system," says Jim Cox, VP, operations for Cebridge's Southern region. Being an affluent bedroom community of Houston hasn't hurt either, he adds. A lot of techie types live or work at home in Kingwood-one reason why the company can tout its 50% penetration rate for its broadband service, which counts 8,000 subs.

"We were one of the forerunners in the Kingwood market of having a high-speed offering," says Cox, noting early HSD tests in the system. "Before a lot of people even knew what high-speed data was or had heard of such a thing as DSL, we were actually bringing it to the market."

Shaw had already deployed high-speed Internet service as well as a home security service that has garnered 6,000 residential customers and about 250 commercial customers. So when Cebridge took control last July, its priorities were to roll out additional advanced services such as high-definition TV and video on demand.

First, though, came a companywide rebranding effort to introduce Cebridge to the community. That effort had to be coordinated throughout the acquired Classic and Shaw properties, says Mary Pat Blake, special assistant to Jerry Kent. Cross-channel promotions, press releases, telemarketing, bill stuffers, newspaper ads and billboards were all incorporated in the marketing campaign. The message: We're here, we are local, we will be bringing you all the new technologies.

"When we were Shaw, the community really didn't see us," says Scott Terrill, marketing manager for Cebridge's Southern region. "We want to be known as a part of the community."

The sale brought stability and focus to the system's employees, notes Cox. Under Shaw, Kingwood had been on the market for over a year.

While customer service is handled locally, Cebridge's marketing operation is managed on a regional basis, and programming negotiations are handled by the corporate office in St. Louis. In shaping a new company from several acquisitions, Cebridge is reviewing its ad sales operations. At the former Classic properties, for example, ad sales were traditionally split between an internal sales force and third parties, such as Cox Media and Mediacom's OnMedia.

"We have some terrific markets that we think we should be opening up that have not had ad sales in the past," says Blake. "It's just a good, thorough, overall strategic review."

Locally, a four-person team in Kingwood pounds the pavements, generating average sales revenue of $51 per subscriber annually. About 60% of that comes from the automotive sector.

Kingwood Wants Its HDTV

As soon as Kingwood residents got wind of the new operator, they began e-mailing the system and Cebridge's corporate offices asking about HDTV, says Pete Abel, VP, corporate communications. Within three to four months, plans were in place to deploy HD. Two weeks after announcing the service, 300 subscribers were on the waiting list.

Included in the HD lineup are NBC, Showtime HD, ESPN HD and Discovery HD Theater. Negotiations with HBO and with the local CBS affiliate are ongoing, according to Cebridge SVP, programming, Patricia McCaskill; one recent HD disappointment was the lack of HD programming on Super Bowl Sunday.

Cebridge is approaching VOD a little more slowly. VOD will be rolled out throughout the company within six to eight months, beginning in Cebridge's larger properties around Houston, Dallas, Little Rock, Ark., and Springfield, Mo., says SVP, engineering, Terry Cordova.

"In a market like Kingwood, the VOD service is going to look very much like what you see at a system like Time Warner or a larger metropolitan operator." (Time Warner Cable is the dominant MSO in Houston; it serves a few hundred customers in Kingwood as well.) But when you move across the Cebridge footprint and the size of the system gets a little smaller, you start making decisions on how large a server you need to have in those particular locations, he adds. "Do you need to have a 5,000-title server, or are you OK with a 1,000-title server?" he asks. (No details are available yet on Cebridge's VOD content and pricing.)

Cebridge's VoIP strategy differs slightly from its bigger brethren. Rather than tackling every aspect of telephony service, Cebridge has tapped Net2Phone to handle back-office responsibility. Net2Phone will purchase and manage the softswitch, and handle local number portability and carrier relationships. Cebridge, meanwhile, will be responsible for customer care and billing. The important thing is maintaining the Cebridge/customer relationship, Cordova says. Cebridge will not offer primary line service initially-the VoIP service will not have 911 capability or directory service-but promises an upgrade to primary line service in the near future.

Fighting Satellite With Top Products

As the new operator in town, Cebridge is focusing on customer retention-no small task these days. Marketing manager Terrill says everyone living in the Houston area is bombarded with ads from satellite rivals. "That being said, I keep coming back to the same theme, that the reputation of what we have built here in Kingwood overrides all those things that you see on a daily basis from our competition," Terrill says.

Adds Jim Cox, "We have always offered a great product, and it's always been at a great price point. We do have [satellite] competition, but it's not nearly in the size or magnitude that you'd see in the average community."

Although the satellite numbers aren't huge in the area served by Cebridge, they have grown in the last year. At the end of 2003, there were 5,832 satellite subscribers in Cebridge's Kingwood service area, according to Media Business Corp.'s Databank, up from 5,478 at the end of 2002. That makes it imperative to stay ahead of the competition and differentiate with services like VOD.

"Don't assume that all that came out of our hide," says Abel. "We definitely have satellite competition-it's what everyone in the cable industry thinks about. But we're definitely holding our own."

DSL is a smaller threat to Cebridge these days, mostly for geographic regions. DSL is only available throughout about 20% of the Cebridge footprint, Abel says, although that may change with telecom companies stepping up investment in their networks.

Smaller operators are typically seen as disadvantaged when it comes to negotiating programming rates, but Cebridge has a skilled hand in industry veteran McCaskill.

"Like everyone in the industry, there are challenges in finding a way to contract negotiations that are win-wins for everybody," says McCaskill, another Charter veteran. "It was the same when I was working for a larger company. There is no doubt that there are issues when you are a smaller company that just can't take advantage of the same volume discounts," she says.

Cebridge participates in the NCTC for about half its contracts "where the size of the overall membership gives us access to similar terms and conditions and rates for those volume based rate cards as the larger players."

Relationships forged over years are also quite important, she adds. Identifying the needs and objectives of the network and the operator allows the two sides to negotiate and come up with contracts that are mutually beneficial. "That makes us competitive and on an equal footing with some of the larger players," she notes.

Cebridge's management team is a crucial part of the equation, she says. One of Kent's goals for Cebridge has been to bring in top management talent to run smaller cable systems. "[Jerry Kent and his partners] recognized that smaller cable operators have not had teams with the management experience in relationships," McCaskill says. A skilled management team makes it easier to compete, she adds.

As a young, small operator with a focus on small systems, Cebridge is just getting into the thick of building itself up. But in Kingwood, at least, the company has a system that could go head-to-head with large systems. That's good for customers, who can access video, data, high-definition, home security services and, soon, video on demand and telephony.

"In cable the buzzword is the triple play," Cox says. "We like to use the buzzword that we are doing the home run."