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Telecom's New Frontier

Cox Communications is poised to change the game with 'quad play'


by Steffen Smith

October 29, 2009

It's been a year since Sandy Springs-based Cox Communications announced plans for a core-market launch of wireless voice and data services - a move that could potentially be a game-changing shift in the hyper-competitive world of telecom.

By adding mobile to its existing bundle of cable, Internet and wireline services, Cox will roll out the elusive "quadruple play," offering cell phone service as well as wireless broadband access for laptops, smart phones and other mobile devices in its existing cable service area - some 23 million potential customers, primarily across the Southeast and Southwest.

COXlogoAnd that means the potential for some seriously cool technology.

Like when you're lounging in front of the 50-inch flat screen watching the game and suddenly remember that take-home project on your desk back in Midtown. With so-called "converged content," you can catch the rest of the action on your iPhone or Blackberry on the MARTA ride to the office. Or, stuck in traffic, you can program a DVR across town with your cell phone so you don't miss a second of Dancing With the Stars.

"It really boils down to seamless transferability of service between your three different screens: TV, computer and handheld," says Martin Creaner, president and CTO of TM Forum, a 700-plus member communications industry association. "It's about giving customers the content they want, when they want and where they want it."

Moore's Law Gone Wild

According to Cox, a quadruple play is simply the next logical evolution of the digital lifestyle. Pat Esser, president of Cox Communications, says that wireless service will be a "key driver" to Cox's future growth as wireless communications enters its next generation.

And in a case of Moore's Law gone wild, the generations are passing at blinding speed. It wasn't all that long ago that a triple play (the bundling of high-speed Internet, digital TV and telephone over a single broadband connection) was the Holy Grail. Today, the quad play is the new prize.

Creating Stickier Customers

Gee-whiz factor aside, bundling services is a proven draw for notoriously fickle communications customers. They love the convenience of a single monthly bill from a single provider at an attractive bundled price. In fact, more than 60 percent of customers now buy multiple services from Cox, with one-third subscribing to all three products.

"You can't debate the economics of it," says Rick Mallon, vice president of product management at Toronto-based Sigma Systems, which provides back-office support for Cox. "There's easily a 20 to 30 percent reduction in price when subscribers purchase services in a bundle."

The Cost vs. Return Conundrum

Yet, not all in the industry are convinced.

"It sounds like a great marketing idea to lock in customers," says Creaner, "but you are very likely going to bundle it at a discount, so it remains to be seen whether it cannibalizes the revenue that you could have received for the individual services. When you look at the complete cost of bundling against revenue growth, my suspicion is that profitability is quite elusive."

"It's more of a loyalty play than a revenue play," notes Derek Kerton, principal analyst of The Kerton Group. "It's about loyalty and getting people locked into more services so you don't lose them."

To be fair, Cox already has a "big pipe" into homes. With more than six million customers, it is the third largest cable operator in the United States.

Cox tapped into Sprint Nextel's nationwide network to speed its entry into the wireless market and, at the same time, is busy building its own wireless network for additional market launches in 2009, including testing LTE (long term evolution) based technology to create a fourth generation wireless broadband network.

"Cox could have a decided advantage because it gets to build a network from scratch that accommodates wireless bandwidth requirements," says Jim Nevelle, CEO of Sorrento Networks, an optical networking company in Denver. "Also, their existing networks are very fiber intensive to start with in order to carry video. So their network will be capable right off the bat of handling large bandwidth loads with no interruptions."

Further proof that the company is all-in on the quad play: Cox will open its own mobile application storefront. Not a bad move considering Apple's wildly popular App Store racked up one billion downloads in its first nine months - everything from the dubious "iFart Mobile" application to a $2.95 Barista app with all the steps for creating the perfect espresso macchiato.

What's the Frequency, Kenneth?

Cox bellied up to the bar during the FCC's 700 MHz auction last year, dropping more than $304 million on 22 licenses for wireless spectrum that was freed up when U.S. TV stations converted to digital broadcasts. Industry watchers speculate that this will be the last big swath of spectrum to be available for the foreseeable future.

The airwaves, in the low-frequency 700 MHz band, are particularly desirable because they allow signals to carry massive data loads, travel far and easily penetrate buildings - allowing license holders to cut costs by installing fewer antennas.

Lessons in Leverage

Cox is certainly no stranger to innovation - or leverage. In fact, it was the first company to introduce the voice, video and data triple-play bundle to the marketplace in 1997. And taking a cue from the old Fuller Brush Man, it has capitalized on the power of leverage: Get a foot firmly in the door and the job is half done. Here, Cox made its name with cable service. When the company came knocking with telephone service and, later, Internet, the lady of the house was only too happy to open the door.

Now, Cox is incredibly well positioned to leverage cable, telephone and Internet customers into wireless customers.

"My impression is that they are one step ahead of the posse," says the TM Forum's Martin Creaner. Indeed, cable operators like Cox have a significant advantage over both satellite and telecom competition because they control all aspects of their quad-play offerings, while telecoms must cobble together systems to add video services to their lineups.

Citing competitive concerns, Cox has remained tight-lipped regarding timing and content of its offering. But it's safe to say that the potential is there for a real game-changer. "When we entered the landline phone business in 1997, there were plenty of skeptics of a cable company providing telephone service," says Stephen Bye, Cox's vice president of wireless. "Clearly, we proved those skeptics wrong when we demonstrated consumers' willingness to bundle services with one provider and our ability to get customers to trust us with their communications services."


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