City Provides Battleground for Cable Competitors

It’s one of the few markets in the country where customers have a choice in cable TV service--a town where cable operators must offer more for less in the battle to win subscribers.

But in this affluent, very wired community of gates and groomed lawns, cable perks--such as digital pictures, Internet modems and fiber-optic nodes--are a bit ho-hum. To the company with the pet rocks go the spoils.

Fake rocks, actually. They cover the big, ugly cable boxes that dot neighborhoods and come in a choice of gray, brown or sandstone to match your landscaping needs.

Insiders jokingly use the “pet rock” nickname from an old fad, but this 1990s version indicates how serious cable companies are about direct competition and how far they will go to please the customer.

Telephone company GTE offered pet rocks and a lot more to customers in Thousand Oaks, one of two markets in the country where GTE has begun competing with traditional cable companies.

Just 15 months and hundreds of pet rocks later, the upstart has grabbed nearly half of the town’s cable business from Tele-Communications Inc., or TCI, which not long ago had Thousand Oaks virtually to itself. And residents are enjoying not only better service but the unprecedented luxury of choice.

“It’s not a pretty picture for TCI. People will switch just to switch,” said senior cable analyst Sharon Armbrust of Paul Kagan Associates in Carmel, a company that monitors the communications industry. “But GTE is losing potfuls of money putting in a new cable system.”

Entering direct cable competition was a daunting task for GTE, which had to dig up streets at a rate of 1,000 feet a day--costing $300 million--to put in new cables. All without any promise of customers.

The cost and risk of the effort is why only a tiny fraction of the nation’s households have a choice of cable providers despite federal laws in 1992 and 1996 meant to foster competition.

While GTE has achieved only mixed results with a similar effort in Florida, the company says its success in Thousand Oaks has far surpassed projections. Since December 1996, GTE’s share of the city’s market has soared from almost nothing to 42% of households, while TCI has dropped from 79% to 44%. And GTE is expanding to Camarillo, Oxnard and other parts of Ventura County.

Whether customers left TCI for new technology or simply because they could is unclear.

TCI started offering digital cable not long after GTE came to town, and says it will soon match GTE’s ability to offer high-speed Internet access as well. While GTE asserts its new system is superior to any upgrade of TCI’s older equipment, both companies do offer nearly the same product at a similar price--about $26 for basic service. Yet TCI’s customer base continues to erode.

“Soon, it’s not going to be about who’s got the best technology. That equals out over time,” said Ron Hummel, head of GTE’s video services. “The winner will be who has the best bond and trust with the customer.”

TCI Blames FCC

TCI blames its enormous losses on government regulations that kept the cable company from matching GTE’s price and package offers until the Federal Communications Commission officially declared Thousand Oaks an area of competition at the start of this year. With a level playing field, TCI says it’s starting to win back customers. But since January, the company has continued to lose customers to GTE at the rate of about 1,000 a month.

“GTE is a formidable foe,” acknowledged TCI spokesman Andrew Johnson. “Are we surprised to see business drop off? No. Are we going to just shut down? No. We’re going to compete, and what makes us happy is that the customer benefits the most from it.”

Cable analyst Armbrust said direct competition is forcing cable companies to focus on pleasing the customer--something she said TCI is taking seriously in an attempt to reach out to the subscribers who may have left out of spite.

“Historically, TCI has done a terrible job running its systems and has suffered a negative reputation,” Armbrust said. “Now they’re trying to recoup.”

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Indeed, complaints to the city over cable service have dropped off dramatically since GTE entered the market, said Thousand Oaks media services coordinator Caroline Milton. Except during GTE’s construction period, when people felt inconvenienced by crews digging in their neighborhood streets, there have been few complaints, she said.

“I’m just not getting any sense of dissatisfaction with any cable company,” Milton said. “Competition has certainly made providers more sensitive to making people happy.”

TCI spokesman Johnson said the company has always treated customers well, but conceded that GTE’s competition has made service an issue. “We’re working on making it better,” he said. “Our crew has stepped it up a notch.”

Cable companies are now into giving customers what they want--even if it doesn’t have much to do with their televisions.

Consider Sunset Hills resident Ira Moskowitz, proud keeper of a new pet rock.

Outside his immaculately landscaped home are two large cable boxes. One was placed next to TCI’s box, after GTE had come through and wired his street.

It took five years for the shrubbery Moskowitz planted around the TCI box to grow high enough to hide it. He wasn’t about to wait this time, stopping the GTE construction crew to demand one of the sandstone rock covers he saw in his parents’ exclusive Westlake neighborhood.

“I spend a lot of money on my lawn and I don’t want to look at any more eyesores,” Moskowitz said.

Moskowitz’s next-door neighbor, Tim Hengst, said he is not dissatisfied with TCI. But, like Moskowitz, he will probably try the competition now that there is a choice. “I’d like to see what else I can get out of this.”

Among the frills that Moskowitz finds attractive is an on-screen menu system that can search for all programs relating to desired subjects and automatically program the VCR. There’s also the interactive Mainstreet system that allows viewers to shop, order tickets and play video games against others on the network.

But in the end, it is price that concerns Moskowitz the most. “I’ll stay if I’m going to get a better rate,” he said.

A Unique Choice

Cable and media analyst Bruce Leichtman of the Boston-based company Yankee Group said Thousand Oaks is unique in having three cable choices: TCI, GTE and Falcon, which had a small territory in the city before the competition began.

Fewer than 5% of the markets nationwide have any direct cable competition, and Leichtman said he doesn’t expect to see much more.

“Nobody makes any money competing in cable,” Leichtman said. “It doesn’t make economic sense to overbuild when it’s so expensive to run cable in a community.”

The average cost is $1,100 for every home, Leichtman said. There are 41,000 households in Thousand Oaks alone, and GTE is already building cable systems in Camarillo and Oxnard with plans to expand throughout Ventura County.

But geography is in GTE’s favor: Because mountains block standard TV signals, Thousand Oaks has a 93% cable subscription rate--far above the average rate of 65%. “They chose a smart market to start,” Leichtman said.

But GTE has been less successful in its other market, Clearwater-St. Petersburg, Fla. In the nearly two years since entering that community, GTE has not made much headway against the established cable company, Time Warner. GTE has wired only 5,000 of 100,000 cable households in the market. But the competition between the two cable providers continues to be fierce.

“GTE will sign someone up and as soon as they leave, a Time Warner truck will pull up to the house and offer a better deal,” Pinellas County cable administrator Dick Williams said. “But GTE keeps working hard to get the subscribers.”

GTE’s Hummel concedes that he was relentless in pushing his product in Thousand Oaks last year. On any given day, he said, there were 30 salespeople going door to door signing up subscribers while 1,200 construction workers dug up streets.

“You could see the cloud of dust rising above Thousand Oaks when you drove over the grade,” Hummel said. “And we did some guerrilla-type marketing, which in some cases was not warmly received.”

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TCI has also been aggressive, running full-page newspaper ads deriding its competitor. One shows a backhoe tearing up a driveway with the words, “Why go through this for cable?”

TCI’s Johnson said his company is ready for the long cable fight and expects to win.

“This is not a 100-meter dash, it’s a marathon. You need to judge it a year from now and a year after that,” Johnson said. “We look forward to the competition. It is fuel for innovation.”

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Battle for Thousand Oaks

GTE has grabbed nearly half of the Thousand Oaks cable-television marekt from TCI of Ventura County since beginning service in the city in late 1996. Falcon Cable’s share of the business continued to decline over the period.

Number of Subscribers (in thousands)

Dec. 1996

Falcon: 4,741

GTE: 969

TCI: 32,620

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Jan-Feb, 1996

Falcon: 3,032

GTE: 17,293

TCI: 18,274

Source: City of Thousand Oaks