Expanding Cable Telephony Is New Kid on SBC’s Block
Wally Roberts is in telephone heaven, a longtime gadget guy taking advantage of everything that budding competition in the telecommunications market has to offer.
His San Clemente condominium has two telephone lines from different carriers, two cellular phones from a third company and cheap long-distance service provided by yet another firm.
His various telecommunications devices include enough fancy features -- from call waiting to a sophisticated privacy manager to screen calls -- to stupefy even the savviest techie.
“I’ve probably got too much,” said Roberts, a serious-minded retired airline pilot, as he surveyed a small cluster of phones atop his computer.
It’s a problem that most consumers can only dream of -- at least as of now. For many Californians, there is still only one company that provides local phone service -- either SBC Communications Inc. in 79% of the state or Verizon Communications Inc. in most of the rest. Long-distance carriers AT&T; Corp. and WorldCom Inc. have grabbed small chunks of the local market by leasing SBC lines at wholesale prices, but even that level of competition could evaporate if regulators allow SBC to raise its wholesale rates.
Cable telephony, meanwhile, is still in its infancy. Nationwide, cable phone service accounted for only 1% of all telephone lines at the end of June, according to data from the Federal Communications Commission.
For Roberts and others in south Orange County, though, the situation is different -- and, depending on how things shake out, it provides an unusual glimpse of the choices that consumers across California and the nation may enjoy in coming years.
Roberts’ five-story condo building overlooking the Pacific Ocean is served by Cox Communications Inc., one of two major cable television providers moving aggressively into the phone business.
As of the end of September, Cox provided telephone service for 30% of the 304,000 households it has wired in 14 south Orange County cities, where nearly all the homes are hooked up. It has a similar share in the San Diego County communities it serves.
Roberts, 66, loves the clash among companies. An avowed “Internet junkie,” he prowls the telephone companies’ Web sites to stay up to date on the latest equipment and the best deals.
His telephone technology habits began decades ago. “I was an airline pilot, so I had too much time on my hands,” he said.
Working on technical safety issues for the Air Line Pilots Assn. since the mid-1970s, Roberts has needed sophisticated features such as three-way calling, call waiting, caller ID and call forwarding at his home.
Around the same time, he met a PacBell engineer on jury duty and delved into the industry’s technologies. He became something of a gadfly on telephone issues, successfully challenging phone companies’ actions twice at the state Public Utilities Commission.
As a consumer on the cutting edge, Roberts experienced the misery of trying to use things that don’t always work. One bout of frustration led him to abandon the old GTE Corp. and pay extra to extend a local Pacific Bell line to his home.
Despite the court-ordered break-up of AT&T; in 1984, telephone service was still essentially a monopoly. Pacific Bell became one of the seven Baby Bells offering local service in their respective territories, while AT&T; dominated the long-distance market.
The Telecommunications Act of 1996 was aimed at boosting local competition. One provision freed cable companies and wireless operators, among others, to sell local phone service. Unlike conventional wireline carriers, which are regulated by the state PUC, cable and wireless companies can set their own prices.
Cox leapt in. Within a year, the company upgraded cable equipment in Aliso Viejo and began selling phone service. By January 1999, San Clemente was wired for phone service as well.
Roberts switched both his lines to the cable company soon after. He was fed up with what he described as SBC billing errors and what he termed an “arrogant” attitude at its parent company, which is based in San Antonio.
He also found the advantages of Cox irresistible:
For a one-time charge of $10, he was able to keep his two telephone numbers and get a wider local calling area than he had with SBC.
He gets a monthly discount on his second phone line, paying $9.99 for the first and $4.99 for the second. Under state regulations, SBC charges $10.69 for each line.
He receives a single monthly bill for his cable TV, high-speed cable modem and telephone service, all of which come over one cable wire. Cox also provides a variety of discounts for subscribing to multiple services.
“There’s no question Cox has been successful,” conceded Frank Mona, executive director of consumer marketing for SBC California. A major factor, he said, is that Cox owns its own equipment and doesn’t lease anything from SBC.
Mona considered Cox his main competitor until last May when the PUC lowered the wholesale rates that AT&T; and other competitors must pay SBC to lease lines and equipment. Since then, competitors have been using those rates to lure away thousands of SBC customers a week.
Through the second half of the year, SBC focused on seeking PUC approval to raise those rates. The company also pushed to get permission to offer long-distance service in California by showing that it allows competition in its home territory.
The company, though, was not so distracted that it ignored Cox, Mona said.
SBC showed that it could bundle services, too. On one bill, consumers can pay for high-speed Internet access, phone service and wireless service from Cingular Wireless, which is 60% owned by SBC.
SBC also layered on phone features to dazzle customers like Roberts. He was so enthralled with its “privacy manager” that he switched one of his lines back to SBC to use for incoming calls. Working in concert with other features, privacy manager won’t put through calls from people who conceal their identity unless the caller speaks his name so the system can announce it to the customer.
“It’s brought telemarketing calls down to nearly nothing,” Roberts said. “Their lines are always blocked, and they won’t stay on the phone long enough to be announced.”
Just to make sure, he also bought two gadgets -- one for each line -- that work with caller ID to audibly announce the number of the person calling.
Roberts also has loaded his SBC line with what the company calls the “phone solution.” The package includes typical items such as call waiting and caller ID, plus a panoply of lesser-known features. Among them: priority ringing, which assigns distinctive ring tones to calls from specific numbers, and selective call forwarding, which forwards calls from up to 10 pre-programmed numbers.
Together with an inside wire maintenance plan, 60 minutes of local toll calls, a message center and remote access call forwarding, Roberts pays $43.90 a month for his SBC line. With taxes, surcharges and access fees, his latest bill came to $51.59, including 12 cents in long-distance calls.
The Cox line, which he uses mainly for his fax machine and for outgoing calls, has fewer features, primarily because he doesn’t need them. Besides caller ID and call forwarding, he pays extra for an unlisted number and for remote access to call forwarding, which allows him to turn that feature on or off while he’s on the road.
Cox doesn’t charge for cable wire maintenance, so that line costs $19.32 a month. His last bill came to $25.18 with taxes, surcharges and access fees.
For now, the choices offered to Roberts are available to few customers around the country. Cox and the AT&T; Broadband business acquired last month by Comcast Corp. are the only major cable telephony providers in the nation, though a number of firms have small operations.
Comcast has 1.3 million cable phone customers, but the Philadelphia-based company is focusing more on building basic cable TV subscriptions and renovating the system than it is on adding new phone customers.
Cox has more than 651,000 cable telephone customers nationwide, and is gunning for more to broaden its product line beyond television. The Atlanta company has upgraded equipment that serves 3.9 million of its 6.4 million basic cable subscribers to allow for telephone service. Its long-term strategy will rely on new systems and consumer services in a bid to make phone and high-speed modem operations as strong as the TV business.
“If you look at a lot of cable companies, 90% of their revenues” come from TV, said David Pugliese, vice president of Cox’s product management and marketing. “By next year, less than 70% of our revenue will come from” there.
Cox also is stepping up its efforts to sell cable modem and phone services to the business market. Among its major customers are the Tinker and Langley Air Force bases and the AT&T; Wireless call center in Oklahoma City.
Cox’s telephone business has helped make it a darling on Wall Street, noted analyst F. Drake Johnstone at Davenport & Co. in Richmond, Va. Its stock rose 10% this month to $31.31 on Friday, though it is still off its 52-week high of $40.05 last March.
Telephone revenue is growing 60% a year, and the profit margin is a huge 40%, Johnstone said. By contrast, AT&T; Broadband’s telephone business has operated far less efficiently, generating only a 5% profit margin, he said.
But growth is finite, Cox executives say. The company can only offer package deals in the communities it serves. It probably will have to acquire other cable companies at some point to get a bigger share of the market.
In the meantime, Pugliese and other Cox executives say they have more than enough work ahead of them in selling phone service to existing cable customers.
Roberts, for one, stressed that he would give Cox even more of his business if it matched SBC on certain services. “If Cox offered something like privacy manager,” he said, “I’d switch the line back.”
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Competition calling
Wally Roberts is taking advantage of one of the few places where telephone carriers compete using their own equipment. The two lines to his small San Clemente condominium are split between Baby Bell carrier SBC Communications and cable company Cox Communications. Here’s a breakdown of his bills for each line:
SBC Communications line:
Phone Solution package:$39.95*
(See note for explanation of services)
Privacy manager:3.00
Remote call forwarding:0.95
Basic bill:43.90
Total$51.59
(Includes taxes, surcharges and access fees)
Cox Communications line:
Basic service:$9.99
Caller ID:6.15
Call forwarding:2.00
Remote call forwarding:0.90
Unlisted number:0.28
Basic bill:19.32
Total: $25.18
(Includes taxes, surcharges and access fees)
*SBC package saves 38% over separately priced features. Flat-rate service is $10.69. Privacy manager is discounted $1 for the bundle. Total bill includes 12 cents in local toll calls.
Note: SBC Phone Solution package consists of: flat-rate local service; caller ID; call waiting; call waiting ID; call return; call forwarding; select call forwarding; call screening; priority ringing; repeat dialing; three-way calling; speed calling; Pacific Bell WirePro, a wire maintenance plan for inside wire and jacks; Pacific Bell Saver 60; and a message center voicemail system.
Source: Times research
