Charter Tiers High-Speed Data Offering

Charter Communications Inc.'s successful drive to finish 2000 with 1 million digital set-top subscribers was one of cable's top marketing stories of the year.

Now the company's $24.95-a-month pricing for 256 kilobit per second (kbps) cable-modem service stands to put it in a groundbreaking position on the data side.

Aside from Charter, no cable operator has so fully embraced such a low-price data service.

The $24.95 pricing is now commonplace across most of Charter's systems and has helped the company reach 252,000 subscribers. According to sources at the MSO, upwards of 45 percent of Charter modem subscribers take the 256 kbps service.

Another 45 percent take the 512 kbps service (priced between $30 and $35, depending on the region), while the balance take service at speeds of 768 kbps or higher.

Analysts believe the lower price will draw in value-conscious subscribers. Charter's tiered pricing and tiered bandwidth service also could serve as a model for other MSOs, once the arrival of Data Over Cable Service Interface Specification (DOCSIS) 1.1 modems makes it easier to offer tiered services.

"They are marketing the 256K (kbps) service aggressively," said Richard Greenfield, principal cable analyst at Goldman Sachs & Co. "It's an excellent way to drive penetration and target the value segment."

The pricing is very attractive to the America Online Inc. customer who's already paying $21.95, said Greenfield. And the lower fee doesn't hurt Charter's economics, because it's driving penetration and because the $24.95 is really only an $5 discount from the $29.95 cost of service without a modem rental, he added. "It's not a dramatic reduction if you drive penetration."

Other MSOs aren't rushing to follow Charter's lead. "We feel there is no need to discount this product to drive business," Comcast Corp. cable-unit president Steven Burke told analysts on a recent conference call.

Charter launched the $24.95 service after testing various price points last year, according to Shahid Butt, Charter's director of Internet and portal strategy.

"The objective was to increase penetration," Butt said. Charter's research found price and fear of technology were two chief reasons consumers didn't want cable-modem service.

Although the margins are slimmer at $24.95, Butt said "the overall penetration and volume growth was sufficient to meet cash-flow objectives."

Charter tested the $24.95 price in three cities, then shared the results within the MSO. "We outlined the value and benefits to the regions," he said.

Each region decides what service levels it wants to offer, Butt said. In some affluent areas, consumers don't mind paying for higher priced services, he said. Pricing also depends on what backbone provider is used in that region-Excite@Home Corp., EarthLink Inc. or High Speed Access Corp.

Charter positions the $24.95 against other narrowband offerings, such as AOL's $21.95 monthly service. The pitch: Buy Charter Pipeline for $24.95, keep AOL's $9.95 content service if you want, and you'll pay about $35 a month, Butt said.

That's the same as paying AOL $21.95, plus another $15 for an extra phone line-but for the same price and content, the customer receives faster service, Butt said. "It's an interesting promotion.People love it.

"You have to understand why the consumer is coming over" from narrowband, said Butt. Some care about speed more than price, and vice versa, he said.

CSRs push different packages depending the individual consumer's hot buttons.

Charter uses software stored on the cable-modem termination system (CMTS) to provision various levels of service. "It's all in how the modem is provisioned," said Charter director of high-speed data Arnie Troy.

Each modem has an identification number that is stored in a database at the CMTS. That database sends out a configuration file every time any modem is turned on and used.

The configuration file contains an operating protocol that runs the modem, based on whether the subscriber has signed up for 256, 512 or 768 kbps service, Troy explained. Charter uses modems from Motorola Broadband Communications Sector, 3Com Corp., Thomson Consumer Electronics, Toshiba America Consumer Products and Com21 Inc.

If a consumer changes service levels, from 256 to 512 kpbs, several things must happen, Troy said. A CSR needs to set up a new rate card in the billing system. Then the CMTS creates a new configuration file.

The subscriber would cycle the power in the modem, which would automatically request a new configuration file for the new service level.

Troy says Charter manages its bandwidth and places no limitations on typical residential modem uses, including the downloading of movies. But customers can't resell Charter bandwidth or operate servers from their homes.

DOCSIS 1.1 modems due this summer will give Charter quality-of-service flexibility. "Those modems will differentiate between voice, e-mail and movie traffic," Troy said.

Data packets from an Internet-protocol phone call that go through that modem will have top priority, so there is no latency in the phone conversation. Electronic mail and video traffic can be routed with minor delays that aren't disruptive to the user.

The DOCSIS 1.1 modems also will allow Charter to offer bandwidth-on-demand, to the point of offering "hourly" bandwidth rates. Troy says Charter knows which modem users spend the most time online, and can upsell them higher service levels accordingly.

Charter boasts 252,000 cable-modem subscribers across a 3.1 million home data-ready base. The MSO expects to double the subscriber counts this year and to have 75 percent of its 6.3 million homes data-ready by year-end.