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SBC Hits Cox Right in the Bundle

If imitation is the sincerest form of flattery, Cox Communications Inc.'s systems in California's Orange and San Diego counties should feel quite honored right now.

SBC Communications Inc. has mimicked the operator's bundling strategy, dropping the price of its digital-subscriber line service for consumers who buy the product in a bundle with telephone service. But the offer is only good in the two regions in which Cox operates, the telephone company confirmed.

"A battle for broadband customers is being waged, resulting in some of the best DSL prices in the United States," trumpeted an SBC media advisory.

Targets the 'savvy'

The special promotion is aimed at Cox, but the two regions were also selected because they are populated by "very broadband savvy" consumers who will recognize the value of the offer, said SBC spokesman Brian Brokowski.

New customers in the two regions can sign up for SBC Yahoo! DSL for $24.95 per month. That's a substantial discount from the rate charged to current customers, who pay $49.95 for the high-speed data service.

But to qualify for that rate, the subscriber must commit to a one-year contract, and bundle it with a $31.95 package of telephone service and features. There are also one-time modem purchase-and-shipping fees, totaling $111.95. The fee for early termination is $200.

SBC representatives call the offer an "aggressive response" to modem-fee hikes by Cox. The MSO's stand-alone modem subscription is $39.95, plus $10 per month in equipment-rental fees.

But the cable operator has forged retail partnerships with stores, including Circuit City. Consumers who sign up for Internet service at those stores can get a cable modem at a low price or for free, depending on the retailer.

If a Cox customer buys high-speed data with other products, such as Cox San Diego's "Cox Combo," data service costs $29.95, plus $10 if the equipment is rented.

SBC's strategy, launched in early March, has lead to a battle of statistics between the two companies, with each declaring supremacy in the value-pricing war.

$443 cheaper?

SBC provided a price-comparison grid to demonstrate its argument that its bundled customers would spend $895.55 over the course of one year. SBC tallied the one-year price for Cox service at $1,338.88.

But the SBC numbers placed the price of cable service within Cox's ledger, and that's a product SBC doesn't offer in its bundle. The telco noted that consumers must take cable service to get Cox's lowest telephone and high-speed data prices.

When the price of cable is removed from the equation, Cox's telephone-data charge is $599.28 a year, versus $794.75 for SBC's comparable product.

Cable marketers note that their local calling zone is also larger than that offered by SBC.

"This is an illusion of a price break. [Consumers] are forced to take a bunch of other stuff that more than recovers the discount," said Cox San Diego vice president of marketing Art Reynolds.

Cox reads fine print

Cox executives are confident SBC's offer won't erode the operator's subscriber base. Even if consumers perceive a savings, a Cox customer would face a possible change of phone number, a change of e-mail address and conversion to a slower product. SBC's product offers speeds of 1.5 Megabits per second upstream, 128 Kilobits per second downstream, versus Cox's 3 Mbps upstream, 256 Kbps downstream rate.

Kip Simonson, the vice president of marketing for Cox's Orange County cluster who last week agreed to become vice president of sales and marketing at Charter Communications Inc., also noted a differential in SBC's fine print.

If the consumer fails at an attempt to install DSL, SBC will schedule a service call — for $150 to $200. Cox will bail out a technology washout for $69, Simonson said.

Cable executives said they would not counter-market to point out their criticism of SBC's pricing message.

"We don't want to pay for their marketing," said Simonson.

Instead, customer-service representatives have been provided with pricing information so they can provide Cox's spin to any inquring customer.

SBC appears to be experimenting with ways to rev up its data business. Moody's Investors Service recently downgraded SBC's senior unsecured long-term ratings from A1 to Aa3. Among other factors, Moody's cited "increased business risk" and impaired growth in the segment due to the soft economy.

Short-term gains

"I don't think it's a good strategy," said Lindsay Schroth, broadband technologies analyst for The Yankee Group, of SBC's bundling and discounting efforts. The telco is going for short-term gains instead of a better product idea, she added.

"SBC should look at bundling with layered content, doing deals with content providers," she said. "Cox has a great reputation and good penetration with their cable strategy. A price cut is not the big difference [between the two]. SBC should focus on new services and customer care."

Meanwhile, Simonson wondered if SBC itself might be confusing or alienating customers.

The telco is running television ads in the Los Angeles market, which includes Orange County, offering DSL for $34.95 a month, contingent on a one-year commitment. That offer waives the activation fee but includes $12.95 to ship the self-install kit. Also, no phone package is required.

"That's actually better than the offer here," Simonson said.

As for SBC's strategy, Brokowski said the Cox-targeted bundle would be offered through the end of April. If it is successful, SBC could repeat the strategy in other markets, he said.