Upstart RCN faces second Goliath head-on
In its seven years playing David to the Goliaths of Greater Boston cable television, upstart RCN Corp. has managed to secure a robust business, in a few communities grabbing nearly 40 percent of cable television customers while bundling telephone and Internet services.
But what happens when David faces not one but two Goliaths? That's the challenge looming over RCN, as Verizon Communications Inc., the nation's biggest phone company, presses ahead with a $1 billion project to build out new fiber-optic networks in Eastern Massachusetts and parts of nine other states. Starting as soon as this winter, Verizon will be capable of carrying the same triple-play package of voice, video, and data that RCN pioneered and that dominant cable provider Comcast Corp. began offering in the late 1990s.
RCN, which offers service in parts of Boston and 15 suburbs, has always targeted Verizon and its predecessor companies, such as New England Telephone, as an alternative provider of phone service and high-speed Internet access. But Verizon's moves to fight back by offering television service will come just as RCN hopes to be emerging from a Chapter 11 bankruptcy proceeding and shedding $1.2 billion of the debt it racked up building out networks in Boston and a half-dozen other big US metropolitan markets.
"It's a tough environment for RCN," said Patti Reali, a principal telecom analyst with Gartner Dataquest. "The video business is highly saturated, and bundles of telecom and entertainment services are becoming or already are highly competitive."
Verizon has yet to disclose where it will offer television and other services in the Boston market, although five communities that have been hotbeds of Verizon fiber-installation activity are in RCN's service territory: Burlington, Lexington, Natick, Newton, and Woburn.
RCN executives insist they are not fazed. "We welcome more competition as a matter of principle," said company spokesman Barak Bar-Cohen. "They're talking about raising a couple of billions of dollars, stringing cable, and tearing up the streets of America to compete with the incumbent cable provider. It sounds like they're validating the RCN business plan that was launched a decade ago. They're validating everything that we've been talking about."
By the end of last year, the date of its most recent report to the state, RCN had 72,698 cable television subscribers, a figure that includes people who also buy phone or Internet service with television but excludes a small number who use RCN for phone or Internet but not cable television.
In communities including Framingham and Somerville, RCN has more than one-third of all cable television households.
In Lexington, its most successful market, RCN counted 4,067 subscribers to 4,624 for Comcast. But Jeanne Canale, who heads the town cable television advisory committee, said of RCN: "They're feeling heat now. Comcast is doing a lot of PR."
Canale said town officials have had no word from Verizon about its Lexington plans.
Nevertheless, "I think we have plenty of room to grow within the Boston market," Bar-Cohen said. "Every single customer we've ever gotten at RCN we've stolen from another provider."
RCN executives think one of their key strategies for surviving in a three-way battle with Comcast and Verizon will be by bolstering a reputation for superior customer service, backed by J.D. Power and Associates surveys and other rankings.
Salaries for RCN employees depend in part on their ability to deliver "one-time resolution" of service orders and problem calls. At the Wilkes-Barre, Pa., call center that serves Boston and other US markets, all RCN agents are trained to help people with phone, television, or Internet service. Likewise, all of RCN's installers are trained to set up television, phone, and Internet service, both in single-family residences and apartments and frequently to "up-sell" customers to buy more services.
RCN executives say they have a hard time envisioning Verizon workers being as responsive or scrappy. "There's a lot of cultural things that are going to have to change with a large incumbent monopoly phone company to start thinking like owners and entrepreneurs," Bar-Cohen said. "That's what we've already got."
In a survey of Boston-area consumers that RCN commissioned in September, it found that people cited customer service as a far more compelling reason to switch service providers than lower prices or the availability of individual products and services. For example, 18.1 percent said customer service would be their biggest reason to switch cable television providers, compared to 13.5 percent citing a lower price and 3.2 percent citing the availability of innovative services such as high-definition television or digital video recorders.
For Internet service, 16 percent cited customer service, compared to 7.9 percent for price and 3.2 percent for products. RCN today can say it offers the fastest residential broadband connections, at up to 7 megabits per second, but Verizon's new network is built to offer connections of up to 30 megabits per second.
Josh Bernoff, a media analyst with Forrester Research in Cambridge, said RCN probably can boast of an advantage in customer service responsiveness, but still faces a dire outlook. "There's definitely an opening there, but it's not an opening that's permanent," he said.
"Comcast service is improving" relative to RCN, Bernoff said. "They only thing RCN can really offer now is more price breaks. They're in a very difficult situation."
Peter J. Howe can be reached at firstname.lastname@example.org.