Cable modems get ready for retail

Most cable operators as well as high-speed Net access providers such as Road Runner and @Home point to the retail availability of cable modems as the key to expanding their Internet access services. But there are many details to be worked out before cable operators--most of which are going into the retail market for the first time--will see a spike in high-speed data customers.

By mid-1999, standards-compliant modems are expected to be certified and ready to roll out in stores across the country.

At this week's Western Show industry trade conference, cable operators' eyes lit up when they talked about selling their data services at stores such as Circuit City, CompUSA, and RadioShack.

Few, if any, cable operators want to buy the cable modems and then lease them to customers.

Sure, cable companies--which typically charge an additional $10 per month to lease cable modems to customers--make some money though equipment rentals. But cable companies want to avoid the inevitable depreciation and upgrade costs as technology changes--passing that burden along to the consumers--and they'd like to free up capital for other projects, especially as more users sign on for Internet-over-cable services.

As Tom Hagopian, a vice president at Cablevision, said: "Our goal is to sell the service, not the modem."

But some industry observers say there is still a chasm between cable operators, data providers, and retail stores over how best to market and sell the services to mass consumers.

Industry observers have found that consumers want to try the service in stores first--which means valuable kiosk space and customer service time. Yet retailers are concerned that profit margins are not high enough for cable access services, said Carol Swartz, Motorola's director of marketing for the information and networking group.

"It has to be easy, easy, easy," she said. "The whole process has to be incredibly simple for consumers. And most of us in the cable industry can only talk for about 30 seconds before we start to confuse people."

Some retail chains contend they can't live off selling cable modems alone. Profit margins on cable modems are not high enough to justify the time-consuming task of explaining the technology to users--especially since unit sales volumes are likely to be low for some time.

"The biggest challenge for retailers is developing a business plan that works for everyone," said one retail executive.

Retailers want cable operators to subsidize the cost of the modems and give them a cut, typically 3 percent to 5 percent, of the monthly subscription fees. The model is similar to the way phone companies and direct broadcast satellite operators sell their services through retail channels.

Cable operators, however, don't like that arrangement.

The issue of branding also comes into play, Swartz said. Consumers may be confused by multiple brands, where the cable operators, modem makers, service providers, and retail outlets all want to be affiliated with the product--making some off-the-shelf cable modem packages look more like stock cars, rather than advanced communications devices.

But Paula Giancola, the national sales director for the high-speed MediaOne Express service, said, "There is an energy among retailers about doing something sooner rather than later."

In September, MediaOne launched a retail pilot program in 17 Circuit City stores in the Boston area. @Home also has a similar off-the-shelf offering.

Giancola said having the service available in stores increases brand awareness, allows consumers to try the product before they buy, and adds credibility to a technology still in its infancy.

"People might not actually buy the modem, but they'll lease it because they've seen it in the marketplace," she said.