Roll 'em out | Time Warner Cable's Portland division makes strides using southern Maine as a test market

In 1997, before the Internet economy had inflated to bubble proportions and bandwidth was a household term, high-speed Internet access via the same cable that piped television channels like HBO into millions of suburban homes seemed like a distant concept. That year, Entrepreneur magazine opined at length about the future of high-speed Internet access, and said Internet access through cable modems, while a promising concept, was "not yet ready for prime time." But nobody, it seems, bothered to convey that gloomy forecast to the workers at the Portland division of Time Warner Cable.

In April 1997, TWC of Maine already was busy rolling out its high-speed cable Internet service, Road Runner, to its southern Maine customers. The greater Portland market was the fourth U.S. market to launch Road Runner, shortly after Time Warner divisions in Binghamton, N.Y., Columbus, Ohio and San Diego, Calif. started offering it to customers. "It was a challenge, but it was an exciting challenge," says Gary Stack, vice president of marketing at the Portland division and a 27-year TWC of Maine veteran. "Very few of our employees even knew what the Internet was. When customers saw the difference between broadband and dial-up, it was nothing but awe."

For employees like Stack, early-stage rollouts like Road Runner have become par for the course, as TWC has relied heavily on the Portland division in recent years to act as a test market for newly launched products and services. Customers in southern Maine have had the opportunity to become early adopters of TWC's new technology, getting a crack at Road Runner and other services months or sometimes years before they're offered in other markets. Meanwhile, TWC employees have been charged with blazing a trail for the rest of the company, literally writing the book on how to roll out a particular product in terms of marketing, customer service and engineering.

But why Portland? What is it about TWC's southern Maine market that makes it so attractive as a test market for new technology? For one thing, the Portland division of Time Warner has posted some of the highest penetration rates in the company, according to Keith Burkley, the Portland division president of TWC, for Road Runner and digital phone, an Internet-based residential telephone service the company launched here in early 2003. But besides a tradition of innovation and a willing customer base, marketing experts unaffiliated with Time Warner routinely praise Portland as a great market to test new products and services, largely because of the attractive demographics of the region. In greater Portland, affluent households are separated from lower-income households by at most a few miles, and the regional economy is populated with small to large businesses. "Portland is a nice cross-section of the American population," says Jeanne Munger, associate professor of marketing at the University of Southern Maine.

National firms including Cincinnati-based Procter & Gamble have long taken advantage of those demographics, using Portland as a test market for a variety of consumer products and services, according to Sue-Ellen McClain, president of McClain Marketing Group in Portland. (P&G spokesperson Heather Valento, who says Portland is "very representative of U.S. buying patterns," confirmed that the greater Portland area has played host to many of the firm's new product initiatives, but declined to identify those products.) In 2000, Internet firm Listen.com tested an online music delivery system in Portland, and the next year The Boston Beer Co. launched its Sam Adams Light beer in Portland and Providence, R.I.

"Avon, Applebees, you name it; they've all used Portland," says MaryEllen FitzGerald, president of Critical Insights, a market research firm in Portland. McClain agrees: "It's just one of those known facts that Portland is a good test market. The size is right; it's not too big, not too small."

The Rossetti effect
Besides the region's attractive demographics, Portland's stature among TWC divisions also isn't hurt by the fact that Carl Rossetti has gone big time. Rossetti, who ran the Portland division in the 1980s and early 1990s when it was still known as American Television & Communications, now serves as Time Warner Cable's executive vice president of new business development and president of voice services. He is credited with fostering a culture of innovation within the Portland office ˆ— with the end goal of higher revenues ˆ— and many long-time employees have worked to carry on that tradition. "Carl was always challenging us to come up with ideas that would create incremental revenue," says Burkley, who was the head of engineering during Rossetti's tenure in Maine. "Carl's constant push at getting us to come up with new business ideas just became ingrained in the culture here. It just stuck."

As head of ATC in the 1980s, Rossetti, who was unavailable for comment on this story, was in charge of delivering a handful of satellite and cable channels to roughly 40,000 subscribers in the greater Portland area. It was a comfortable market, says Burkley, because ATC didn't face any competition. But by the mid-80s the company already had tapped the bulk of its potential market and was seeing flat subscriber growth. At that time, ATC's management structure was rejiggered, giving each division more autonomy over its own operations. As a result of the combination between ATC's decentralization and the static revenue growth, Rossetti put a challenge to his staff: Figure out new ways to generate revenue.

Rossetti began selling ESPN baseball caps and CNN T-shirts, and stocked retail merchandise like televisions and remote controls in the lobby of the division's Johnson Street offices. He even toyed with the idea of delivering pizza or putting a lottery machine in the lobby. "He basically said, 'We're not just cable anymore,'" says Stack. "He said, 'Let's get into other lines of business. We have the employees, we have the trucks.'"

Since Rossetti left Maine in 1995, incremental revenue from sales of T-shirts and televisions has been replaced by a host of new services. TWC's Portland division boasts more than 110,000 cable subscribers in Maine, which is roughly 77% of the addressable market in southern Maine, according to Burkley. What's more, 55,000 subscribers have signed up for the company's Road Runner service and, in less than two years, nearly 25,000 have opted for the company's digital phone offering. In all three areas, Burkley says, the Portland division is among the leading performers within Time Warner. Gail Huhtamaki, general manager of customer operations in Portland, says the division has had great success selling additional services to customers. "It's just like McDonald's: 'Do you want an apple pie with that?'" she says. "It worked for them and it works for us. Maybe [the customers] pass the first time, but then they hear their friends talking about it."

Though TWC corporate spokesman Keith Cocozza was unavailable to comment on the Portland division's contribution to company-wide operations, Burkley says the strong customer response to new services rolled out by his division has served TWC well over the years. And the biggest value, he says, has been the division's role as a test market, which has helped TWC corporate executives better understand how new services will be embraced when they're rolled out to the whole nation ˆ— from common glitches that engineers and technicians need to handle to routine billing and product questions that customer service representatives inevitably will field.

For example, when TWC's digital phone service was launched in Portland in early 2003 ˆ— the company's first consumer trial nationwide ˆ— technicians found that the Internet-based phone lines sometimes ran into interference from home security systems or microwave ovens. "There are very few times where things get terribly broken, but when you're on the bleeding edge there are always kinks to work out," says Huhtamaki.

One of the major kinks that needed working out was the fact that the digital phone service zapped phone calls over cable lines using what's known as voice-over-Internet-protocol. Data transmission typically involves reassembling scattered data once it reaches its destination. But packets of voice data can't be disassembled and then put back together.
That led Chris Graviss, vice president of engineering and IT at TWC in Portland, to develop standard practices for VoIP transmission, which include carefully monitoring network capacity to make sure data doesn't have to be rebuilt on the receiving end. "You can't re-create a sentence while someone's talking," he says. "We never get to 70% capacity [on our network] before we're adding more processing power and bandwidth. Seventy percent is when the alarm is going off."

From a marketing perspective, the Portland trial of digital phone also suggested that customers don't care about the technology behind the service as long as they get a dial tone. So TWC plays down that part of digital phone; its advertisements make no mention of VoIP or other techno-speak. "We've made it a point to not really burden the customer with how we deliver the service," says Missy Mans, vice president and general manager of digital phone at TWC Portland. "They just want to be able to make phone calls."

Finding a niche
Being on the front line of product rollouts such as Road Runner and digital phone has helped the Portland division of TWC cement its status as an integral part of Time Warner's corporate structure. (Portland isn't the only TWC test market ˆ— Austin, Texas and Hawaii also have become favorites of the top brass.) It's also meant good news for the division's bottom line. Though Burkley won't disclose revenue figures, he says the division has benefited tremendously from its competitive advantage as an innovator. As the first firm to offer services like high-speed Internet and digital phone in the southern Maine market, says Burkley, the Portland TWC division was able to capture a significant portion of the addressable market.

Burkley points to the rollout of high-speed Internet access in 1997 as a defining moment for the division. (Burkley was working for TWC in Denver for much of the 90s, but he kept in contact with the Portland division as he worked with the group designing TWC's hybrid/fiber coaxial networks, which were instrumental to Road Runner rollouts. He returned to Maine in 2002.) At the time, the industry's focus on broadband was limited largely to residential customers, but the Portland TWC division also wanted to push Road Runner's commercial applications. "Most of the cable industry stayed away from the enterprise market, but we put together a plan to offer higher-speed services and direct fiber to companies like Unum and National Semiconductor," says Burkley.

According to Burkley, his division didn't receive any guidance from corporate headquarters. ("There weren't even any ideas on the table from corporate or the rest of the country," he says.) Instead, TWC's Portland engineers contacted vendors like San Jose, Calif.-based Cisco Systems and developed a network that could accommodate what at that time was a huge amount of bandwidth. The Portland division these days serves nearly 150 large companies with direct high-speed service, and Burkley says "several thousand" more businesses subscribe to the commercial version of Road Runner. "That was probably the most risky, but it ended up being highly successful and was used as a model all over Time Warner Cable," says Burkley. "A lot of what got rolled out across the country was right from the Portland, Maine playbook." Burkley adds that commercial Road Runner has experienced varying degrees of success across the country, but that on average it has been "very successful."

Like Carl Rossetti's challenge to his employees back in the 1980s, the Portland division of TWC has consistently been pushing to boost revenue by hooking more customers with additional services. A conversation with Graviss, the vice president of engineering and IT, turns into a laundry list of new products he and his staff are getting ready to launch to TWC customers in southern Maine ˆ— networked digital video recorders, indexed video-on-demand, mobile video.

Graviss this summer hopes to roll out a new feature that integrates the digital cable and digital phone services, allowing subscribers to see caller ID information on their television screens. Don't want to be disturbed? One click of your cable remote sends the call to your voice mail box. "The bottom line is that these things let us appeal to a wider audience base," he says. "Maybe someone is a runner and doesn't watch a lot of TV, but now there's more content for them. It gets us into the niche audience, and brings revenue from these people that wouldn't be that interested in watching reruns of 'Gilligan's Island.'"