Cable Operators

Gorilla Guerillas

3/03/2006 7:06 PM Eastern

Last year, Time Warner Cable suspected that a local satellite retailer in Southern California was hijacking its customers.

Through a lawyer, the cable-system operator hired a private investigator. The retired Internal Revenue Service agent checked out a toll-free number that directory assistance was giving to callers who asked for Time Warner.

The number took callers to LA Activations, a retailer of DirecTV Inc. satellite dishes and services. Time Warner Cable filed suit, alleging false advertising and trademark infringement.

LA Activations’ questionable “customer-acquisition” methods are a sign of the times, as billion-dollar gorillas of the cable, satellite and telephone industries adopt guerilla tactics while wooing every last customer they can find to sign up for their competing video services, or seek to change the rules of battle.

As they try to influence the opinions of customers and lawmakers across the country, these gorillas employ marketing tactics that at times obscure their identities. Their political maneuverings also include sponsoring purportedly “grassroots” organizations that are supposed to be trying to affect public policy in an unbiased way.

The stakes are high. Phone companies have invested billions of dollars to lay fiber across the country, and need customers in droves. To help them compete, they are seeking legislation that lets them obtain statewide franchises to offer TV services, instead of town by town.

Cable companies, which are successfully taking away local phone customers with their own voice services, are lobbying against these efforts. And satellite companies are the only video-service providers that compete against every phone and cable company, anywhere in the country, at all times, for subscribers.

The result: Sometimes attacks occur out in the open, but the identity of those staging them — or their intent — is masked. Those practices range from Verizon Communications Inc.’s recruitment of its retirees to write letters on its behalf to campaign for a statewide video franchise in New Jersey; to the creation of artificial citizens’ groups, intended to influence public and policymaker opinions; to the placement of links on search engines that try to direct traffic from one competitor to another.

HOT LINKS

Take that last example: Internet search engines are now an active guerilla-marketing battleground for video distributors. Currently, a Google search on the term “cable TV” triggers the display of sponsored links for cable’s two archrivals, Dish Network and DirecTV.

Now, the cable industry wants to play in that game. The Cable & Telecommunications Association for Marketing is hoping to secure one of those national sponsored links for cable.

The group has commissioned a trial this spring, with 14 cable operators participating. They will test the cost-effectiveness of buying a national sponsored link for “cable TV” on search engines that will direct users to their local cable operator.

“Assuming it’s successful, we will then move on and make this a regular part of our marketing plan,” CTAM senior vice president Seth Morrison said.

The guerilla-like tactics have been particularly prevalent in states such as New Jersey and New York, where the stakes are highest. In New Jersey, Kansas, Missouri and South Carolina, AT&T and Verizon have been vigorously lobbying for laws permitting them to get statewide franchises for their start-up video services, known as U-Verse and FiOS TV, respectively, even as they are negotiating and receiving local franchises.

Verizon has local franchises in California, Texas, Florida, Virginia and New York. AT&T is negotiating to place infrastructure for its Internet protocol TV service even in California cities where it doesn’t have a franchise, so far.

“It’s only going to get more and more aggressive, because the stakes are so high,” said Mike Smith, managing director of Stratecast Partners, a communications-industry consulting firm.

Cable has been the guerilla fighter in New York state, where Verizon has won video franchises in three towns. Cablevision Systems Corp. was the incumbent cable operator, and its trade group, the Cable Television and Telecommunications Association of New York, sent out fliers that skewered officials in one of those villages, Massapequa Park.

Brochures in Nyack, N.Y., warned residents that Verizon’s “ugly” refrigerator-sized fiber control cabinets could wind up in front of their homes.

In Woburn, Mass., a Verizon contractor who was going door-to-door last month distributing pamphlets for the telco’s TV service told police that a man — who works for RCN Corp., a competing video provider — asked him for one of the fliers. The contractor said he then noticed that the RCN employee had a pile of the Verizon pamphlets in the back seat of his car.

RCN — primarily a cable-system overbuilder, with 410,000 subscribers in seven states and the District of Columbia — doesn’t condone such behavior and is investigating the police report, according to Richard Ramlall, the company’s senior vice president of strategic and internal affairs.

Ramlall said the alleged incident involves an RCN sales rep who has a reputation for integrity, and who had RCN’s brochures in his car.

While questioning the veracity of the report, he said, “If it proves to be true, the company will take the necessary, appropriate action.”

FAKING IT

Some guerrilla tactics are wholly benign; nothing more than very local, untraditional marketing. Verizon, for instance, uses what it calls “guerilla media” to try to grab consumers’ attention, according to Brian Angiolet, director of marketing for FiOS Internet and TV.

For example, Verizon places ads for its video service on pizza boxes, Chinese food containers and coasters and glasses in bars. The telco also has a fleet of Hummers adorned with its colors, which it sends out to towns where it’s starting to offer video service.

But nontraditional marketing efforts can go awry. The phone company got a rash of bad press this January after a Verizon-sponsored Web site called www.tvchoicenj.com sent out letters and e-mail messages from residents to local officials in North Caldwell, Northvale and other places in New Jersey, without authorization from those residents.

Verizon’s New Jersey spokesman, Rich Young, attributed the misdirected missives to a computer mistake.

The trickiest part of these tactics may be the nurturing of “Astroturf”’ public-interest groups. These are “fake grassroots” organizations, backed by corporations or public-relations firms, set up to win favor from legislators or potential customers.

FreedomWorks (www.freedomworks.org), which claims full-time staff in 10 states and 700,000 “grassroots volunteers nationwide,’’ for instance, is found on SourceWatch, a list of groups and agencies that lobby on behalf of corporations. SourceWatch is an initiative of the Center for Media and Democracy in Madison, Wis., a non-profit group that tracks how public relations affects democracy.

Greenwood, Ind.-based Consumers for Cable Choice (www.consumers4choice.org) calls itself an alliance of consumer organizations with members throughout the United States. But it has confirmed it has received “significant” donations from Verizon and the former SBC Communications Inc. (now AT&T Inc.).

And the Internet Innovation Alliance (www.internetinnovation.org), which says it is a “broad-based coalition of business and nonprofit organizations,” lists AT&T as one of its primary sponsors.

ACTION ALERTS

Of late, FreedomWorks and the Internet Innovation Alliance have often been the first to alert the local media to bills pending in their states, and to offer their pro-reform, pro-telco views on the legislation.

As soon as a bill to authorize state franchising of cable operators was introduced in Indiana, FreedomWorks posted an action alert on its Web site, asking members if they were “tired of high prices” from cable companies. The site provided State House phone numbers and links to electronically generate pro-change letters to their appropriate legislator.

Most of FreedomWorks’ financial support comes in increments of less than $50 from those 700,000 “grassroots volunteers,” said spokesman Adam Brandon.

FreedomWorks accepts donations from corporations, like most issue groups, he said. But he declined to give details on its corporate donors. He added that FreedomWorks lobbies on issues that do not involve telecommunications, as well.

The National Cable & Telecommunications Association is concerned enough about these groups that it commissioned its ad agency, Strategic Perceptions Inc., to design ads that ran in Indiana — but are destined for other battleground states — branding these groups puppets of the telephone companies. The ads direct consumers to www.phoneybaloney.net, where the cable industry propounds its arguments.

“Now we know how cable spends its rate-hike money,” Verizon executive director of media relations David Fish said. “This is a distraction from the real issue, consumer video choice, and it’s a distraction they intend. Apparently it’s not working, though, because Indiana and other places where this matter comes to a vote usually results in a choice.”

Rob Stoddard, the NCTA’s senior vice president for communications and public affairs, said that phony-baloney site is exposing “front groups that are being funded by the big Bells, and people should understand who they are dealing with any time one of these groups comes knocking on the door.”

The NCTA does not make its backing of the site immediately obvious. A disclaimer, identifying the site as a product of the cable industry, appears only if the visitor scrolls to the bottom of the Web page. The notice then appears prominently.

Stoddard stressed that nonetheless, the site is identified on its front page as backed by the NCTA.

In New Jersey, where the legislature is considering a statewide franchising proposal. Verizon sponsors www.tvchoicenj.com. The Web site promotes the speed and choices of Verizon’s FiOS TV services and asks visitors to fax or mail letters to legislators.

At the site, Verizon urges its retirees to write letters to mayors and legislators, call talk-radio show hosts, attend public rallies and draft letters to editors of local newspapers.

Mark Nevins, spokesman for the New Jersey Cable Telecommunications Association, noted that pro-Verizon letters to local newspapers began appearing once the bill was introduced in mid-January. The letters “demonstrate a level of understanding of the cable debate that you don’t normally see in average citizens.”

Rich Young, New Jersey spokesman for Verizon, called the letter-writing effort a legitimate tactic.

Verizon retirees and employees “are constituents, they pay taxes and they vote,” Young said. “They’re concerned about their future. Just because they work here is irrelevant. They are saddled with annual 6% [cable] rate hikes just like everyone else.”

The New Jersey Cable Telecommunications Association, meanwhile, has activated its own Web site, www.keepitlocalnj.com. It promotes cable operators’ points: that Verizon-sponsored bills in the legislature will result in increased franchise fees — a tax on consumers, in effect —and, if franchising is made statewide, local control will go away.

But, unlike the Verizon site, which is prominently labeled with the name of its backer, consumers must want to actively look for, find and click a “who we are” link to determine that keepitlocalnj.com is the property of the NJCTA.

No matter that all the letter-writing and e-mailing may be for naught.

“Lawmakers are a pretty sophisticated group, and they tend to know what’s real and trumped up,” said Gerard Waldron, a partner at the Washington, D.C., law firm of Covington & Burling. “When you get 1,000 postcards that say the identical words, that’s not as persuasive as having 10 people stop you as you walk through the mall.”

Pro-telco groups also are using polls to drum up the appearance of public support for quickly allowing phone companies to enter the video business. Cable incumbents question the objectivity of those surveys since some pollsters are being paid $60 a day by the groups.

Pollsters for Consumers for Cable Choice are handing out “ballots” at northern New Jersey commuter rail stations asking consumers if they want a change from their current providers of TV services.

The pollsters were recruited via a classified ad in November on Craigslist, the online billboard. The ad said it sought to solicit pollsters to support the group’s goal of a “pro-consumer market for cable subscribers that will stimulate price, choice and service options.”

Rachel Holland, director of New Jersey Consumers for Cable Choice, defended the ad, stating she had just joined C4CC.

“I’m only one person and I needed help,” she said. Since then, she’s found supporters at local churches.

PUTTING THE HEAT ON

LA Activations’ alleged modus operandi was to obtain 800-numbers under fictitious names like “Time Warne” and “Time Warned.” So callers asking for Time Warner Cable might mistakenly be given a toll-free listing that belonged to the DirecTV dealer.

In February, LA Activations agreed to terminate its questionable 800-number listing. The retailer’s lawyer, James Stalter, said he couldn’t comment on the merits of Time Warner’s suit or LA Activations defense. But he said the satellite retailer is working with the cable operator to settle the matter without going to trial.

“Clearly, the heat is on, in terms of the competitive messaging,” said Joe Rooney, senior vice president of marketing for Cox Communications Inc.

So far, the Atlanta-based cable system operator has been spared from seeing its own potential customers “slammed” — hijacked, over the phone — by a satellite company or any other competitor the way Time Warner has.

But Cox sends out many “cease-and-desist” letters to rivals for making deceptive claims in their ads, regarding their price comparisons to cable, for example, Rooney said.

NEXT WEEK: Tangling in Two States

September