Battleground of the telecoms
Qwest is going all out to maintain its phone-customer
dominance over competitors Cox and Comcast, especially
Comcast. The battle lines are drawn in six major metro
markets that analysts say are critical to Qwest's future.
By Andy Vuong, Staff Writer
Sunday, December 17, 2006
Portland, OR -- With 2.5 million residents in its metro
area, Portland is among the frontline battlegrounds in
Qwest's fight against intensifying competition from cable
On a recent afternoon, retired bus driver Harold Alt,
clenching a trademark rich blue Qwest flier, inquired about
the company's services at one of its cellphone kiosks at the
Lloyd Center mall.
Behind him was a Comcast kiosk that features the company's
recently launched cellphone service -- not its cable-TV and
high-speed Internet -- as the marquee product display.
The wireless service, sold through a joint venture with
Sprint Nextel and currently only available in Portland and
Boston, is the final piece of a quadruple-play bundle of
products that includes cable-TV, Internet and Comcast's
fast-growing digital home phone service.
For Alt, 64, the choice is easy.
"I don't like Comcast," he said. "I have a problem with
Comcast always raising their rates."
Qwest is doing all it can to hammer that point, and any
other perceived weaknesses about cable competitors, into the
minds of consumers as it aggressively fights to hold ground
in key metropolitan markets.
The company is going beyond TV commercials, such as the
"Jack My Price Up" ads. It's sending letters directly to
cable customers. The company's rank-and-file, and top
executives, are going door-to-door, occasionally on their
The company shaped its battle plan with lessons learned from
its struggles with cable-TV provider Cox Communications in
the Omaha market.
Cox rolled out its circuit-switched phone service, the same
technology used by the Baby Bells, in January 1998. By
mid-2004, Qwest conceded that it was no longer the dominant
local phone provider in Omaha.
"We have absolutely taken the lessons learned in Omaha and
said, 'OK, what do we need to do different?"' said Judy
Peppler, Qwest's Oregon president.
Denver-based Qwest is the incumbent local phone service
provider in 14 Western and Midwestern states.
Much of the company's efforts and marketing dollars, amid
the fierce competition, is focused on six densely populated
metro areas that analysts say are critical to the company's
Along with Portland, the battleground markets are Denver,
Minneapolis, Phoenix, Salt Lake City and Seattle. Qwest
competes against Cox in Phoenix, and Comcast in the others.
In Qwest's territory, Comcast has used Portland as its
launching pad for cellphone service, and prior to that, its
bundle of cable, high-speed Internet and digital voice
Combined, the six markets have nearly 21 million residents,
8.4 million households and thousands of potential business
"They are some of the most profitable assets that Qwest has
right now," said Chris King, an analyst with Stifel Nicolaus.
"Given their balance sheet, given how important every dollar
of free cash flow is to Qwest, certainly their ability to
fend off cable competition in those markets is going to be
more important than the other (incumbent phone companies) in
any of their markets."
No video initiative
Qwest, saddled with about $14 billion in debt, is the only
Baby Bell not undertaking a major video initiative to
counter the cable companies' attack on its phone business.
But Qwest isn't standing still.
"When Cox first went into Omaha, they were offering
effectively a triple play," said Jonathan Chaplin, an
analyst with JP Morgan. "And Qwest wasn't really doing that
In May 2005, Qwest launched its quadruple-play bundle in
Denver and other markets, ahead of Comcast's launch of its
triple play. Qwest resells DirecTV satellite-TV service and
Sprint cellphone service with its landline and high-speed
Without disclosing specific details, Qwest vice president of
marketing Stephanie Copeland said the company's marketing
dollars are "heavy" in the six key metro markets.
But beyond spending millions of dollars promoting the
bundles, the company has undertaken an aggressive and unique
Coined internally as "quick strike," the program calls for
each of the company's local executives to identify
market-specific campaigns to counterattack a competitive
"(Qwest chief executive) Dick Notebaert has really said to
each state and the state presidents, in particular, 'You're
responsible for what's going on in your local area. We
can't have a one-size-fits-all marketing approach,"' said
John Stanoch, Qwest's Minnesota president.
In May, Qwest tried to capitalize on Comcast's takeover of
several hundred thousand Time Warner customers in the
Minneapolis area, Stanoch said.
Qwest sent letters to the customers, warning them that such
takeovers could lead to service interruptions and
overcharges on bills.
"This upcoming takeover is a perfect opportunity to avoid
the Comcast shuffle and consider other options," Stanoch
wrote in the letter.
For its part, Comcast says the transition went smoothly.
"From Comcast's perspective, we are heavily promoting our
product without disparaging our competitors," said Comcast
spokeswoman Cindy Parsons. "We are focused on telling our
customers about our products and the added value of our
Philadelphia-based Comcast is the nation's largest cable
company with 24 million subscribers, including 800,000 in
Qwest's strategy includes telling employees to take the
"That's really what we're trying to do here ... localize the
competition and say to all of our employees, 'Hey this is
personal, this is jobs, this is our company,"' said Peppler,
Qwest's top executive in Oregon. "It's been phenomenal.
They've adopted neighborhoods and gone and hung door hangers
on their own time."
Peppler has set up a specific e-mail address for employees
to send tips about what competitors are doing in her state.
"We get a steady stream of information on any direct mail
they get from competitors in the marketplace so we're really
able to run ads if we need to," Peppler said.
In Washington, the company's state president has gone
door-to-door in 11 communities, said spokeswoman Kate
As part of the community outreach, Qwest has increased its
sponsorship agreements with schools and local sports teams.
It recently signed a presenting sponsorship with the
Portland LumberJax lacrosse team, among others.
In Arizona, Qwest has a deal with Fox Sports Net to be the
official sponsor of pre- and post-game shows of the Phoenix
Suns, Phoenix Coyotes and the Arizona Diamondbacks. The
deal allows Qwest to get its presence into the homes of Cox
subscribers. Cox won't sell ad space to Qwest directly,
said Qwest spokesman Jeff Mirasola.
Cox gains in Phoenix
Atlanta-based Cox launched phone service in Phoenix in
August 1998. Though it hasn't gained market share as
rapidly in the area as it did in Omaha, it is putting a dent
in Qwest. In 2002, Qwest had more access lines in Arizona,
with 2.82 million, than in any other state. That number
dropped to 2.2 million in the third quarter of this year,
second in Qwest territory behind Colorado's 2.4 million.
Qwest doesn't break its access lines out by metro areas.
Cox spokesman David Grabert said the company has been
successful in winning customers because it did its homework.
"We learned how to provide a reliable service," he said.
As part of its battle plan, Qwest has focused on improving
customer service -- long an Achilles' heel -- since
Notebaert took over as chief executive in June 2002.
In Oregon, the number of complaints filed with the state
public utility commission has dropped from 2,866 in 2002 to
677 so far this year.
In Colorado, Qwest changed its work system so that its
technicians would contact customers on the same day of their
service call and make an exact appointment rather than
leaving them with a four-hour time window.
Qwest chief financial officer Oren Shaffer said recently
that the company's access line losses, which accelerated
during the third quarter, should start to decelerate "not
very far from now."
However, it's still early in the battle, particularly in
markets where Qwest competes against Comcast.
Comcast didn't launch the triple-play bundle in Qwest
territory until May. It spent time developing its digital
phone product, which uses Voice over Internet Protocol
technology, rather than aggressively marketing the
circuit-switched technology it acquired from AT&T Broadband
"They were slower to deploy and more cautious about their
deployment than providers like Cablevision and Time Warner,"
said Stephan Beckert, director of research for
TeleGeography, a Washington, D.C.-based research firm.
Subscribers take off
Comcast began offering digital phone service nationally in
the first quarter of 2005, finishing the quarter with 7,000
subscribers, according to TeleGeography. At the end of the
third quarter of this year, that number was at 1.3 million.
Comcast chief executive Brian Roberts said in a recent
interview with The Miami Herald that the company's digital
voice product "has taken off and exceeded our expectations."
"We gave guidance to Wall Street that we would sell about a
million in phones this year, and we upped that guidance
after six months by 40 or 50 percent," Roberts said. "And,
when people take phone, most of them also take our
Comcast doesn't divulge its digital voice subscribers by
"Comcast seems to be doing well," Beckert said. "They're
picking up subscribers at a rapid clip."
Among them is Portland resident Stan Pernula, who switched
from Qwest phone service to Comcast three months ago. He
said he was lured by Comcast's triple-play ads.
And now with Comcast also offering cellphone service in the
area, Pernula said he would consider adding the service "if
the price is right."
The service, which allows customers to view some Comcast
cable channels on the cellphone, starts at $33 a month for
200 anytime minutes.
The company hasn't disclosed when the product will roll out
in Denver and other markets.
Staff writer Andy Vuong
can be reached at 303-954-1209 or
Qwest is the incumbent phone company. Cox and Comcast are
the primary cable-TV providers.
Comcast and Cox are trying to lure phone customers from
Qwest as cable-TV subscriber growth has curtailed recently.
Qwest has countered by bundling DirecTV satellite-TV service
with phone and Internet services.
Six cities and more than 8 million customers
TWO BATTLEGROUND CITIES
Population: 2.5 million; 1 million households
Qwest's access line decline in Oregon from 2002-2006: 14
Comcast presence in state: 580,000 cable-TV subscribers
Triple-play launched: May 2006
Other: Comcast launched cellphone service, using Sprint
Nextel's network, in the area three weeks ago. Qwest has
resold Sprint's cellphone service since 2003.
Population: 3.6 million; 1.5 million households
Qwest's access line decline in Colorado from 2002-2006: 14
Comcast presence in state: 800,000 cable-TV subscribers
Triple-play launched: June 2006
Other: Comcast hasn't announced when it will offer the
quadruple play with cellphone service in the area. Qwest
has offered the quadruple play in the market since May 2005.