Cablevision Sets its Sights on the Channel

By Khali Henderson

When you think of leading media and entertainment companies, Cablevision Systems Corp. is sure to come to mind. In addition to its cable TV distribution and programming interests, you probably know the $5 billion entity owns (among other things) Madison Square Garden, the New York Knicks and the Rangers. But you probably didnt know the Bethpage, N.Y.,-based company also is one of the countrys leading telecommunications companies. It ranks No. 13 on the Fortune 500 short list for the segment in 2006. This is pretty incredible for a company with a relatively small footprint, albeit the most densely populated in the country. Cablevision serves the New York metropolitan area, including Long Island, New York City, Westchester County, Connecticut and New Jersey.

So far, the company has achieved its stature in the telecom arena largely on its own steam performance, marketing and direct sales force. But now, executives are looking at the channel to help the company to grow its commercial telecommunications business. The initiative began with the summer 2006 launch of an agent program aimed at selling its new triple-play services to small businesses and is continuing with the February 2007 soft launch of a companion partner program at Optimum Lightpath, the cablecos 17-year-old metro Ethernet subsidiary, which is based in nearby Jericho, N.Y. Uniquely, essential elements like contracts, training and support will be common to both programs.

Such foresight is uncommon among large multidivisional entities and particularly noteworthy for cablecos, which have been slow to engage the channel. Consultant John Macario, president of Savatar Inc., a channel strategy company, says MSOs as a group have a few issues that have been tripping them up on their way to indirect distribution. One issue is decision-making control typically is decentralized. HQ often has a hard time pushing good programs out into the regions, he says. Second, MSOs have never really had a channel and they really dont know how to design good programs, recruit the right partners and engage with the channel to ensure joint success. Finally, right now, most MSOs only offer business broadband, no voice. The broadband products sell easily through their direct sales (at telecenters), so they dont need a channel until theyve got voice/data products.

Against this backdrop, it soon becomes very clear why Cablevision executives have chosen to give the channel a serious shot.

First off, Cablevision doesnt have the hurdle of decentralized decision-making to overcome. Senior management made that a priority a decade ago, says Kevin Potente, vice president of commercial sales. From a sales perspective, we act as a cohesive unit. We have rolled out all of our products and sales tactics evenly across our footprint. Its a really sensible way to manage our business.

Despite its size, the company maintains an entrepreneurial spirit that enables it to create programs where its executives find an imperative need, he adds. The fact of the matter is, industry-wide, I have not seen anything like this from the cable operators perspective, and we are really leading the field as it relates to developing relationships to attack the medium-sized business market opportunity.

Secondly, the company has a voice offering. In summer 2005, the company launched its me-too residential digital voice product using an ATA, which soon began to gain traction with small-business customers.

It became evident at the outset that there were a lot of complexities even at the very low end in the small-business market, says Potente. I knew that as soon as we took the next step beyond the very small business lets say below 20 employees and one to four lines as soon as we started to cross that threshold, we were going to certainly need buy-in from the agent community.

Commercial customers requiring more than four lines tend to run those decisions through vendors that supply their phone systems or network services, he explains.

With the companys product a triple play of digital voice, data and video targeting the very smallest of companies (up to four lines), Potente sought to begin establishing agent relationships in anticipation of moving up-market. He got buy-off from the executive team in fall 2005 and began looking for a channel champion. To consultant Macarios point, Potente understood that he would need to look outside the company to find someone that understood how to build a partner program.

His search led him to Joe Magliulo, an 18-year industry veteran and former CLEC CEO. In 2001, Magliulo founded Xenyn Ltd., a CLEC serving clients in New York and Florida, a business he sold in 2004. Prior to Xenyn, he was the director of alternate sales channels for North American Telecommunications Corp.

Our first interview lasted about four-and-a-half hours. At the end of the interview, I was wondering if I should have paid him for the day, Potente says. Magliulos entrepreneurial spirit and an end-to-end knowledge of the telecom business were appealing to Potente. Because this is new for Cablevision, we had to have someone with a strong entrepreneurial drive and abilities in not only dealing with agents, but understand everything thing from technology to finance all the way through to contracts and legal issues, said Potente.

Magliulo joined the team in October 2005 as director, strategic sales. His first task was to engage agents that already expressed an interest in selling Cablevisions product with a lead-referral program. Optimum Lightpath had a three-year headstart on its parent in this strategy, and has reported success. Both programs pay agents a one-time spiff for leads that turn into sales.

Magliulos mission, however, always was to develop a more comprehensive agent program. In true media company fashion, the endeavor was begun with focus groups of around 100 agents talking about best and worst practices and what they would like to see in the industry, says Magliulo. That input turned into Cablevisions maiden agent program in summer 2006.

Magliulo says the company has tried to build the program from the agents points of view, asking the questions they would ask regarding company stability, support, training and product salability. In polls we take in agent classes, virtually all of the agents sitting in the room are customers. That speaks volumes about the company, he says.

The company began training agents in July and within 30 days began processing orders. This turnaround has held consistent for most of the agencies the company has on-boarded so far a number that in January was around 30.

The sales cycle is fairly quick, he says. The companys products include Optimum Voice for Business, which is $34.95 per line per month for one to three lines and $29.95 per line per month for four to eight lines. The high-speed Internet service, called Optimum Online for Business is $49.95 per month for 15mbps downstream and 2mbps upstream. A boost package, which essentially doubles the available bandwidth, is an additional $14.95 per month.

Uniquely, Cablevision also includes a video option with interactive Optimum, or iO for Business. The package costs about $50 per month for basic channels. While hotels, bars and restaurants are obvious targets, the service also can be sold to other company types, such as doctors offices or car repair shops where customers often wait. It also can be great for financial services firms that follow the company news closely to manage investments.

They can sell it a la carte and oftentimes do. But the packaging is a very compelling story and we find that most sales come through with multiple products, Magliulo says. While its a new play for agents, they are starting to include more video with their orders. One of these is Jim Stiene, president of SBS Computer Service, a provider of IT management services for small businesses. The company also provides data and voice services through providers like Verizon Communications Inc., Broadview Networks Inc. and Cablevision. Stiene, an early customer for the Optimum Online Boost product, originally was part of the lead-referral program for business sales and since become a master agent for Cablevision. He says its common for him to sell the triple play. Were saving them enough money and providing them with faster Internet speeds and they are happy, so I say, Why not take the cable TV? You are still saving $100 a month or whatever, he explains.

Many of the sales start with the data play, which he says is an easy sale since its a no-brainer to choose between an integrated T1 at 768kbps for $200 or a cable connection at 30mbps for $65. Once they switch to the cable modem, he recommends they move at least some of their lines over to the digital voice service to take advantage of the unlimited usage.

If I can offer my client a sound investment, something thats reliable and at a cheaper price, I have to do it. Its my nature; I cant ignore it, he says.

Cablevision expects to evolve its voice product to support a greater number of lines as well as more advanced business functionality. Our next-generation product will deliver our voice service to IP endpoints which includes IP PBXs, IP telephones, and software applications running on the desktop, Potente says. Details of the service and its availability and pricing were not disclosed, but the intention is that the product will evolve to support ever-larger businesses. In Cablevisions comparatively small footprint, the addressable business market is about $6 billion, the company says.

Cablevision also is set to roll out some enhancements to its program in March. The primary change is the addition of silver, gold and platinum tiers of participation. Volumes and compensation were still being decided at press time in early February. Agents earn upfront bounties and residuals on Cablevisions products. Those rates are determined by the volume tier, says Magliulo.

As Cablevision has been working through the first few critical months of its program development, its subsidiary has decided to adopt a similar strategy to further penetrate the commercial market. Matt Grover, Optimum Lightpaths vice president of sales operations one of three sales veeps at the company says its lead-referral program has been successful in aiding the sale of the companys high-capacity services to medium and large businesses and in complementing its direct sales force. Now, he says the company needs to take it to the next level. We want to find those prospects that only consider Optimum Lightpath based on their relationship with certain partners, not on how many commercials we run or how many direct sales people they hear from, explains Grover. Unlike referral partners, these partners would play a far greater role in the sale and as such be eligible for monthly residual payments. Thats really what prompted us to start a formal agent program at Optimum Lightpath.

Under the new program, agents will earn residuals on the total monthly billing of any of Optimum Lightpaths services, such as carrier-grade Ethernet services (e.g. ELAN, E-LINE, etc.), managed routers and firewalls, dedicated Internet access, VPNs, remote access and business continuity services. Optimum Lightpath delivers these services over its own FTTP network extending more than 2,500 route miles (128,000 actual miles) throughout New York, New Jersey and Connecticut. It has lit fiber to more than 2,000 commercial buildings across the tri-state area.

Grover says he plans to hire a director of agent sales by mid-February to grow the program through 2007.

Rolling out a traditional agent program at Optimum Lightpath and Joe rolling it out at Cablevision, thats exciting, says Grover. Its all coming together. From the largest prospect to the smallest prospect, a partner can now bring that business to us.

The end-to-end opportunity prompted the two sales execs to get together not only to share best practices, but to develop some commonalities between the programs, making it easier for partners to sell both.

If you talk to 100 partners, a third of them would probably tell us they want to sell the low-end product, the small business product. Another third of them would probably say, I only want to sell the highend products and services, the Optimum Lightpath products and services. But, then there is going to be a third that wants to sell all of it, says Grover. For the third of them that want to sell across businesses of all sizes, we should have one unified, comprehensive program. Why confuse them?

To that end, Magliulo and Grover have been working together on a common program components. As luck would have it, this was not Magliulos and Grovers first collaboration. A decade earlier, they worked sideby- side at North American Telecommunications where Grover ran sales and Magliulo ran the alternate channel. We have a strong relationship, says Magliulo, noting that level of trust is easing the task.

First, the programs will share a contract; differences in the compensation models become an exhibit or addendum. Sales engineering also will be a joint resource, and channel managers and trainers will be cross-trained in both companies products. When we sign an agent, he will be able to sell any product and be supported by one agent manager, says Magliulo. Conversely, Lightpath will do the same.

Cablevision and Optimum Lightpath also are planning for a common partner portal, which will direct orders through each companys separate provisioning systems. For now, the systems are separate and no date had been set for the combined interface.

It was just a natural evolution that [the programs] should be combined. The market is asking for it in this footprint. Its clear that is the best way to approach this business as a whole, says Magliulo. He adds, new Cablevision agents are confirming the approach, by asking about access to the Optimum Lightpath portfolio.

Grover adds that in addition to making it easier for the partners, the nature of the end users requirements support a cohesive approach. Many sales could include the high-capacity services at a headquarters location with entry-level products at branch and home offices.

In addition, he says, strategically it makes sense for the business units to work together in the marketplace. Its challenging enough, the Verizons, ATTs, PAETECs [and] MetTels are going after the same partners. We shouldnt compete with ourselves, Grover says.

Magliulo agrees: At the end of the day, we are one company.