Massillon Cable TV: Competitive Market Activity Analysis

1. Competitive Market Activity Robert Gessner President, Massillon Cable TV, Inc.

2. System Information

3. Massillon Cable TV • Two counties in NE Ohio • 68,250 Homes Passed • 46,900 Homes Served • 43,325 Video • 20,675 2-way Digital HH • 14,500 HD HH • 33,325 HSD • 15,075 Phone Lines

4. Massillon Cable TV, Inc. • Two service areas • Consolidated headend • Redundant Fiber Interconnect • All-Digital/No-Analog • Typical HFC Plant • 1,500 plant miles • 750 MHz • Competitors • DBS • AT&T U-Verse (60%) • Embarq (35%) • Frontier/Verizon (5%)

5. System Details

6. Wayne County Wooster Vicinity Stark County Massillon Vicinity Why?!?!

7. Service Area Observations • Wayne County has lower video penetration • The result of more rural demographic and consistently greater activity by satellite providers over the years. • Stark County has lower voice penetration • AT&T is a stronger competitor than Embarq. • AT&T record of consistently better service and lower rates. • Active marketing programs • Aggressive win-back programs • Massive direct mail budget • Widely varying offers • Low-priced, entry-level service. • Embarq has history of lower quality service, higher rates and, until recently, a weak win-back program.

8. Status of Competitors • Stark County has more competition is all service types • AT&T serves most of the Stark County area • Actively building and marketing U-Verse. • High recognition due to AT&T overbuild of Time Warner North East Ohio (1.5 million customers in Cleveland, Akron, Youngstown, Mansfield areas). • Verizon (now Frontier) serves only small portions of Stark County. • Provides data and voice only. • Virtually no competitive presence. • Wayne County has one competitor • Embarq • Provides data and voice only. • Legacy of United Telephone, high rates and moderate service, coupled with the Sprint/Embarq divestiture allowed us a very open market for quite some time. • Recent improvements in Embarq’s efforts.

9. Past Competitive Efforts

10. Past Competitive Efforts • Carefully examined competitive landscape in 2007. Three product lines had different needs: • Video – flat to slightly falling penetration to satellite and the prospect of U-Verse required action to maintain our market share. • Data –clear market leader. We needed to continue to innovate but could do so from a position of strength. • Voice – Growing steadily. Typical bundle marketing was serving us well.

11. Past Competitive Efforts - Video • Battle for video success framed by HD. Competitors were defining the battleground. • Not just DirecTV & Dish. AT&T appearance imminent. • We launched our DTV Rollout to minimize the competitive advantage enjoyed by satellite in terms of the “hot item,” HD. • Obtained an FCC waiver to use integrated security converters. • Developed low-cost DTA (Digital-To-Analog) with no-cost guide. • Deployed 100,000 converters in 10 months. Three free per customer. • Eliminated all analog video signals. • Launched 65+ additional HD signals to reach 95.

12. Past Competitive Efforts - Video • Did it work? Don’t know. • We lost some video customers due to the requirement of a converter on every set. • We don’t know how many customers we did not lose because we launched so much more HD. • Finished our project just as the economic recession became big news (Q3 2009). • Some level of losses to vacant homes, lost jobs, “right sizing” household budgets, etc. • More DTV Rollout Information

13. Past Competitive Efforts - Video • Competitive Difference Trade-Off • Gave up our competitive difference as “whole house” provider in this effort to equalize our video product with satellite in terms of HD. • With analog, consumers have complex decision when considering video providers. • They must ask themselves if they want converters on every set. They can choose different providers depending on the answer. That may be an advantage. • When all digital, consumers no longer have that factor in the decision. They simply ask whose converters I prefer. • Certainly, we can give people converters, but that is not the same thing. • I will return to this topic later.

14. Recent Competitive Efforts - Video • HD/DVR Survey • Recent survey of HD/DVR subs (1,500 responses). • Despite almost 100 HD networks, they want more. • 42% about right, 57% not nearly enough, 1% too many • However, when challenged to name HD nets we don’t carry, they have difficulty doing so. • Perhaps reached point of diminishing returns, but can we stop adding and lose ground in advertising battle?

15. Recent Competitive Efforts - Video • Availability of HD is working • Door-to-door survey team results show customers are aware of broad HD selection even if they don’t use it. • 77% are aware we have 90+ HD networks.

16. Recent Competitive Efforts - Video • Same survey showed very high interest in • Increased DVR storage space • 34% - Always enough storage • 37% - Adequate • 29% - Never enough storage space • Planning launch of 1000GB SATA drives in July. We will sell (rather than rent) for about $100. • MRDVR • No specific question, but very frequently noted among respondents. • Waiting for guide and converter suppliers to offer MRDVR.

17. Recent Competitive Efforts - Video • First Door-To-Door effort • AT&T Inoculation Team • Built upon idea from NPG with very similar results. • Small team that works just ahead of AT&T to assure satisfaction of current customers. • Goal is not sales, but verification that all services are working properly. • About 10% of homes surveyed need a service call. • About 15% have some type of issue resolved at the door (remote control programming, batteries, Internet questions, etc.).

18. Recent Competitive Efforts - Video • AT&T Inoculation Team (cont) • Also using weekly reports to identify area signal issues. • Technical SWAT response to resolve very quickly. • Collecting information about non-subs • Current provider • If/why they left us • Likelihood of remaining with current provider

19. Recent Competitive Efforts - HSD • DOCSIS 3.0 • Transition to all-digital/no-analog created bandwidth to offer DOCSIS 3.0 throughout the system. • Four downstream channels operating in all areas. • Working to recover DOCSIS 1.0 modems before increasing upstream bandwidth to 6.4MHz (underway). • Seen benefits from DOCSIS 3.0 without new, higher bandwidth packages. • Auto load balancing • Multiple return paths • Better performance for all customers. • Planning new DOCSIS 3.0 packages in near future.

20. Recent Competitive Efforts - Voice • Challenge same as for all • Slow sales • Cord cutting • Began commercial sales in early 2009 • Reasonably good results to date. • Question whether we need a cell phone element to make our phone offering complete. • Certainly seems to be the case, but no winning combination of providers.

21. Recent Competitive Efforts - Voice • Stark County • Recognize need for low-cost, entry-level phone service to meet AT&T with competitive offers. • Creates problem of margin due to Sprint partnership. • Testing price points and response rates now.

22. Competitive Efforts - Other • System reliability • Allowed to slip during year we worked on DTV Rollout. • Currently primary operational focus • Deliver higher quality technical signal with greater reliability. • Still do as well as others technically and better from customer service, but need to focus on absolute performance. • New monitoring tools • New workforce distribution • New employee dedication

23. Competitive Efforts - Other • Current enhancement products • Carbonite • Hosted application for off-site backup. • Need to make concerted effort to evaluate • IT Guys • Great service to customers. • Keeps them coming back to our HSD. • Planned enhancement product • Home Security • Broadband based • Hope for new entrants due to “widgets” and other flexibility.

24. My Competitive Crusade Digital TV without a Digital Box

25. Magid Study – October 2009 One-third cite cost and affordability as the primary reasons for not buying HD service. 42% of these sideliners admit that "options are not worth the fees." 34% of HD households do not subscribe to HD programming.

26. HDTV Sets without HD Service • Despite economic recession, consumers replacing analog TV sets at a rapid pace. • A large percentage are choosing not to add any HD programming. • Our experience as an all-digital/no-analog system provides a unique perspective into consumer use of digital TV sets. • We really did not know how they were using HDTV sets until we removed all analog signals.

27. HDTV Sets without HD Service • What are they watching? • Our experience from our DTV Rollout says ANALOG. • Only know this if you have eliminated analog signals. • Poor quality compared to digital signals (satellite or telco) • Why are they watching poor quality analog? • You aren’t making it possible for them to watch digital. • They don’t know how to use their digital TV set and you aren’t teaching them. • What will they do when they notice? • Maybe they will subscribe to your HD service. • Maybe they will switch to another provider because they assume analog quality is the best you can deliver.

28. HDTV Sets without HD Service • Not just replacing the “BIG” TV anymore. • Since Digital TV Transition, all TV sets are digital. • Stand at Wal-Mart, Best Buy or HHGregg and watch the number of small digital TV sets streaming out the door. Many homes have replaced all analog TV sets with digital. • They may equip the “BIG” TV with a converter, but the others are simply connected to the coax system.

29. HDTV Sets without HD Service • Why don’t they have converters. • Magid Study says cost, affordability, options not worth the cost. • Perhaps more factors, especially for AOs. • Cost • Complexity • Comfort • Aesthetics • Convenience • Stubbornness

30. HDTV Sets without HD Service • Wouldn’t it be better if we could deliver digital quality signals to digital TV sets without a converter? • WE CAN! • PSIP – Add small amount of data to SD signals so digital TV sets can easily tune to them. • ClearQAM – Maintain a robust lineup of unencrypted SD signals (including PSIP).

31. Consumer Continuum of Choice

32. Consumer Continuum of Choice • Why is this important? • It is what customers want. • Choice • Value • Friendly • Our HDTV registry already tracks more than 5% of our HHs who use at least one digital TV set without a converter. • Grows every day. • We are the only platform that can deliver it. • Competitive difference • Delivers digital quality at analog price • Affords easy migration path to other services.

33. Consumer Continuum of Choice • My proposal • Primarily status quo • Lifeline & Basic SD signals should be encrypted at the operator’s election. • SD no different than analog in terms of signal quality and need to secure from copying and illegal distribution. • All HD and premium SD signals should be encrypted at the programmer’s election. • Recognizes need to secure HD content from copying and illegal distribution. • Allows programmer flexibility (QVC, HSN)

34. Consumer Continuum of Choice • Needs both PSIP and ClearQAM • PSIP-Program and System Information Protocol • ATSC protocol for metadata in an MPEG stream. • Available and, within limits, works well. • Requires new discipline regarding spectrum utilization • TV compatibility issues • Being resolved with practice. • ClearQAM • Required to maintain robust offering directly to digital TV sets.

35. Consumer Continuum of Choice • Threats • Industry support • Comcast has no interest. • Want to encrypt everything to reduce truck rolls and theft. • Not sure of other MSOs • NCTA unwilling to consider in light of Comcast desire. • Not all systems in same situation as Comcast. • Fully support Comcast’s right to encrypt based on their specific needs. • Problem - Comcast (due to their dominant position) precludes my right to choose not to fully encrypt.

36. Consumer Continuum of Choice • Threats (continued) • Program Networks • No clear reason why they want us to encrypt SD. • Possible negotiating tactic – trade for something else. • Should not put program networks in position to determine our capital expenditures • They don’t care what it costs us to secure their signals. • Consider that you must eventually replace every DTA and non-HD STB with a new one. The cost is staggering. • Probably 3x the number of STBs today.

37. Consumer Continuum of Choice • My crusade may be more like Quixote’s than Lancelot’s, but still worth the attempt. • Creates a competitive difference. • Presents friendly, consumer-oriented options. • Appeals to an activist FCC that will offer many opportunities to raise the issue.

38. QUESTIONS? Robert Gessner Massillon Cable TV, Inc. Email: rbgessner@massilloncabletv.com Voice: 330-833-5509 Fax: 330-833-7522