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Until recently Ameritech Corp. was the biggest telephone company playing in the cable TV sandbox.

That changed dramatically last month when AT&T Corp. consummated its merger with No. 2 cable provider Tele-Communications Inc. and inked a joint venture with Time Warner to offer local phone service to cable subscribers.

Despite being only the 30th biggest cable provider in the country, the Baby Bell's Ameritech New Media subsidiary isn't surrendering.

"We have experience in both video and phone," says VP-Marketing Brad Cumings. "I wouldn't take that for granted."

For all its experience, Ameritech likely will find it increasingly difficult to compete in the cable arena-and other telecommunications providers may hesitate before venturing there.

Simply, the costs of keeping up with giants like AT&T may become prohibitive. Observers wonder if SBC Communications, which is set to acquire Ameritech, is interested in the cable business. SBC has backed out of cable after acquiring phone companies with cable ventures.

"The phone companies are finding that running a video business is a whole different set of issues than running a traditional phone business," says Gary Arlen, president of telecommunications consulting company Arlen Communications. "It's a real challenge."

Ameritech and AT&T have followed dramatically different strategies in breaking into cable. Ameritech has entered markets as a new competitor-"overbuilding"-while AT&T laid out $30 billion for TCI and got an instant cable market.


Since its launch three years ago, Ameritech New Media has snagged 200,000 subscribers in the Chicago, Cleveland, Columbus, Ohio, and Detroit metropolitan areas with its Americast cable TV product. Its market area includes more than 1.6 million households, meaning Ameritech can market cable to 1 in 7 of its local phone customers.

"The folks at AT&T and TCI are going to have to find ways to merge their cultures . . . we're building from the ground up," Mr. Cumings says.

Ameritech's basic strategy when entering new markets with Americast is to capitalize on consumer dissatisfaction with their current cable providers and find people willing to try to the Americast service.

"They're going after the low-lying fruit that is interested in changing," says Bruce Leichtman, director of media and entertainment strategies for Yankee Group.

Ameritech hits new markets with direct marketing efforts and old-fashioned, door-to-door sales calls. The Baby Bell also offers sales promotions rewarding people for agreeing to try to service. The company has offered gift certificates to Target Stores and $50 phone cards.

"We're always looking to put together a high-value promotion," Mr. Cumings says.

By positioning itself as the alternative, Ameritech has been able to snatch up disaffected cable customers. But there are limitations to such a strategy.

"They're going up against the greatest weapon in marketing: consumer inertia," Mr. Leichtman says.

The benefit, according to Ameritech, is that these newcable customers can get multiple communication services from one provider-paying just one bill.

Unfortunately for the Ameritech, many consumers don't make that connection, according to Mr. Leichtman. One year ago, a Yankee Group survey found only 50% of Ameritech cable customers realized they were getting the service from their phone company.


AT&T's challenge in entering cable is substantially different-and less complex-than Ameritech's, observers say.

While Ameritech is trying to position itself as the new cable player in its markets, AT&T will try to impose its brand name on an established cable service with 12.6 million subscribers.

"It's a real difference," Mr. Arlen says. "AT&T is not trying to overbuild a cable system in a city that already has one."

The phone giant plans to run trial advertising in 10 markets this year. A larger campaign-as well as the name change-likely won't come until next year.

"Cable telephony has been tried very successfully, but not on this scale,"

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