Cable Can Handle New Foes — and Prosper
Execs Cite Growth In Business Phone, Interactive Ads
By Mike Farrell -- Multichannel News, 9/23/2007 8:00:00 PM
The cable industry can handle new competition and profit from new services such as business telephony and interactive advertising at the same time, four of the industry's top executives at the two largest cable companies in the country said on the conference circuit last week.
Comcast chairman and CEO Brian Roberts kicked off the week at the Merrill Lynch Media & Entertainment conference in Marina del Rey, Calif., asserting that cable is already successfully competing against telephone companies in high-speed Internet access. Roberts estimated that 58% of Comcast's new high-speed Internet subscribers in the second quarter were former subscribers to telephone companies' digital subscriber line services.
And while investors worry about telephone companies starting to compete with cable companies in television, multiple-system operators are not just chugging along on high-speed Internet access and telephone services for consumers. The next new product in the pipeline — commercial telephone service — takes aim at the phone companies' business customers.
Expectations are high. Roberts estimated that commercial telephony is a $12 billion to $15 billion business in Comcast's footprint. The goal, he said, is to take 20% of that market over five to seven years.
But first, Comcast has to get the infrastructure in place. The nation's largest cable operator is hiring about 500 employees to handle the business-phone product. And it believes it must have an eight-line voice-over-Internet Protocol telephone that works in order to gain ground with commercial customers. It currently has a two-line phone.
Local ad sales — which represent about 6% of total revenue — were disappointing in 2006, but Roberts said that interactive advertising, which can target ads at specific types of customers, could quickly provide a big boost. CableLabs, he noted, is working on an interactive advertising platform that will serve the industry in a standard fashion.
Comcast chief operating officer Steve Burke, speaking at the Goldman Sachs Communacopia conference in New York, added that there are still several years of growth left in high-speed data, as well as residential phone service. But Comcast's strategy of introducing new products regularly should ease any fears that the growth train could come to a stop.
“The layering in of new growth opportunities has worked well for us,” Burke said, adding that the first business plans for high-speed data service peaked at 15% to 20% penetration. Comcast reported more than 26% high-speed data penetration in the second quarter.
At Time Warner Cable, the first priority will be to complete the integration of the former Adelphia Communications properties it acquired as part of its $17.6 billion joint purchase with Comcast. At the Merrill Lynch conference, Time Warner chief operating officer Landel Hobbs said that commercial phone service — currently in 11 cities — will be rolled out by the end of this year, but not marketed until 2008. He also said that interactive advertising could become a Time Warner product in 2009 and beyond. But he caused some concern when he stated that seasonality — basic subscriber losses due to college students and snowbirds disconnecting service as they leave for summer residences, and normally a second-quarter phenomenon — was bleeding into the third quarter.
Time Warner Cable lost about 57,000 basic subscribers in the second quarter, mainly in the former Adelphia systems.
“Just now, in the last couple of weeks, we've seen seasonality exiting the business,” Hobbs said.
Pali Research media analyst Richard Greenfield, who has been critical of Time Warner Cable and its parent Time Warner Inc., took those comments to mean that the cable giant has doubts it will be able to turn things around in the coming quarter.
“[Third-quarter] seasonality is new to us and even harder to digest when one considers that last year's [third quarter] was burdened by taking on Adelphia systems one month into the quarter, when there were few quick fixes that TWC could implement,” Greenfield said in the research note.
At the Communacopia conference, Time Warner Cable CEO Glenn Britt said the company will focus more on customer service next year, in part because of problems integrating former Adelphia Communications systems, acquired in tandem with Comcast last year.
Britt said that telco and satellite competitors have targeted former Adelphia and Comcast areas such as Dallas and Los Angeles, which are undergoing the most difficult transitions. That means a cable operator must improve its perception with consumers or face losing subscribers for the same combination of phone, Internet and TV service that has been its bread and butter in recent years, he said.
“If you don't have the triple play, you face the triple play,” Britt said.
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