Cable Operators

Burke: Happy With The Hand We’ve Got

9/22/2006 8:00 PM Eastern

Comcast Corp. chief operating officer Steve Burke has plans to take the company into video-oriented national businesses, which one day likely will extend beyond cable subscribers via the Internet. But for the next five years, he expects Comcast to concentrate on leveraging its existing infrastructure, to separate it from satellite and telephone rivals. Multichannel News editor in chief Tom Steinert-Threlkeld and senior finance editor Mike Farrell explored what’s after the triple play with Burke. An edited transcript follows:

MCN: In August 2005, you said Comcast’s five most important initiatives were merging all data provisioning onto one system, dubbed Bedrock; simulcast; Starz Encore Group LLC; higher download speeds; and Comcast Digital Voice.

Steve Burke: Right.

MCN: How about now?

SB: I would say now the priority is how do we rapidly and fully take advantage of the triple play. As much as we like Comcast Digital Voice, what we really like about [the triple play] is what it does for the rest of the business, obviously.

When you sell all three products, it changes your relationship with your customers. First of all, it makes the value proposition much better than it was before. When you have all three products for $99, you are competitive with anyone who assembles them on an a la carte basis.

Ten or 15 years ago, our call centers got almost no comparison shoppers. Satellite didn’t exist or it was just starting out [and] the majority of people would call in and say, 'Hi. I moved to town. I would like cable.’

Now, we think about a third of all the people that call up into our sales queue are really comparison shopping, and when you have a triple-play offer, there’s no reason for a comparison shopper not to come with us. Once you’ve effectively launched the triple play and you’re aggressive about it and the word gets out in the market, your share of comparison shoppers goes way, way up. That’s why it starts to have a very positive impact on basic subscribers and high-speed data.

MCN: Have there been any surprises?

SB: Yes, I think video on demand has been a pleasant surprise. I think phone has been a pleasant surprise. I think if there’s an overall umbrella comment, it is that we have been surprised by how much demand there is for every new product we’ve come out with. If you look at the original projection for high-speed data, we thought it was going to be in 10% of our homes after five years. Five years after launch, and that was going to be the peak. Well, that’d be 4½ million customers. We’re over 10 million.

MCN: Do you see anything that could upset the apple cart, in a year or two?

SB: I think as long as we execute, there’s almost no way we’re not going to have a great couple of years. And if you look out beyond two or three years, I think we’re going to have more and more competition from the [telephone companies], but I think as long as we add five or 10 times as many phone customers as they add video customers, that’s all going to work out just fine.

MCN: What if Verizon Communications Inc. or another phone company puts in a better network here.

SB: The fact of the matter is, the regional Bell companies are losing 7% or 8% of their business every year — their residential landline businesses. They’re losing 7% or 8%, and we haven’t even really gotten started in terms of phone.

Can you imagine what would happen if we lost 7% to 10% of our subscribers in a year? I mean it would be an uproar; and yet, that’s what’s happening to all of the regional Bell companies, and that’s going to continue happening.

We have all three products [video, voice, Internet] right now available to 70% of our universe, and that 70% will be 80%, and then 90% very, very soon, and they can’t compete with that. I think they’re going to find that the video business is a lot harder than they think it is. And I don’t know what they can do about that, other than try to compete as well as they can.

MCN: How big of a business is commercial telephone service?

SB: The honest answer is I don’t know. I could certainly see it being $5 billion plus within the next five years, and that’s a pretty big business.

MCN: How important is wireless at this point?

SB: I think wireless is very important. The $64,000 question is how we do wireless, and our view of the world is that go out five or 10 years, people will still want to view television through a wire to their home, most of the time.

You’re going to want to have a very large screen television set. You’re going to want high-definition. And the best way to get that picture to you in your home is going to be through a wire.

But that doesn’t mean that maybe 10% of your viewing wouldn’t be wireless, when you don’t happen to be in your living room — either when you’re traveling or when you’re in another part of the house — and so we would like to be in a position to provide that service.

Same thing on broadband. I’m going to want to be in my office with my computer with a wired connection with really fast speeds.

MCN: What is the perfect application only you can produce?

SB: We have a concept, code-named Eureka inside the company, with applications that go across more than one device, and there are a whole variety of Eureka applications.

Let’s say you’re a 16-year-old boy, and you’re watching Prison Break. [You have] the ability to watch Prison Break on Fox on your television set and know that two of your three best friends are watching Prison Break at the same time … [you] send them an e-mail saying, “Don’t you love this episode?” and have them receive that e-mail. Or chat on the television screen. Or send them one saying “Why aren’t you watching Prison Break? It’s the best show on television right now,” and have them change the channel, and then engage in a conversation with you. That’s a fantastic product. What’s particularly good about it for us from a business point of view, if you have a friend who happens to be an EchoStar [Communications Corp.] or DirectTV [Inc.] customer who can’t do that, until they become a Comcast customer, you have a great way of using a big network effect to pull people into cable.

MCN: The capacity question. How worried are you about bandwidth with all these things you’re going to try to do?

SB: Well, it’s currently a pinch, and the biggest cause of the pinch, which is a good thing, I think is high-def. But our approach is to try to get our digital penetration as high as possible, and to eventually go all digital [with signal transmission, which saves channel capacity].

MCN: Right.

SB: That’s our primary answer to bandwidth: to try to get to a point where we’re all digital in the next few years, or functionally all digital. And then at the same time, we’re going to be doing some switched digital as well.

I think if you look at the combination of those two, it’s really a two- to three-year issue in terms of bandwidth. Once you get out three years and we’re functionally all-digital, then I think we have no problem with bandwidth.

MCN: You were talking about taking 7% or 8% of phone companies’ residential landline customers every year, now you want to take at least a good chunk of their business phone away. These are companies that have mountains of cash lying around. What’s stopping them from going in after they do their buildout and offering video for free, so they can keep their phone people? How do you compete against somebody that has that kind of financial wherewithal?

SB: I think they’re going to have a real dilemma.

If they have a customer who’s currently paying $70 a month for telephone service and even if they’re paying a really discounted [digital subscriber line] price of $19.95, now you’re up to $89 or whatever the price is before video, and don’t forget video, [the telcos are] going to have to pay programmers probably on the order of $20 a month.

I think it’s going to be very hard for them to undercut our bundle and ultimately we’ll see.

The other thing is even if you take their assumptions for buildout, Verizon’s only going to be built out at 50% of their footprint in the next five [years or so].

I think what they’re going to do is try to really invest and double down in their wireless business, which is a very good business, and they will continue to have a very good, very large commercial business — we’re not really going after their large-size commercial business — and there’ll be other opportunities for them.

Yes, they’ll be a competitor, but again, I like our hand. I would much rather have our hand than theirs.

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