Cable Operators

Comcast: Not Just Bigger — Better

9/26/2011 1:01 PM Eastern

While the financial world focused
on Comcast’s $30 billion deal for
control of NBCUniversal over the past
year, executives in the upper reaches
of the Comcast Center — the tallest
building in Philadelphia — never forgot
the company’s roots.

“Cable is the heart and soul of the financial engine
that is Comcast,” chairman and CEO Brian Roberts said
in an interview last week.

Comcast Center towers over PhillyIn the first half of the year (the NBCU deal closed on
Jan. 28), cable accounted for nearly 70% of Comcast’s total
revenue and 86% of its total operating cash flow. And
though the distribution business in general has taken
some hits as fears of telco over-the-top video competition
rise among investors, Comcast has shown a remarkable
resilience, reducing basic-video losses by more
than 30% in the first six months of the year through a
combination of new product launches, improved customer
service and savvy marketing.

Based on its performance in these categories, Comcast
is Multichannel News’ 2011 Operator of the Year.

The closing of the NBCUniversal joint venture — a
merger of its national programming assets with the General
Electric unit — in January gave Comcast 51% control
of a major broadcast network and some of the top U.S.
cable networks, including USA Network, Bravo, CNBC
and MSNBC. It also signaled a changing of the guard for
the cable operations.

At the close, former cable chief operating officer Steve Burke, who had steered Comcast through its greatest period
of growth, was tapped to head up NBCU as CEO. His
replacement was former Charter Communications CEO
Neil Smit. Smit joined Comcast in January 2010 as president
of the cable division.

Smit has some formidable shoes to fill. Burke was
responsible for successfully integrating Comcast’s acquisitions
of AT&T Broadband in 2002 and Adelphia
Communications in 2006. During that period, Comcast
was transformed from an 8.5 million-subscriber
regional power in 2001 into a 24.2 million-subscriber behemoth by the end of 2006.

Over the years, competition, high unemployment
and nonexistent housing growth
have chipped away at that subscriber base,
now at 22.5 million customers.

“The single most important thing in 2011
was the transition to Neil (as head of the
cable company) from Steve,” Roberts said.
“Neil has done an outstanding job. He’s
used to be being on a team.”

Smit ’s performance has not gone
unnoticed on Wall Street.

‘BREATH OF FRESH AIR’

“Neil Smit was a breath of fresh air at the
company,” Pivotal Research Group principal
and media and communications analyst
Jeff Wlodarczak said. “His presence
there and some of the initiatives he put in,
as well as the fact that they quite successfully
rebranded themselves under Xfinity;
they have had some very strong growth
relative to the industry.”

In his first quarter as head of the cable
unit, Smit, a former Navy Seal, tackled the
basic-subscriber challenge — the industrywide
hemorrhaging of basic-video customers.
Building on programs and initiatives
created under Burke, Comcast managed to reduce its
basic-customer losses significantly. In the first quarter
of this year, Comcast lost about 39,000 basic-video subscribers,
about half the 82,000 customers it lost in the
same period in 2010.

That improved performance built on better-thanexpected
fourth-quarter results, when the nation’s largest
MSO lost about 135,000 basic customers, more than 30%
less than the 199,000 it lost in the fourth quarter of 2009.

The trend continued in the second quarter — Comcast
lost about 235,000 basic customers, down 11.3% from the
265,000 it lost in the prior year but greater than the 173,000
most analysts expected.

Smit gives all of the credit for the improvements to
his team of divisional managers and
the 86,000 employees across the cable
company. “They’re the stars,” Smit
said. “That’s where the heavy lifting is
happening.”

LESSENING LOSSES

Chipping away at video losses remains
a priority, he added. “The whole business
is focused on retaining customers,”
Smit said. “It’s a combination of
better products, better services and
more targeted marketing. We’ve had
three quarters of reduced losses and our ARPU [average
revenue per unit] is also up — primarily as we’re selling
more advanced services.

“We probably sold in the first half 390,000 HD DVR customers,”
he added. “I think there is still room for improvement. At
the end of the day, it’s all about focus and execution.”

Smit and his team have focused on a simple tenet: a
happy customer is a loyal customer. Creating that happy
customer has included beefing up customer service —
including reducing service-appointment windows to two
hours (in some cases, one hour) across the footprint, reducing
trouble calls and truck rolls — and by introducing
at least one new product innovation in each quarter.

Comcast wants to “fundamentally transform” the customer
experience, Smit said, making it more convenient
and reliable. In the second quarter, repeat service calls declined
by 15% and repair calls declined by 9%. The company
estimates that by the end of the year, it will have
reduced service-related truck rolls by 2 million and service-
related phone calls by 10 million, compared to 2009.

“We’re making progress,” Smit said.

West Division president Steve White said a big part of
customer service is listening to subscribers and tailoring
options to fit their needs. In his division, which has more
than 6 million subscribers in tech-savvy
cities like San Francisco and Seattle,
White said efforts have centered on
enhancing the self-help experience for
broadband, voice and video.

“We find that a lot of customers
want to resolve things themselves,”
White said, adding that Comcast has
developed several tools, including a
Customer Central portion of its website
where subscribers can manage
their bills and account settings, and
locate information to solve problems
themselves.

“Those [tools] have come a long way,” White said. “We
lead the company in self-install kit installations, because
it’s simple, it’s easy and our customers feel more empowered.
Our job is to make it easy for them.”

AN EASIER EXPERIENCE

Comcast also has focused on enhancing the overall customer
experience through an initiative called “One Welcome.”

The One Welcome concept was first trialed in Comcast’s
Central division, which comprises about 8 million
customers in 15 states, and focuses on a new triple
play customer’s first 120 days with the company, starting
with the initial install. Comcast technicians literally
walk the customer
through all the aspects
of the service on the first
day, setting up their iPad,
caller-ID functions, billing
preferences and even
elaborate SMS notifications
on the status of
their household service
to their cellphones.

Central Division president
William Connors
said One Welcome was
trialed in about 4 million
homes around Chicago and will expand to other major
metropolitan areas in the division over the next three to
six months and be fully deployed across the company in
the next six to nine months. During the trial, One Welcome
customers signed up for SMS alerts and iPad service
at five to six times the normal adoption rate of those
services.

“We can’t wait to look back 30 days and see how we
did and make analytical and strategy decisions,” Connors
said. “You’ve really got to look at what happened in
the most recent hour and then look back at the previous
24 hours … That is the nature of the competitive landscape
we’re in.”

Roberts said a prime example of the speed of new
product turnaround is Comcast’s iPad app. Initially introduced
in May, it reached 3 million users last week.

“We’ve really turned a corner [in the] the summer
of the iPad app,” Roberts
said. “We didn’t have to
roll a single truck, and we
improved the experience
of our customers.”

Product innovation has
been a mantra for Smit,
who has set a goal of at
least
one
new
product per quarter.

And Smit is no stranger to the
Internet: Before working at Charter,
Smit worked at AOL, where he
learned the intricacies of a largescale
Web operation.

So far in 2011, the new-product
pipeline has produced products for
dynamic ad insertion; home security;
Metro Ethernet business services;
a 105 Megabit per second data
product; Signature Support, a technical support and
equipment protection program for home electronics devices;
the Xfinity TV app for the Android; the Play Now
app, which enables customers to access VOD content on
their IPad; and Catch Up/Keep Up, which enables customers
to view past episodes of shows with the click of
their remote.

Announced in 2011 and coming soon is a Skype applications
that allows Comcast customers to make video
phone calls through their TVs, PCs, compatible Smartphone
and tablets.

“This is the fastest innovation cycle the industry’s experienced
and from my perspective, it’s just starting,” Smit said, adding that Comcast’s cloud-based network architecture
enables it to introduced new offerings quickly.

“Speeding up the process is going to be critical to the
customer experience,” Smit
added. “We’re applying
what we learned from the
Web and the apps and applying
it to the TV screen.
Work ing on the cross
platform experience with
things like recommendat
ion engines is going to
be cr it ical. The pace of
innovation is going to accelerate.”

Miller Tabak media analyst
David Joyce said that
Comcast’s product innovation
efforts are making a
mark.

“They are definitely ramping
up their innovation,”
Joyce said. “They’re showing
that they are much more
than just a video company.”

That is a big step for Comcast, which has traditionally
been the more video-centric of the larger operators.
Several years ago, when other MSOs were concentrating
on increasing data speeds and rolling out phone service,
Comcast put a greater emphasis on video on demand.

Today, both worlds seem to have converged, at least for
the Philadelphia-based cable giant. Comcast has been
a big proponent of DOCSIS 3.0 with its ultra-high data
speeds — the company has launched a 105 Megabit per
second product called Extreme in several markets —
and at the same time has more VOD titles (30,000-plus)
and its customers access more VOD programming (upwards
of 350 million views
per month) than any other
operator.

Wlodarczak said that
Comcast’s early focus on the
video side of the business is
paying off .

Focusing on content and
obtaining VOD and streaming
rights early helped set
the stage for the MSO’s aggressive
push into TV Everywhere,
online content
authentication that is available
across its systems, Wlodarczak
said.

Perhaps the big ges t
reason for the change in
thinking at the company
is the “One Comcast” initiative,
in which division
presidents and managers across Comcast’s business
lines are encouraged to talk to each other, exchange
ideas and find solutions to common problems.

“The whole idea under the One Comcast banner is that
we’re each feeding different initiatives on behalf of the
entire company and by virtue of that you’re bringing
folks to participate in those initiatives from across the
company,” Northeast division president Kevin Casey said
— regardless of service or product.

Comcast has come ful l ci rcle since its more
acquisitive days, he said, when the priority was integrating
all of its newly purchased systems.

“That was a lot of lifting,” Casey said of those years.
“Now that we’ve had a couple of years under our belt,
[the question is] how do we accelerate our business?”


Mark Robichaux contributed to this report.
September