Insight From Willner & Co.1/25/2004 7:00 PM Eastern
As part of this special report on Insight Communications Co., Multichannel News editor Kent Gibbons on Jan. 15 met with four of the company's key executives at their corporate offices in midtown Manhattan: CEO and vice chairman Michael Willner, senior vice president of marketing and programming Pamela Euler Halling, senior vice president and chief technical officer Charlie Dietz and executive vice president and chief operating officer Dinni Jain. (New chief financial officer John Abbot also sat in.) Here are edited excerpts of that conversation. A full-length version will appear on Multichannel.com.
MCN: One thing that sets you apart as a top-10 operator is you're half-owned by the No. 1 operator, Comcast. That brings benefits — discounts on programming and equipment are big help to profit margins. But a key arrangement with Comcast, a holdover from AT&T [Broadband], on telephony provision is something you need to rework. Comcast also seems less interested in being in partnerships than [Tele-Communcations Inc.] or AT&T might have been. How well is the partnership working, and what are the short-term and long-term forecasts?
Michael Willner: We have a partnership, which we have management control over. Comcast has stated publicly that their interest in being in partnerships that they don't have management control over is somewhat less than AT&T's was.
On the other hand, I haven't detected any discomfort with this partnership continuing on through its natural life. [Comcast Corp. president and CEO] Brian [Roberts] and I are friends and colleagues for many years, do a lot of work together at [the National Cable & Telecommunications Association]. We see the business very similarly, so we are in sync with them — much more so than we were with AT&T, by the way. And we're very comfortable with the partnership; it's been working just fine.
It is true, and we have stated publicly, that [Comcast's] priority in telephony is less than AT&T's was. They continue to manage a certain portion of our telephony business as the CLEC of record in these markets. And we're talking about ways to evolve it into something that's a little more comfortable for them and that works for us. But nobody's in any rush, and we're just having ongoing discussions about it.
MCN: What happens to the telephony business while those discussions are going on?
Willner: There were some operational issues that they just weren't equipped to handle on day one that seem to have been ironed out. So we're able to run the business as we have been running the business, since we've gone through the kinks in the transition.
Now, we're much more focused on the long-term strategy as to whether or not this is right to continue forever and ever, if it should be altered somewhat or if we should just end it, that aspect of the relationship. But we really haven't come to any conclusions yet. We're still looking at the alternatives.
MCN: So telephony will be OK in '04?
Willner: We're doing aggressive additional rollouts vertically, in that we've launched in four markets and we are focused just on those four markets for the better part of '04. Later this year, we do intend to start focusing more on IP telephony in new markets and a blended service in existing markets so that we can add some of the features that are more adaptable to an IP platform than a circuit-switched platform — like video telephony, which we think is going to be a terrific service.
MCN: You guys have been forced to switch away from some key vendor platforms — @Home [Corp.] for high-speed-data, Diva Systems [Corp.] for VOD, most notably. Were there positives from those transitions that outweigh the hassles?
Charlie Dietz: As tough as it was, they were both an opportunity. With @Home, it allowed us to justify that SONET [synchronous optical network fiber] ring that we're using across multiple platforms. Putting it together at the time was definitely a challenge, but we've got a lot of good people, a lot of good people in the field. And the good news was they learned a lot from @Home, so when we did transition, it was easier.
Same thing with Diva. Diva's navigator is probably still one of the best I've ever seen. When we made the change to SeaChange [International Inc.], it allowed us to go all [Gigabit Ethernet] on the transport and some of the servers, and there are a lot of advantages to that as well. Bigger drives — costs had come down on those. There are definitely some pluses to every situation.
Willner: It wasn't just technology. One of the most painful experiences in pioneering on video-on-demand was when Hollywood pulled back the distribution of titles to that platform. So we saw buy rates going from 300% of available homes upon launch — three purchases per home, from like 0.6 on a VOD platform when the product was there, and then going down to 0.7 when the product wasn't there. It's now bounced back, because there's more and more product coming back on and we're in the process of relaunching the service.
That hurt as an early provider of VOD services. Was it catastrophic? No. But it delayed the rollout of a successful service.
MCN: High-speed data: Your penetration levels are below your industry peers, which you acknowledge. You don't think the people in your markets are averse to buying high-speed data, so what are you doing or will you be doing to get to higher levels?
Willner: We're behind. And we're behind because, when @Home melted down, we didn't have an equity interest to protect in @Home. We were just a customer. And when the service was technically melting down, before AT&T stepped in and basically fixed it, we just decided to stop selling the service for a while.
As soon as they fixed it, they had a financial meltdown. So we basically lost a year —it was a matter of not rolling out a service that we thought was unstable.
Dinni Jain: If you look at our penetration in 2001 versus the industry, you'll see that a gap was opening through all of 2001. From the middle of 2002 onwards — it's not decreasing, but we're growing at the same rate as the rest of the industry.
Pam Euler Halling: And we do have a market as high as 17%. [Lexington, Ky.]
MCN: Can you give a little more detail as to what you have in mind in terms of improving customer service in 2004?
Jain: One of the interesting things about the [Jan. 6] Smith Barney [media] conference and going to [the Consumer Electronics Show] with Pam: A lot of the conversations in the industry are really turning in our industry from being just about technology to being more and more about customer service.
It's really about understanding the business, both from a service standpoint and from a money standpoint. In our business, after programming cost and capital cost, the next biggest cost category is personnel, driven mostly by the people that answer the phone at call centers or the technical people that go do installations or repair work.
Most of the need for those people is driven by volume of activity, which we call call volume or truck-roll volume. What we are doing is trying to understand, very clearly: What are the generators for that call volume? It's not work that we're starting from scratch, it's work that we have been doing, but it's work that we're giving a lot of focus right now.
The biggest drivers of call volume in our business are the initial installations. It's what I would call the fault rate of the products.
So if you look at each of the products we offer — the analog product, the digital, HSI and telephone — what is the technical call-in rate [of] customers calling in with their own perception of a technical problem for each of those product lines?
Those are the two biggest categories. The third category is marketing-related calls, or calls that are being generated by marketing materials or a customer getting a product and not fully understanding how to work the product, or calling in because they've got some confusion.
I call that marketing, because what we are going to endeavor to do is try to make it more clear to them how the product works — they shouldn't have to call in.