Comcast hears call
By Tony Gnoffo
Inquirer Staff Writer
1/10/05
philly.com
Would you trust Comcast to handle your phone calls?
That, says Comcast Corp. chief executive officer Brian Roberts, "is the $64,000 question, and I believe absolutely, yes."
In fact, the question has more riding on it than a measly $64K.
Comcast spent about $39 billion to build a digital network that serves up the fastest Internet connections around, and video-on-demand choices that make watching television more like surfing the Internet.
Subscriptions to Comcast's high-end digital-cable service have been growing at a fast clip, from 7.3 million to 8.4 million during the year ended Sept. 30. But the number of basic-cable subscribers barely budged during that period, holding steady at about 21.5 million.
And during that same year in the booming high-speed, or broadband, Internet-connection business, Comcast's subscriber base grew by 35 percent, to 6.6 million. But Verizon Communications Inc., which came later to the market with its slightly slower and cheaper DSL broadband service, grew by 57 percent, to 3.3 million, and added almost as many new customers as Comcast.
So, like a dial-up Internet customer waiting for a video clip to download, Wall Street has been growing impatient for Comcast to come up with its next big thing.
Roberts says he has it: Comcast Digital Voice. The company will start selling its challenge to local phone companies in 20 markets, including Philadelphia, this year. Some Philadelphia-area customers have already been pitched the service by direct mail. More aggressive marketing will come later this year, promises Rian J. Wren, senior vice president and general manager of Comcast Voice Services.
The price: $39.95 a month for existing Comcast broadband customers for unlimited local and domestic calls, plus some frills, including caller ID, voice mail and call waiting.
By the end of 2006, Roberts and Wren say, Digital Voice will be available in all of Comcast's markets. In about five years, they expect the company to be serving about 20 percent of the phone customers in those markets.
To do that, Comcast will have to overcome some formidable hurdles.
Consider that price.
A similar service called Voice Wing, offered now by Verizon in the Philadelphia area, costs $34.95 a month, with a $10-a-month discount for one year to Verizon's DSL subscribers. It also comes with unlimited domestic calls, caller ID, voice mail, and call waiting.
Another competitive service, offered by Vonage Holdings Co., of Edison, N.J., costs $24.99 a month, with unlimited local and domestic long-distance calls, or $14.95 for customers who think they can do all their calling in 500 minutes a month or less.
But Comcast says it will try to lure customers with more features.
For example, Verizon and Vonage offer no guarantee of service if a customer's power goes out; Comcast provides a battery backup that will last 16 hours. And Verizon's service requires customers who want to use more than one phone to buy a wireless phone system, or to plug every phone they have into the box that provides the service. Comcast's technology automatically provides the service to every phone jack in the house.
The phone market will be "very competitive," Wren acknowledged. "But it's not all about price... . Our strategy going in was, we have to be equal to or better than our competitors. We believe we are."
Even at the higher price, the features will make Comcast's product competitive, said Maribel D. Lopez, a vice president at Forrester Research Inc., a market research firm in Cambridge, Mass. He said low price alone "appeals to the Kmart Blue Light Special crowd."
Another key difference, according to Comcast, is that, while its service uses Internet technology, it does not actually use the Internet to transmit calls. Most other VoIP services do. If there's a logjam somewhere on the Net, Comcast calls will not be affected.
Of course, that feature could be another hurdle - Roberts' $64,000 question. Will consumers be willing to dump Verizon, a direct descendant of Ma Bell, and hand their phone service over to the cable guys?
Roberts is confident.
"Our initial focus is on getting it right and successfully introducing the service," he said. "We've already worked out the kinks, and are going to take a very patient approach."
Comcast's internal surveys regularly find that 91 percent of their digital-cable subscribers would recommend the company to family and friends, Comcast spokesman Bob Smith said.
But in one third-party survey of satisfaction among broadband customers, Comcast trailed several phone companies, including Verizon. In that 2004 survey by J.D. Power & Associates, Comcast's service scored well below average nationwide among 9,500 broadband customers, with 657 out of a possible 800 points. Verizon, which finished second in the survey, scored 724 points.
Comcast also fell below the industry average for cable and satellite customers, scoring 633 of 800 points. On top of that survey were Comcast's biggest direct competitors, the satellite providers Dish Network, which scored 725 points, and DirecTV, which scored 721 points.
At Comcast's Digital Voice nerve center in Moorestown, the company says it is working hard to ensure high scores for its phone service. There, phone chief Wren, VoIP director Ron Raugh, and VoIP vice president Sam Chernak proudly point out redundant systems, test beds, and security and fire-suppression devices.
They are particularly proud of the computer servers at the heart of the system, each one a box that could fit under a kitchen chair. It does the work of a traditional phone switch that would fill a big living room; one can handle 500,000 calls.
One hundred miles north, on Wall Street, the concern around Comcast is less about technology or customer service than it is about profits.
Wren says Comcast will make a profit from Digital Voice within two years.
That's largely because Comcast has already absorbed the cost of the network that makes the service possible.
"We're rolling out new products, bing, bing, bing," Roberts said. "And it's all possible because of our $39 billion infrastructure investment."
It already has paid off, he said, with digital cable and high-speed Internet. "We think that this is the next big business for our company and can be as successful as high-speed Internet."
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