By bringing a sizable portion of its tech-facing initiatives in-house, Comcast has put itself into position to launch and upgrade services at a pace never before seen in the cable industry.

Amid a shift to becoming more adept at software development while keeping a hand in aspects of hardware design, Comcast has been able to retain unprecedented control of products spanning video, broadband, home security and automation, and in-home WiFi.

The Distributor of the Year Issue:Smooth Operator|Comcast's Makeover Yields Results

Here’s a snapshot of five ways Comcast has been leading the way in technology:

X1 Still Flying High
X1, Comcast’s cloud-powered video platform, has been transformational to its video business in more ways than one.

For starters, the service, which supports set-tops as well as streaming apps for smartphones, tablets and web browsers and is used by about 55% of Comcast’s residential pay TV base, has played a key role in improving pay TV subscriber metrics at the company. X1 has also enabled Comcast to expand its influence.

On the product end, X1’s cloud-based infrastructure allows Comcast to add new features, such as voice navigation, at a pace that leaves its legacy platform in the dust.

In addition to providing access to the customer’s pay TV service on multiple screens, in and out of the home, X1 has also been made to weave in OTT services such as Pandora, Netflix and YouTube.

Comcast’s X1 syndication initiative is giving the company the ability to scale the platform beyond its traditional borders, with several tier 1 MSOs already on board, including Cox Communications and three Canadian operators — Shaw Communications, Rogers Communications and Vidéotron.

That syndication strategy, as one industry observer put it, allows Comcast to wield more influence and scale for X1 via “colonization” rather than “consolidation.”

Meeting the Need for Speed
Though fiber-to-the-premises (FTTP) technology factors into Comcast’s residential broadband game plan in targeted use cases with its Gigabit Pro service, the operator’s aggressive deployment of DOCSIS 3.1 has enabled the operator to rapidly bring Gigabit-level broadband speeds to the bulk of its footprint.

In addition to helping it keep pace with rivals such as Google Fiber and AT&T Fiber, Comcast’s rollout of D3.1 has also helped the company grab some bragging rights — Comcast recently was deemed by Ookla as the fastest ISP in the fixed broadband category.

DOCSIS 3.1 currently gives Comcast a way to bring 1-Gig speeds to consumers in the downstream. Expect Comcast to continue to be a champion of Full Duplex DOCSIS, which will deliver symmetrical gigabit speeds.

Going Wireless, and Mobile
The launch of Xfinity Mobile has been Comcast’s biggest move this year with respect to wireless and mobile, putting the company in position to broaden its bundle and take advantage of its MVNO deal with Verizon Communications and its WiFi footprint of about 18 million hotspots.

In the home, Comcast is keying on whole-home WiFi with xFi, a new cloud-based management platform that helps customers troubleshoots issues, easily change WiFi network passwords, and keep closer tabs on the devices that are hanging off the home network. Soon, Comcast is expected to back that up with a new line of WiFi “pods” that connect to the main gateway and bathe the home in WiFi.

Comcast is making some big bets in this area, as it was a lead investor in Plume’s recent $37.5 million funding round (Plume is helping with those aforementioned WiFi pods), and just acquired Stringify, an IoT tech startup that helped Comcast develop xFi.

Owning the Smart Home
Comcast is trying to own the video experience with X1, and is doing the same with home automation and security with Xfinity Home, a service that now has about 1 million customers.

Comcast, which acquired a big piece of Icontrol earlier this year, has essentially created its own smart home ecosystem that supports an array of Comcast-made products, as well as several from third-party suppliers through its Works with Xfinity Home program.

Product Design
Comcast’s in-house approach with X1, xFi and Xfinity Home isn’t limited to software and applications. Comcast has also been putting its own stamp on things by designing many of the hardware products that are powering all of these services.

And those efforts are getting some recognition from the product design industry. Earlier this year, Comcast netted three Red Dot Design Awards for products for X1 — the Xfinity XG1V4 (a 4K set-top box); the Xi5 (a wireless set-top box with High Dynamic Range capabilities); and a new voice remote called the XR15.

Back in May 2015, at INTX in Chicago, Comcast unveiled a bold and sweeping customer-service overhaul.

The effort was nothing short of a top-to-bottom makeover: an ambitious three-year plan to spend more than $300 million on new customer call centers, hire more than 5,500 new CSRs and implement technology to make its service technicians more efficient and customer-friendly.

More than anything, Comcast wanted to impress its customers with functionality and services that go above and beyond the norm.

“As we improve the service and offer more and more products, customers are saying ‘Gosh, I didn’t know I could do that,’” chairman and CEO Brian Roberts said at a kickoff event for the initiative in 2015.

The Distributor of the Year Issue:Smooth Operator|Five Ways Comcast Is Leading in Tech

Today, deep into the project, Comcast has so far delivered on its promises. It has built five state-of-the-art call centers in Fort Collins, Colo.; Spokane, Wash.; Albuquerque, N.M.; Tucson, Ariz.; and Charleston, S.C., and has hired more than 5,500 CSRs across the country.

But Comcast probably made its boldest move when it named Charlie Herrin, previously senior vice president of product design and development and one of the executives responsible for the X1 platform, as executive vice president of customer experience. Herrin didn’t have any customer-service experience but he knew the product on which Comcast had placed the biggest bet for its future, and that has been the difference.

Fixing a Broken Experience
“Customer service is what happens when the experience breaks,” Herrin said in an interview. “When you think about the experience, that’s the interaction you might have when shopping — that’s how you unbox the product, how you use the product.

“If the product is working well, for the most part you don’t have customer-service issues,” Herrin added. “That’s why I thought when they first asked me to do this, it’s kind of a brilliant way of looking at it. Because I think it’s an acknowledgment that our product can do more to help customers to avoid the need to call into a call center or feel like they have to go somewhere to get help.”

That ability will be tested again as Comcast comes out from under two of the most powerful storms in U.S. history: Hurricane Harvey, which caused massive flooding and damage in its Houston market; and Hurricane Irma, which ripped through Comcast markets in southern and western Florida.

Repair efforts are underway but are reliant on power being restored and flood waters to recede to allow crews into storm-damaged areas. In the meantime, Comcast has provided free WiFi service for all people in the affected communities. Comcast corporate has also donated about $1.5 million to help local Harvey efforts, and its NBC broadcast network aired a telethon (Hand in Hand: A Benefit for Hurricane Harvey Relief) that raised millions of dollars.

Herrin lauded the efforts of employees in the regions affected by the storms, adding that it is part of the inherent culture of the company.

“We do these things all the time, a testament to the character of the company,” Herrin said. “The leadership in those markets is astounding, and it’s times like this you see how fantastic they are.”

That innate sense to go to the heart of the problem is one of the defining features of Comcast’s X1 platform, which is also a tool to diagnose network and service problems before they happen.

Comcast Beltway Region senior vice president Mary McLaughlin, responsible for a market that includes Washington, D.C.; Maryland; Virginia; West Virginia and Delaware with about 2 million customers, said Comcast’s decision to change its focus on the overall customer experience was a game-changer for the company.

“One of the best evolutions in customer service, and I have been running cable systems since 2000, was looking at the customer experience as a product,” McLaughlin said. She said she credits X1 with changing the face of TV-watching forever, especially with regards to customer experience.

“If you want to turn on closed captioning, you merely need to speak into your voice remote,” she said.

But not every customer has X1. Currently the platform is rolled out in about 55% of Comcast’s footprint.

X1: The Linchpin
Comcast has always considered X1 to be the “the heart of the home,” as well as the foundation for additional products, Herrin said. X1, he said, can serve not only as a messaging tool for a customer’s entertainment package, but also to monitor and control their entire home through products such as Xfinity Home and other features, like voice control and the overall user interface.

“The challenge I have is making sure that our team thinks about the customer service experience all the way through,” Herrin continued. “Not just when it’s working, but when it breaks, what is that experience like as well?

“The last thing I want to see is, ‘Sorry your [service] is broken, call 1-800-COMCAST,’” Herrin added. “That shouldn’t be the message we put up. It should be, ‘We see you have this issue, we’re going to fix it and we’re going to let you know when it’s done.’”

Part of that effort, he said, is to allow the customer to control as much of the service experience as possible. In one current trial, Comcast is testing a technology that, when it determines the signal to a particular customer’s home isn’t quite right, would notify the subscriber of the issue and allow them, through a series of drop-down menus, to pick a convenient time for an appointment and schedule a truck roll.

“It’s a completely touchless transaction, but if you think about the data behind it, it was the product that was doing all the work there,” Herrin said. “When I talk about a proactive experience with customer service baked into the product, that’s what we mean. Where the product is essentially monitoring your experience and essentially letting you know something need to be fixed or a cable needs to be tightened.”

Comcast also introduced an Uber-like app a few years ago that allows customers to track the progress of their technician before he or she gets to the house, and sends a picture so they can identify the tech when he or she arrives. Besides cutting down on phone calls to the call center, the feature also adds to the customer’s peace of mind in what can normally be a stressful situation.

“One of the challenges we have is just making sure that customers realize all the value that they get with their subscription,” Herrin said. “It’s pretty significant. And are they availing themselves of all of it? Are they using Stream to be able to watch their shows when they’re on the go or watch their DVR content? Are they using WiFi hot spots when they’re out? Are they upgrading to the newest and best home entertainment system we have with X1?”

Putting Passion Into Play
McLaughlin said the strategy is to create “Passionistas” in the field, representatives that are passionate about the company and its products. That enthusiasm, she said, can be infectious.

“On the customer-service side of the house, it’s really my job to make sure people are picking up the phones and, when we have a customer call in, we are able to support them quickly and we’re able to solve their problem easily, so it becomes a no hassle experience,” McLaughlin said.

One of the things Comcast is focused on is making sure customers know what digital resources are available.

“If you just changed your plan or purchased a new product, how are you being educated on all the benefits that come along with that?” Herrin asked. “I think customers in this day and age really demand a digital model for that. You’re going to see us invest in that and really reach people in more digital ways. If we can deliver a timely message to a mobile or personal device you prefer, you’re going to pay attention to that.”

The sheer number of new-product rollouts helps Comcast in terms of customer perception, but it also highlights the need f or deeper education efforts.

“What it does mean is we have to make sure we’re doing our job so the customer can discover that on their own and we’re not reliant on our call-center agents,” Herrin said.

There are no flukes in Cable.

Just ask Comcast, which was the first cable operator to report a full year of positive video subscriber growth in a decade, ending 2016 with 161,000 more customers than in the previous year. That Comcast managed to do that just as over-the-top and alternative video delivery systems were proliferating, gaining legitimacy and chipping away at traditional pay TV customer rolls was remarkable enough, but it was no fluke.

The Distributor of the Year Issue:Comcast's Makeover Yields Results|Five Ways Comcast Is Leading in Tech

That growth was a planned, concerted effort that not only yielded a video customer surplus, but was also profitable. Comcast finished the year with a 6.6% increase in cable-systems revenue and a 5.6% rise in cash flow. And it did it all the hard way, with no aggressive promotional pricing or special deals to attract customers that will drop the service in six months.

Instead, Comcast put its collective head down and focused on the fundamentals, rolling out new products like Xfinity Home and Xfinity Mobile at a steady pace and pumping hundreds of millions of dollars to beef up customer service.

The path to positive subscriber growth was a multiyear process, starting with the hiring of former Charter Communications CEO Neil Smit in 2010. It was Smit who initiated a multipronged plan to improve customer service, beef up the network and steer the company on a path toward product innovation and network superiority.

Smit stepped away from day-to-day operations in April — he is now vice chairman of Comcast Corp. — and handed the reins to 20-year Comcast veteran Dave Watson, who moves up to Comcast Cable CEO after serving as the cable unit’s chief operating officer for the past seven years, implementing the plans that he and Smit developed. Watson takes over just as subscriber growth is expected to decline in the wake of two massive storms that devastated homes in Houston and Western Florida. Comcast has said it expects the impact of Hurricanes Harvey and Irma to result in the loss of 100,000 to 150,000 subscribers in the third quarter.

MoffettNathanson principal and senior analyst Craig Moffett observed that the declines weren’t that surprising given that the video subscriber estimates, even at best-in-class Comcast, will have to come down.

Infrastructure Advantage
“We’ve spent 18 years repeating a simple mantra: Cable operators are not media companies, they are infrastructure providers,” Moffett wrote in a research note. “Their infrastructure is still advantaged. Comcast will be just fine.”

But the company is confident that it will continue to hit its financial targets, as well as continue its pace of innovation. For those reasons and more, Comcast is the 2017 Multichannel News Distributor of the Year.

For Watson, Comcast’s success has been the result of the company’s decision to stick to three basic tenets.

“The key for us is that we’re very focused on our core set of operating principles,” Watson said. “Staying focused on sustainable, profitable growth, driving innovation, that’s a big part; and third is to continue to improve the customer experience.”

While that may sound oversimplistic, Comcast has managed to make it work. In the past five years (2012-2016), overall revenue has grown at a 6.2% annual clip while cash flow has risen 7.2% per year. This year, the growth is even more dramatic — in the last 12 months between the first half of 2016 and the first half of 2017, revenue has grown 9.4% to $41.6 billion and cash flow is up 10.2% to $14.1 billion. This in a year that has seen competitive pressures increase as Hulu (25% owned by NBCUniversal) launched its Hulu Live offering, AT&T unveiled its over-the-top product DirecTV Now and networks are queuing up to release direct-to-consumer versions of their channels.

Comcast has used the X1 platform expertly in driving forward what Watson said is its newest mantra — becoming an “aggregator of aggregators.” That means not only offering access to subscription video on demand and over-the-top competitors, but embracing them.

Xfinity subscribers can access Netflix directly from their set-top boxes and over the years Hulu, YouTube and music service Pandora have been added to the lineup. Earlier this year, Comcast reached a deal where Sling TV — the over-the-top MVPD service from Dish Network — received a coveted spot on the set-top (mainly for international and multicultural programming). Just last week the cable operator expanded its relationship with YouTube, allowing customers to launch the online video app merely by speaking “YouTube” into their X1 voice remote.

Including those products is all part of the overall strategy of offering customers best-in-class products in almost every category, Watson said.

‘Aggregator of Aggregators’
“We look at each part of our business, every major product area, and we look at innovation opportunities at each one,” Watson said. “With X1, I think we are delivering in its early stages the promise of being an aggregator of aggregators — the best in linear, the best of on-demand, a terrific DVR, a great app, data and applications integrated. Netflix is a good example and soon-to-come will be You Tube. … To me this is constant improvement of our major product areas.”

That’s a far cry from the past, when a Netflix app embedded in any cable operator’s set-top box would have signaled the end of the world. But the evidence continues to mount that SVOD services like Netflix, Hulu and YouTube aren’t replacements for cable, but can complement the service. And making it easier for an X1 customer to access their SVOD subscriptions only enhances the cable operator’s stature in the customer’s mind.

That shift, along with a continued focus on innovation — Comcast still has a mandate to roll out a new product or product enhancement at least once per quarter — has been a key part of Comcast’s success. In the past five months, Comcast has rolled out a new wireless service, Xfinity Mobile, part of its mobile virtual network operator agreement with Verizon Communications; xFi, a cloud-based home WiFi management platform; and enhancements to XFinity Home that allow consumers to remotely control home functions like heating, cooling, lighting and security cameras through their voice remote.

The voice remote, launched in 2015, is one of those product enhancements that has fared even better than its staunchest proponents had hoped. Comcast has deployed about 17 million voice-remote devices and customers now make about 1 billion voice commands per quarter.

“It’s just remarkable,” Watson said of the product.

Comcast has also embraced products from programmers such as AMC Premier from AMC Networks and 21st Century Fox’s FX+, ad-free versions of the AMC and FX pay TV networks available for an additional fee. In an interview, Comcast executive vice president of Xfinity Services Matt Strauss said the offerings are part of an overall evolution of the video product, and of the strategy to entice customers to buy into the entire Xfinity family of offerings, not just one or two things.

Strauss said the strategy could be traced back to Comcast’s initial investments in infrastructure that laid the foundation for the product suite that is available today.

“We’re now at a point where it’s really about scale, and how do we continue to deliver innovative products and services and accelerate how we get deeper and deeper into our base,” Strauss said.

The answer, Strauss said, is to provide elegant, easy solutions to customer problems even before subscribers know they are problems. For example, as the TV audience became more and more fragmented and finding shows grew more difficult, X1 provided a user interface that made it easier to navigate through the thousands of linear and on-demand content choices. Later, X1 added a voice remote, which made navigation even easier.

For high-speed data, the solution was faster speeds. Comcast has increased data speeds 17 times in the past 16 years and by the end of 2017 will have fully deployed DOCSIS 3.1, which will enable speeds of 1 Gigabit per second.

“Speed is important, but access is equally important,” Strauss said. “Most people now connect devices via WiFi. Ensuring we have the best WiFi in the home, as well as the best WiFi out of the home is also very core to the strategy and that’s where you’re seeing us deploy our newest wireless gateway, the XB6 (xFi) which can deliver the fastest in-home WiFi speeds.”

From there, xFi customers would naturally migrate to Comcast’s XFinity Home product, which again incorporates the aspects of other company products, like the voice remote, to control household functions. Comcast is truly selling a bundle, and that bundle is interconnected.

“When we look at the future, today we typically sell on price,” Strauss said. “And the more products you take, the better the price. The challenge there is when you sell on price, essentially you’re making yourself a commodity.

“What we really want to transition to is selling an experience,” Strauss added. “The more products you take from us, you will of course get a better price, but you will also get a better experience. Starting to weave together the portfolio and reinforcing that, I think, is a big opportunity. A lot of that you’re going to see solidly around the home. There is a big opportunity around the digital home.”

The company is obsessed with giving more choice in the video-on-demand side of the business. “We’re breathing new life into what it means to get video,” Strauss said. “Now we have 130,000 choices, the top 100 Nielsen-rated shows, 900 series fully stacked. We added Netflix, not just as an app, but integrating Netflix contextually.”

As a result, on-demand is growing again — this year, Comcast customers are spending an average of 32 hours a month watching on-demand shows, up 20%.

“When people have said video is in a decline, ratings are in a decline, we see something different,” Strauss said. “We see more and more video consumption moving to time-shifting, we see while live ratings may be declining, the total video consumption is increasing, instead that more is happening outside of traditional measurement. It’s like dark matter, people aren’t seeing it, but we think the total video pie is increasing. And we’re continuing to build the platforms and the capabilities to all people to watch TV smarter and on their terms.”

The emergence of over-the-top players has added to that shift and is continuing to challenge the model, Strauss said, but Comcast doesn’t see any compelling reason to join the OTT fray.

“Part of what is happening in the market, especially on the video side, is you are seeing a lot of increased competition, you’re seeing a lot of competitive offers — in some cases you’re even seeing some of these OTT players offer video at negative gross margins. We’re not going to chase that.”

But the evidence is mounting that younger consumers are increasingly looking outside the traditional pay TV ecosystem for their content needs. Pay TV subscribers fell by more than 900,000 in the second quarter, the worst Q2 performance in history. That’s after a record first-quarter loss of more than 750,000 video customers.

Moffett, who raised his rating on Comcast to “buy” earlier this month after downgrading the stock to “neutral” in June, said he sees the company as the standard for the pay TV business. But he also estimated that the MSO will lose almost 1 million video customers in the next five years, ending 2021 with 21.7 million subscribers, down from 22.5 million in 2016. The analyst does see Comcast adding about 5 million broadband customers in that same time frame, finishing 2021 with 31.1 million high-speed data customers compared to 26 million in 2016.

Competition is also heating up. Google’s YouTube TV expanded to eight additional markets earlier this month, growing its total markets to about 48 cities. In addition, AT&T began pricing its DirecTV Now service even more aggressively in the quarter, at $10 per month for any unlimited wireless subscriber, and returned to offering free Apple TV devices with a three-month commitment.

While weakening subscriber metrics shouldn’t come as a surprise, Moffett said, they aren’t a calamity, either. Pay TV companies, he said, still have broadband pricing power, which should help them in reaching financial targets. That’s just what Comcast said when it predicted the Q3 subscriber loss.

Strauss noted that all the panic over OTT and cord-cutting could be unwarranted. There is no doubt, he said that viewing habits are changing, but life stages and household economics also need to be considered.

As an example, Strauss pointed to Xfinity on Campus, Comcast’s multiscreen managed IPTV service for college students. When the product was in development, Strauss said Comcast realized that the last thing college students wanted was to be tied to a set-top box. So the MSO had to rethink the idea, creating a product that allowed students to download the Xfinity Stream app, offered a cloud-based DVR and would let them watch live TV anywhere on campus. The product has been highly successful and, as students returned for the most recent fall semester, it is deployed in more than 100 schools.

“Millennials do watch TV as much as any other segment,” Strauss said. “They just have different needs and how they want to consume and access it.”

That, Strauss said, has led to Xfinity Instant TV — an in-home, in-footprint, managed IPTV service slated for a Q3 launch — as well as ad-free versions of networks that consumers can buy for a fee. Comcast reached a deal with AMC Networks in August for AMC Premiere, an ad-free version of the popular AMC network for an additional $4.99 per month. A month later, FX Networks announced a deal to offer an ad-free version of its flagship FX channel — called FX+ — to Comcast customers for $5.99 per month.

Strauss said those channels and other services like it are just an example of how Comcast’s foresight in investing in content, infrastructure and innovation have translated into meeting needs even customers didn’t know they had.

“The future we’ve always talked about has finally come, at least for us,” Strauss said. “I think that is because of decisions that we made, not six, 12 or 24 months ago, but years ago, based on where we saw the puck going and ensuring that we would have the technology capabilities and the infrastructure in order to deliver upon the innovation that we believed we were going to need to stay competitive. As a result you’re seeing us deliver on a lot of these products and services. But this didn’t happen by accident. It really happened because of very important strategic decisions we made years ago.”

Related > Distributor of the Year: Cox Communications

Cox Communications acted quickly when torrential rains drove massive floods that knocked out service and destroyed homes in its Louisiana service territory in August.

But it wasn’t the speed of restoring a downed headend or high-speed data service that impressed senior vice president and Southeast Region general manager Anthony Pope the most. That feeling would be reserved for the sacrifices and willingness to help others his employees showed during what some have called the biggest U.S. natural disaster since Superstorm Sandy in 2012.

A stalled weather system dumped an unprecedented 31 inches of rain over parts of southern Louisiana from Aug. 11 to Aug. 14, causing massive flooding in about 20 of the state’s parishes. Numbers are still being tallied, but it’s estimated that in Baton Rouge alone, about 110,000 homes, 20,000 businesses and 300,000 people were affected by the floods. That’s in a community of about 850,000 residents.

Statewide, the damage toll has been estimated at about $20 billion. So far, 13 people have lost their lives as a result of the flooding.

Within two days of the flooding, Pope said Cox was able to get continuity and secure its employees, relocating those who needed it to hotels and helping workers get their lives back together so they could return to their jobs.

Those efforts spanned the Cox corporate family — Pope said Manheim, a wholesale vehicle auction company that is part of Cox Enterprises, came to the rescue when he mentioned that several employees had lost their vehicles in the flood and found it difficult to get to work. Within days, Manheim sent a trailer of vehicles to Louisiana, enabling carpools to get employees to and from their homes.

Pope also was able to get equipment that was slated for a Cox cable upgrade in California diverted to Louisiana to help in the repair efforts.

That team effort helped cut repair times. One headend that was under two feet of water and was estimated to be out of service for six weeks was back online within seven days, Pope said.

Cox was able to restore service to its customers within seven to 10 days after the floods. Every customer who has been able to return to their residence with power restored has cable service.

As Cox moved to repair its sunken plant, it also worked hard to give customers continued access to information — reaching deals with local broadcasters and cable networks to provide out-of-home access to programming via their phones and tablets. For customers who wanted to disconnect service while they waited to move back to their damaged residences, Cox offers a Storm Package, which gives them free continued access to their phone number and email addresses for up to 12 months.

Employees also found time to help each other out, too, Pope said.

Pope recalled one Cox employee who had been overseeing a group of technicians from the Central Region and mentioned, after one particularly long shift, that he was going home to work on his own home for the weekend. On the next day — their day off — about 10 Cox Central Region technicians showed up to remove drywall, rip out damaged carpet and make other repairs.

“They had worked six days, they were exhausted and tired,” Pope said. “They could have done anything they wanted to on their day off, and they chose to help a colleague that they didn’t know.”

Cox workers in need of financial assistance because of the disaster can tap into a relief fund started by employee contributions in the wake of Hurricane Katrina in 2005. Cox has set aside about $1 million for this particular event, which can be used to help pay for personal items like toothbrushes, clothes and diapers for the kids (usually available within 48 to 72 hours). Grants were available for bigger-ticket items.

In the face of disaster, Cox employees continue to show dedication and resiliency, Pope added.

More Distributor of the Year Stories:'MCN' Distributor of the Year: AT&T's Air War | AT&T Scales to Top of MVPD Mountain

With 1 Gigabit-per-second now viewed as the bar for high-end residential broadband speeds, AT&T has been leaping over it with GigaPower, a fiber-based broadband platform that can complement its other services.

And with the DirecTV deal wrapped up, AT&T is also going to push harder on the deployment front to make make fiber available to a mix of 14 million customer locations, including both residences and businesses.

As of today (Sept. 28), AT&T will have GigaPower up and running in parts of 17 markets, following its most recent launches in Orlando, Fla., and San Antonio, Texas.

“In terms of coverage by end of year, we’ll be available in more than 1 million locations,” Eric Boyer, senior vice president of GigaPower, commercial and connected communities, said. “There’s not a lot of public disclosures out there among gigabit providers, but if we’re not the biggest, we’re awful darn close.”

AT&T is pushing the needle in the 1-Gig arena as competition continues to heat up. In addition to the specter of Google Fiber in select areas, cable operators are also starting to use fiber-to-the-premises in a targeted fashion, complementing their widespread DOCSIS 3.0 platforms. And cable’s multi-Gigabit DOCSIS 3.1 platform is on the horizon.

As for AT&T’s accelerating GigaPower rollout, Boyer attributes it to a mix of factors, including partnerships with local franchises, improving deployment and operational processes, and falling technology costs.

“It helps to have a partner at the municipal level that’s willing to work with us to ensure that we’re able to deploy quickly and efficiently and do it in the right way,” he said. “Those partnerships are so critical in terms of our ability to bring the service quickly and efficiently.”

AT&T, which got GigaPower off the ground in 2013 in Austin, Texas, and continues to base its deployments on GPON technology, has not said how many customers have GigaPower, but “the customer demand has just been outstanding,” Boyer said, noting it’s coming by way of customers who are upgrading services or switching from other providers.

While AT&T has traditionally teamed GigaPower with U-verse TV services, it’s also going to take advantage of its DirecTV acquisition, particularly with apartments and other types of multiple-dwelling units.

“That’s a key part of our GigaPower story moving forward,” he said of the MDU market, noting that AT&T already has an in-region direct sales force for U-verse and will also take advantage of DirecTV’s national dealer network.

More Distributor of the Year Coverage:'MCN' Distributor of the Year: AT&T's Air War | AT&T Gears Up for the Gigabit Era

AT&T’s $48.5 billion merger with DirecTV has placed the telco at the top of the distribution food chain among multichannel video-programming distributors. Armed with greater leverage to negotiate distribution deals with content providers, AT&T executive vice president and chief content officer Dan York is in a good position with regard to developing the company’s future content strategy. in an email exchange with Multichannel News programming editor R. Thomas Umstead, York — who was chief content officer at DirecTV before the merger and, prior to that, was head of content and advertising sales at AT&T — answered questions about his content plans for the merged entity and his thoughts on future content trends within the industry.

MCN:You have run both the AT&T U-verse and DirecTV content divisions and now oversee them both. How will the content setup be structured under the merged entity?

Dan York: The DirecTV and U-verse programming, content acquisition and development functions have been brought together as one. The team handles all content-related matters for all U.S. AT&T platforms, including pay TV, mobile and online. It also includes our regional sports networks, original programming, and content operations and is now consolidated under the new AT&T Entertainment and Internet Services (AEIS) Content organization.

MCN:What advantages does the merger give you with regards to negotiating deals with programmers? Does it change your content acquisition priorities at all?

DY: Our unmatched position as the world’s largest pay TV provider, with over 19 million Latin America and 26 million U.S. pay TV customers — plus over 100 million mobile and Internet customers — will enable us to create more value and a better experience for our customers. Our focus remains the same: Provide our customers with the best content and experience across all platforms and devices, at the best cost structure in the market.

MCN:With an increased industry focus on mobility and bundling in broadband and wireless, how does that factor into your content priorities?

DY: In our conversations with programmers, we always keep top of mind what matters to our customers: the ability to receive their content wherever, whenever and however they want, on any screen they choose, at a price they can afford.

MCN:Is over-the-top distribution something that becomes a more interesting option now?

DY: We view it as simply delivering the best content offering and experience regardless of platform, such as our satellite assets or via IP. DirecTV has been delivering content over IP for years now with our robust TV everywhere offering, as well as our “NFL Sunday Ticket. TV” streaming service. Last December, we launched a new IP-delivered service dedicated to Spanish-language viewers called Yaveo.

Now, as part of the AT&T family, we’re in a unique position to develop and expand these and new services to more customers. There are also some exciting opportunities on the horizon through our joint venture with The Chernin Group, as we look to officer unique mobile-centric content to complement our more traditional offerings.

MCN:Will you look to add networks currently on U-verse’s lineup that DirecTV does not carry, and vice versa?

DY: We are focused on providing U-verse and DirecTV customers with a great entertainment experience and programming they can effortlessly watch on any device — all at the right price. We will carefully evaluate what is best for all of our customers and our business.

MCN:Will the new entity look to develop exclusive, original programming for its subscribers?

DY: Original programming has been a focus for DirecTV for years and will be an area to potentially further differentiate across all platforms. Our team will be very active in developing new and exclusive content that we’ll be able to deliver to any device. We’re excited about what the future holds in this area of our business and for our customers.

MCN:Whom do you see as your competitors?

DY: While one could consider almost anyone who delivers video entertainment to consumers a competitor, frankly, when you look at the unique combination of our content, pervasive mobile, broadband and video scale and ability to deliver a premium, effortless entertainment experience almost anywhere, we don’t think anyone compares. No one will be able to deliver the quality and breadth of content as efficiently on such an extensive scale to more devices at more value than AT&T Entertainment and Internet Services.

MCN:How do you see the content business evolving over the next five years?

DY: This is not exactly a news flash, but the traditional linear TV model will continue to change as content is increasingly viewed on multiple platforms. If recent trends are any indication, the future is likely to be about increased consumer choice, personalization and portability. That’s not to say families won’t continue to congregate around their 60-inch flat screen TV to watch their favorite show, movie or sporting event, but consumers will increasingly want the opportunity to watch what they want to watch on their own terms. Programmers will also need to adjust to that reality with more flexibility and affordability in their content offerings. Ultimately our customers will tell us how this will all play out, but as part of the AT&T family we are well-positioned to explore new business models that anticipate and embrace that future.

MCN:Will you consider developing skinny bundles in an eff ort to provide customers with more choice?

DY: We are always looking for ways to deliver the right value for our customers, but any conversation about skinny bundles has to begin with programmers who tie numerous marginal channels to their more popular networks. We will continue to try to find the right model and price/value equation that works for our business and our customers, but tough choices must be made or consumers will increasingly make them for us and our content suppliers. We believe that inflexible programmers with obese, declining or overpriced content offerings face being left behind.

MCN:Will NFL Sunday Ticket ever be offered to U-verse TV subscribers?

DY: NFL Sunday Ticket is exclusively available to DirecTV customers via satellite as well as to college, urban and MDU segments via [IP], and it will be for many years. AT&T U-verse customers who want to receive the NFL package can subscribe to DirecTV.

More Distributor of the Year Stories:AT&T Scales to Top of MVPD Mountain | AT&T Gears Up for the Gigabit Era

Meet the new boss. Not quite the same as the old boss.

AT&T’s $48.5 billion merger with DirecTV took a yearlong backseat to more high-profile deals in the media space, but in the end, it was the deal that got done.

Practically sailing through the regulatory approval process — the merger closed on July 24, about 14 months after it was first announced in May — and with virtually none of the controversy surrounding the more high-profile (and eventually aborted) Comcast-Time Warner Cable union, it nevertheless created a new top dog among multichannel video programming distributors (MVPDs).

With 26.3 million video customers, AT&T now sits at the top of the heap, a spot formerly held by Comcast and its 22 million customers. It’s armed with the scale that its peers crave and are actively pursuing. And it did so without having to make onerous concessions.

While Comcast withdrew from its Time Warner Cable acquisition in April, after it became evident that the Federal Communications Commission wouldn’t approve the deal because of the sheer dominance the combined company would have over the broadband market, AT&T-DirecTV passed muster with only a few conditions. AT&T promised to expand its fiber network to an additional 12.5 million customer locations, pledged not to discriminate against online distribution services and agreed to maintain an internal compliance officer to make sure it is adhering to those conditions and offering broadband service to low-income consumers at discounted rates.

Out of the box, AT&T unleashed a torrent of discount offers aimed at pairing its newfound satellite video service with its wireless phone network, the second-largest in the U.S. It was the closest thing to the heretofore-unattainable quad play of video, voice, data and wireless that the industry has seen. It was a bold move.

AGGRESSIVE ON PRICE

Those discounts — $300 for switching lines and another $200 for consumers who purchase a new smartphone phone through the AT&T Next Plan — essentially would give DirecTV customers who switch wireless providers $500 for every line they switch. Potentially, a family of four that changes providers and buys four phones could ultimately reap $2,000 in savings, equal to more than a year of the satellite service’s top tier (the 315-channel Premier package) for free.

“I want Comcast to really regret the fact that they don’t have a wireless asset,” AT&T Internet & Entertainment CEO John Stankey said at the company’s recent Analyst Day.

Whether that plays out or not, AT&T isn’t sitting idly by and waiting for over-the-top and the rest of the competitive universe to run roughshod over its business. The telecom giant is firmly taking the bull by the horns and crafting — or at least trying to craft — a strategy that melds traditional TV viewing with wireless, mobility, retail and broadband.

By taking that bold stance and assembling the various pieces to put it in motion, AT&T is Multichannel News’s 2015 Distributor of the Year.

AT&T began to see the handwriting on the wall even before it started to pursue DirecTV last year. At the company’s recent Analyst Day, AT&T chairman and CEO Randall Stephenson added that while cord-cutting and cord-shaving continues to cut into the pay TV subscriber base, the answer could be in offering customers more flexibility in where and when they watch programs.

“TV everywhere is what’s being consumed by a lot of millennials and our research is bearing this out,” Stephenson said, adding that even as linear TV customers decline as household growth rises, it is a “manageable decline.”

Cord-cutting and cord-shaving will accelerate, Stephenson predicted, but the blow could be softer for AT&T given its additional scale and its product mix.

“What we’re seeing is [with] a $50 package on DirecTV, there’s not much difference in absolute margin to a $90 package on U-verse,” AT&T’s fiber-delivered telco TV product, Stephenson said. “There’s going to be a re-shifting of revenue and our expectation is that we can probably grow revenue per household for the foreseeable future.”

Other cable operators and purveyors of telco TV are following suit. MSOs are scrambling to pair their industry- leading wired broadband and WiFi networks with more content, while Verizon Communications, which has the fiber-based FiOS TV service as well as the largest wireless service in the country, recently launched go90, a mobile-only video service.

But according to AT&T senior vice president and chief financial officer John Stephens, AT&T is in a unique position with the DirecTV asset.

“The key for us is we have ability to deliver those services over multiple platforms,” Stephens said at the recent Goldman Sachs Communacopia conference. “A lot of others in the industry are going to be able to do it over just broadband or do it over just wireless. No one is going to be able to do it like us.

“We are going to be unique in being able to do it over satellite, over broadband, over IPTV or over wireless and we believe that changes the equation and puts us in a different position compared to any other competitor,” Stephens said.

For AT&T, the comparisons are fairly straightforward. While satellite competitor Dish Network may have the video product, it doesn’t have the broadband capability or the owner’s economic advantage over wireless; Verizon may have a broadband capability, but it won’t have satellite or the attendant scale in delivering and negotiating with content providers.

Stephens said AT&T’s approach is an integrated model that allows it to transform and transition to a mixture that also could include over-the-top video. “We understand those other business models — and I don’t mean to dismiss them at all, I’m very respectful of them — but I think we can do those and more,” he said.

BUILDING VIDEO SCALE

The deal also brings unprecedented scale to AT&T in a product line where scale has been lacking. The addition of DirecTV’s 20 million video customers to AT&T U-verse TV’s 6 million subscribers gives the combined company a level of programming clout that was heretofore nonexistent. That should translate quickly into savings on programming costs — AT&T has said DirecTV pays about $17 less per subscriber per month for programming than its U-verse customers, a gap that should close as future programming deals are negotiated.

But scale isn’t just a programming cost advantage. With additional size, the combined company can roll out new products more efficiently and more effectively market its offerings.

Scale has been the driving force in all of the deals leading up to AT&T’s DirecTV buy, only the definitions are different. For Comcast, which already was the largest U.S. cable operator with 22 million customers when it launched its $67 billion bid for Time Warner Cable in 2014, scale meant a greater opportunity to innovate and to further expand its broadband dominance. When Comcast withdrew its TWC bid in April, opening the door for Charter Communications’ $78.7 billion offer for the company, scale took on yet another different meaning.

Although Charter will more than quadruple its size to about 17.2 million video customers with the addition of TWC and Bright House Networks, CEO Tom Rutledge has said publicly that additional scale means a way to more efficiently market and distribute services, as well as lower programming costs.

UBS telecom analyst John Hodulik wrote in a recent note to clients that the additional video heft DirecTV brings to the table is key to AT&T’s overall growth, particularly as customer viewing habits change.

“DirecTV is critical to the company’s future, as video consumption on multiple screens continues to increase,” Hodulik wrote.

Stephens said the strategy is simple — give customers what they want, when they want it. The addition of DirecTV adds a compelling video product to what was already a popular wireless and wireline broadband offering. And by adding DirecTV, AT&T opens up a vast, untapped market for its wireless services. About 15 million DirecTV customers do not have AT&T wireless. On the flip side, 21 million of AT&T’s wireless customers don’t buy DirecTV service.

“We believe that there’s a real opportunity to bundle, to sell and put those things together,” Stephens said at the Goldman Sachs conference. “We’ve built out 57 million broadband locations and up until the DirecTV deal, about 30 million of them didn’t have a TV product. Now they do.”

The DirecTV deal also opened up all of AT&T’s 2,300 retail stores to a video product. Up until the deal closed, video was only available in stores within the U-verse footprint.

But this opportunity comes just as the entire pay TV industry, not just cable, is showing signs of decline. AT&T U-verse reported its first quarterly subscriber loss ever in the second quarter, shedding 22,000 video customers. At the same time, DirecTV lost about 133,000 net new subscribers.

Stephens blamed the losses on a combination of typical second-quarter seasonality — that is when college students disconnect service after the end of the school year and residential customers move to their summer homes — and a change in its promotional habits.

AT&T is moving more toward higher-end, more profitable, longer-term customers, and is pulling back on promotional activity, Stephens said.

“We have gotten out, measurably out, of the promo business in the second quarter and decided to be much more disciplined with our sales efforts and much more focused towards the long term value customers and so that was part of the impact,” Stephens said, adding that the activity around the DirecTV deal probably did have some small impact as well.

“With that being said, it’s transforming like everything else,” he said. “All parts of our industry are transforming, and that’s all that’s going to go on with pay TV and the over-the-top.”

AT&T also is in the middle of a massive buildout of its broadband infrastructure. The telco continues to expect to boost broadband speeds and now plans to expand its high-speed Internet service to reach more than 60 million customer locations by the end of 2018. The company also plans to expand its all-fiber broadband footprint, reaching more than 14 million homes when the build-out is complete.

Those plans haven’t been enough to staunch the criticism of the DirecTV deal, which many analysts have said is a desperate attempt to gain market share by paying too much for a declining asset.

“In the end, AT&T just bought yesterday’s technology in DirecTV at the all-time peak and are melding it with their mostly antiquated, copper-based fixed-line infrastructure,” Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said after AT&T announced its wireless discounts. “This architecture, in my view, will inevitably lose no matter how much money they throw at marketing it.”

While DirecTV’s second quarter net subscriber loss was dramatic, customer growth has been on a steady downward path since 2009, when it reported a gain of 939,000 net new subscribers. According to DirecTV’s financial filings, it gained 663,000 net new customers in 2010; 662,000 in 2011; 199,000 in 2012; 169,000 in 2013; and 99,000 in 2014.

“All of this is AT&T’s problem now,” said Moffett-Nathanson principal and senior analyst Craig Moffett in a recent report. Moffett added that AT&T’s wireless discount offer in August — which, he wrote, “takes promotional discounting to a reckless new extreme” — sends a pretty clear message that the intention is to buy market share.

“Those kinds of offers will inevitably help unit growth, but not with profitability,” Moffett wrote.

AT&T has blamed the second quarter losses at DirecTV on stricter subscriber policies, something that Moffett has praised in recent reports. But that means AT&T will have to figure out a way to increase volumes without sacrificing profitability.

“That won’t be easy,” Moffett wrote in a recent report. “Beyond the lower programming costs for U-verse customers, the synergies from combining a copper broadband infrastructure and a satellite-TV delivered video business are limited, and substantial discounts will be necessary to get customers to adopt a bundle that includes wireless with satellite TV.”

AT&T thinks it can get there not just with heavy promotional activity, but through innovative pricing, packaging and keeping a keen eye on customer habits. The telco believes it has a tremendous opportunity in bundling its products together to take advantage of the 57 million homes it passes with its broadband and wireless networks. But in typical telco fashion, AT&T wants its results to speak for its actions.

“We’ve got to do some more work,” Stephens said at Communacopia. “The proof will be in our results, but, yes, we absolutely feel optimistic about the revenue opportunities. We are just going to be careful to get it done first and talk about it later.”

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SIDEBAR: Cable’s Tortured History With Wireless Plays

The cable industry has a long, dubious past with the wireless industry, and one it would probably prefer to forget.

Cable operators first dipped into the cellular business in the 1980s, but had sold most of their licenses by the next decade, spooked by the high cost of network buildouts and cutthroat competition.

But like Al Pacino’s Michael Corleone in The Godfather: Part III, the wireless business kept pulling cable back in. Cable operators participated in Sprint PCS, the digital communications joint venture with the cellphone giant, with Comcast, Cox and Tele-Communications Inc. investing a combined $4 billion in the early 1990s. The partnership officially dissolved in 1999, when Sprint offered each of the partners Sprint PCS tracking stock in exchange for their interests in the partnership.

The cellular bug bit again in 2005, when Comcast, Cox Communications, Bright House Networks and Time Warner Cable all invested in a wireless partnership with Sprint that was initially supposed to include wireless video. Bandwidth constraints and rights issues hampered that part of the agreement, but the partnership continued on for three years, offering a wireless phone service dubbed Pivot (no relation to the cable network), that was sold by cable operator as well as in RadioShack stores across the U.S. That union also was scrapped in 2008 after disappointing sales.

Comcast, TWC and Bright House, along with Google and Intel, turned to WiMax pioneer Clearwire in 2008, investing a combined $3.2 billion to help the company build out a nationwide network. But bigger efforts by carriers like AT&T Wireless and Verizon Wireless in LTE technology and 4G overshadowed Clearwire’s plans, and by 2012 the cable partners were out of the picture. Sprint ended up buying the rest of Clearwire later that year for about $2.2 billion and has basically used its spectrum to augment its traditional wireless service.

Cable operators participated in wireless spectrum auctions too, forming SpectrumCo, a consortium of Comcast, Cox, Time Warner Cable and Bright House Networks that bid about $2.4 billion in the Federal Communications Commission’s 2006 Advanced Wireless Services auctions. But the operators apparently lost their appetite for cellular service in 2012, when the consortium sold its licenses to Verizon Wireless for $3.9 billion. That deal included an MVNO agreement with Verizon that has yet to be tapped.

Cox held on to its licenses and launched an ill-fated cell service in 2010, shuttering that offering by 2011 due to weak sales and an inability to gain access to “iconic” handsets, which most believed was a reference to Apple’s iPhone.

Cable turned its wireless aspirations to WiFi, which has been a wildly successful retention tool for its industry-leading broadband service. While reports have said Comcast was negotiating with Verizon to amend the MVNO agreement, most analysts believe WiFi will remain top of mind for cable operators.

Charter Communications CEO Tom Rutledge, one of the early cheerleaders for WiFi — he helped Cablevision Systems pioneer the service with its 2008 WiFi network buildout — has said there still may be room for cable in the mobility business.

“We’re going to be stepping into MVNO relationships in our new company [Time Warner Cable],” he said at a Goldman Sachs conference. “That may be a path forward. There’s also the ability to acquire licensed spectrum and begin to build assets in conjunction with WiFi assets. And you can actually put WiFi and licensed spectrum in the same radio camps that you hang on the poles.

“And so there is some combination, maybe of all of that, that creates a customer-relationship stickiness that doesn’t exist today,” Rutledge said.

— Mike Farrell

SIDEBAR: Building a Unified Video Front

AT&T’s acquisition of DirecTV presents significant opportunities and challenges.

While the post-merger company now has a combined U.S. video base of 26 million, taking advantage of this new scale will require it to establish a unified video platform.

AT&T has not outlined its full plan for that, but it’s been dropping plenty of hints.

Of recent note, the company hired Enrique Rodriguez, a former Cisco Systems and Microsoft executive who most recently was with Sirius XM, as executive vice president and chief technical officer. Rodriguez, who knows a lot about Mediaroom (the IPTV platform that currently powers U-verse TV), will be taking a lead role in the technical integration of the U-verse and DirecTV services.

AT&T has also tapped Ericsson (which bought Mediaroom from Microsoft in 2013) to assist as the pay TV operator “enhances” the telco’s TV platform and help AT&T evolve its satellite and wireline TV platform.

AT&T has also announced that it will use a derivative of DirecTV’s gateway-client “Genie” architecture to establish a more uniform, cloud-based video platform for the combined company.

— Jeff Baumgartner