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Business
Comcast has tough job of winning over skeptical consumers

Sunday, March 09, 2003

By Patricia Sabatini, Post-Gazette Staff Writer

Rostraver resident Gordon Marshall had just plopped contentedly onto his living room couch one snowy Sunday afternoon last month to watch soccer on one of his favorite cable channels, Fox Sports World, when his brief respite was interrupted. Instead of men in knee socks taking the field, what he saw was the message "Not authorized" flashing across the screen.

James Oldham, is a technician with Comcast, the cable giant that recently acquired AT&T Broadband. (Darrell Sapp, Post-Gazette photos)


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A stunned Marshall immediately phoned his cable company, Comcast. "They told me if I wanted to get back to the level of programming that I had the week before, I would have to get a digital cable package." The higher-tier package would cost $75 a month, vs. the $49 he had been paying.

Marshall, who'd been notified that rates were going up but didn't realize he would be losing any channels in his current package, said he now plans to cancel his 25-year cable subscription and order a satellite dish.

A jump in cable rates comes while Comcast, the new kid on the block here, is trying to reverse mounting subscriber losses at the struggling AT&T Broadband, the former No. 1 U.S. cable provider that Comcast swallowed up for $29 billion four months ago.

The latest increases -- which took effect in February and averaged between 6 percent and 10 percent locally -- were needed to pay for spiraling programming costs and expenses of upgrading outdated cable networks, Comcast has said. Even so, it is seeking to put some distance between itself and the decision to raise rates, which it said was made under the old AT&T regime before the merger was completed. As if to emphasize that latter point, Comcast didn't officially change the local AT&T name until last month, even though it took over in mid-November and sent notices about the new rates in January.

Rate increases aside, industry watchers say cable subscribers should be pleased that Comcast -- which serves about three-quarters of the cable subscribers in Allegheny County -- has taken over the local cable reins. In an industry where people love to hate their cable company, "not too many people hate them," independent telecommunications analyst and industry guru Jeff Kagan has said about Comcast. The company "is a real quality outfit," agreed Bill Gloede, editor of Cable World magazine in New York. It "takes customer service seriously."

In some ways, Comcast's commitment to service reflects the fact that despite its size, it still is a family-run enterprise, with founder Ralph Roberts serving as chairman of the board's executive and finance committees and his son, Brian Roberts, serving as chief executive officer.

 
 
Comcast Corp.

Business: Cable television, high-speed Internet service, cable telephone service; owns the QVC cable shopping channel and other programming content, such as E! Entertainment, the Golf Channel and Comcast SportsNet. The company's majority-owned Comcast-Spectator subsidiary owns and operates the NHL Philadelphia Flyers and the NBA Philadelphia 76ers.

Headquarters: Philadelphia.

2002 Revenue: $12.5 billion.

2002 Loss: $274 million

History: Founded in 1963 by Ralph J. Roberts and two partners with the purchase of a tiny cable TV business in Mississippi. Grew to become the third largest U.S. cable operator through a series of mergers in the 1980s and '90s. In November, vaulted to No. 1 as the largest cable company in the country with the $29 billion acquisition of the No. 1 cable operator, AT&T Broadband, a unit of AT&T Corp.

Employees: 55,000, including about 1,000 in the Pittsburgh region.

Cable TV subscribers: 21.4 million, including about 355,000 in Allegheny County and portions of Beaver County.

   
 

A pioneer in the cable TV business, Comcast traces its roots to 1963 when former Muzak salesman Ralph Roberts joined two partners to buy a small, 1,200-subscriber cable system in Tupelo, Miss. Then known as American Cable Systems, the business "didn't seem very exciting" at first, the elder Roberts has said. He started to change his mind in the 1970s when the movie channel HBO became available via satellite, giving cable companies more to offer than simply better local reception.

Renamed Comcast in 1969 for "communications" and "broadcast," the company expanded outside of Mississippi in 1971 with the purchase of franchises in Western Pennsylvania. It went public a year later and moved its headquarters to Philadelphia, Roberts' home since he was a teenager. Growth was fueled by a series of acquisitions, including the 1986 purchase of a portion of Group W Cable's systems, which were being sold by Pittsburgh-based Westinghouse Electric Corp.

November's acquisition of AT&T Corp.'s AT&T Broadband unit vaulted Comcast to the nation's dominant cable company, boasting 21 million subscribers in 41 states. The deal brought with it AT&T Corp. CEO C. Michael Armstrong, who serves as Comcast's chairman. But analysts say the elder Roberts, 82, and 43-year-old Brian hold the reins.

But even though they've earned consistent praise for overseeing a well-run operation that's attentive to customer service, few would deny that Comcast's mission will be considerably more challenging going forward. The company has more than doubled the number of subscribers it had before the merger and will have roughly four times as many customer service calls to handle. As the nation's largest cable company, it's also a much bigger target for all the frustrations and criticisms that come with providing what essentially is a public utility service.

Nevertheless, Cable World's Gloede believes former AT&T Broadband customers "are in for a great, happy surprise." He noted that Comcast, which was the third-biggest U.S. cable TV operator prior to the AT&T acquisition, has a reputation for keeping its systems updated with the latest technology offering the most advanced products and services, a task at which AT&T Broadband was particularly remiss. "A lot of AT&T's systems are older and were being rebuilt" after a long period of neglect, Gloede said. "Comcast will get them rebuilt as fast as humanly possible."

Indeed, roughly half of the residents in the city of Pittsburgh served by the old AT&T Broadband still can't order digital cable or high-speed Internet access enjoyed by most of the rest of Allegheny County. Comcast is finishing the upgrades begun by AT&T that will fill that gap and allow it to offer the next generation of products including video-on-demand and high-definition TV.

The upgrades should be completed by late this summer or early fall, said Comcast's regional spokesman, Brian Jeter. The company is set to roll out video-on-demand and HDTV (which requires a special TV set) across the region sometime this year, he said.

Video-on-demand, which lets viewers watch movies and other programs at their leisure, and fast-forward, rewind and pause the shows just like a video tape, is expected to be particularly popular. In its hometown market of Philadelphia, the service includes on-demand movies for $3.95 and $2.95 each and more than 1,000 hours of free on-demand content, including some local and national newscasts and sports events.

Besides offering new products, Comcast is moving to improve service by decentralizing AT&T Broadband's customer service operations so that calls are handled locally instead of re-routed outside a particular region. The changes will allow Comcast to trouble-shoot complaints and handle questions in a more effective and timely manner, Jeter said.

Oldham works on a cable upgrade on Boundary Street in Oakland. Says the editor of Cable World magazine: "Comcast takes customer service seriously."

Locally, the reshuffling resulted in the loss of about 65 positions at the call center in Sheraden that were transferred to Richmond, Va., and about 20 jobs elsewhere. At the same time, roughly 100 higher-skilled jobs are being created in Sheraden to handle calls from local high-speed Internet customers that had been getting bumped to call centers outside the region.

Despite Comcast's solid reputation, consumer watchdogs such as Consumers Union, publisher of Consumer Reports magazine, are critical of the Comcast-AT&T marriage, saying it could drive up rates. "When you allow the No. 1 and No. 3 providers of cable TV to merge, it makes it that much tougher for upstarts to enter the marketplaces" and provide competition, said Consumers Union spokesman David Butler.

Roughly 95 percent of homes have only one choice for cable TV service, he said. Of the 5 percent that do have competition, rates are 17 percent lower than in the rest of the country. "Before the merger, the state of competition in the cable industry was already horribly poor," Butler said. "We're now concerned it may get worse."

Since 1996, when Congress freed cable companies to set their own prices without approval from local governments, rates have shot up 48 percent, or nearly three times the rate of inflation, Butler said. "Consumers were promised [that deregulation] would lead to more competition. Obviously, that didn't happen."

Cable companies counter that they're faced with formidable competition from satellite TV. Over the next five years, the number of satellite subscribers is projected to increase by 37 percent, while the number of cable customers might not grow at all, according to accounting concern PricewaterhouseCoopers.

In its current advertising campaign, Comcast takes aim at satellite service, poking fun at problems with reliability and installation, as part of its strategy to head off defections.

Although monthly satellite rates are slightly lower on average than cable rates, Butler said drawbacks, such as frequent outages during thunderstorms, the unavailability of local channels in many communities and the requirement of unobstructed southern views for dishes, means it "does not provide the direct competition needed to discipline cable prices."

Butler's group is urging Congress to hold hearings investigating the cause of rising cable prices.

The group also is pushing for regulations that would give subscribers more freedom to pick channels individually instead of being limited to pre-set packages.

"We believe a la carte pricing could save consumers money," Butler said.

It could turn out to be a good thing for cable operators, too.

Giving Rostraver resident Marshall the chance to save his beloved Fox Sports World channel may have helped Comcast fend off yet another dish.


Patricia Sabatini can be reached at psabatini@post-gazette.com or 412-263-3066.

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