Another Comcast Bundle

Comcast just announced that they will be bundling solar panels with their other services in selective markets. This adds to the already-largest bundle of products in the industry and is one that many competitors will have a problem keeping up with.

Comcast has been doing a trial with Sunrun, a solar panel maker from San Francisco. Comcast found during this test that their customer satisfaction and customer retention rates rose significantly with customers who bought the solar panels. Comcast has now entered into an exclusive 40-month marketing deal with the company. It’s been reported that Comcast will get 10% of Sunrun’s stock if they can install 60,000 solar customers. Comcast has committed to spend $10 million on sales and marketing for the solar panels and will get a share of the customer revenue from the product.

Sunrun currently has about 150,000 solar installations in 22 states. Comcast has over 27 million potential solar customers. The cable company also has over 1 million home automation customers, which Comcast believes will be their best market for the new solar product.

Even before this announcement Comcast has become a fierce competitor. Comcast’s CEO Brian Roberts recently said that as he looked around the industry that he didn’t see any products of interest that the company doesn’t already have – a claim no other ISP can make.

This announcement falls on the heels of Comcast’s decision to get into the cellular business. They are now marketing in a few markets with prices lower than Verizon and AT&T and plan to eventually roll this out to their whole footprint. They also just bought a pile of spectrum that will help them increase margins on cellular service. Analysts say that over five years that Comcast could capture as much as 30% of the cellphone business in their markets.

Comcast says it is tackling both of these product lines to reduce churn and to increase customer stickiness. They understand that long-time customers are their most profitable customers and they are putting together bundle options that ought to please a lot of households.

All of their effort looks to be paying off. Comcast is the only cable company that gained cable TV customers for the year just ended in the second quarter. They gained 120,000 customers while the rest of the industry is now bleeding cable customers at an average rate of 2.5% of total customers per year. While the bundles are probably not the only reason for that it’s hard to argue with this success.

Comcast has done a lot of other things to increase customer satisfaction. They created Comcast Labs (similar to Bell Lab). This group of scientists and engineers are concentrated largely on developing products that improve the customer experience. This group developed the X1 settop box which has rave reviews from customers. It’s so popular that Comcast is now selling this box to other monopoly cable providers. The settop box has an ever-growing number of features and can be voice-activated. Comcast has also integrated Netflix and Sling TV into their settop box to keep customers on their box and platform.

Comcast has also found great success with their smart home product. This is probably the most robust such product on the market and includes such things as security and burglar alarms, smart thermostat, watering systems, smart blinds for energy control, security cameras, smart lights, smart door locks, etc. Their product suite can be easily monitored from the settop box or from a smartphone app. The press releases from the Sunrun announcement is the first time in a while that we’ve heard about their success and the million plus customers using these products.

The company still has a lousy reputation for customer service and most of their customers dread having to call them. But they are supposedly putting a lot of money into making their customer service better. They recently began moving a lot of customer service back to the US, finally understanding that the cost savings of using foreign reps is not worth the customer dissatisfaction.

The flip side to making customers more sticky is that it makes it that much harder for a competitor to take their customers. Somebody buying a solar panel on a long-term payment plan is not likely to leave them for a competitor, particularly if there are financial penalties for doing so. Customers with a suite of home automation products become locked in unless they are willing to yank all of the monitors out and start over. Bit by bit Comcast is shielding their most lucrative customers from being poached by others.

The Broadband-only Customer

Polk County SignI’ve been thinking about product bundles and the way that we treat customers that only want to buy broadband. Service providers everywhere are reporting that there are more customers every year who only want to buy a broadband connection. And yet a large number of ISPs have policies that make broadband-only customers feel unwelcome.

I will use the example of my experience with Comcast in trying to buy broadband-only. But Comcast is not unique and a lot of carriers have similar policies. Comcast had two separate policies which are definitely not broadband-only friendly.

When I first asked for service I wanted to buy a 50 Mbps broadband product, and nothing else. I was told that the broadband-only product at ‘higher’ speeds was not available as a standalone product and that, at a minimum I’d have to buy basic cable in order to get the faster speeds. They would have allowed me to buy a slower speed, which was probably around 15 Mbps without the cable product add-on.

We have a broadband intensive household, so I bought the higher speed and got saddled with a basic cable product that is completely unused in our home. We’ve never even connected the settop box or watched one minute of broadcast TV in three years. Meanwhile Comcast has doubled my data speeds to 100 Mbps, but I’m still saddled with a cable product that I don’t really want or use. And that means I am paying a huge premium for the broadband by paying for a service and a settop box I don’t have any need for. That makes my broadband very expensive, over $90 per month for a 100 Mbps connection. It also means that I would jump ship in a second for another provider that could offer me the fast speed I want without the extra cost. This one policy has ensured that I will dislike Comcast for life since it’s probably cost me $1,000 extra over three years.

If I had elected to instead take the slower speed then I would have run into the second Comcast policy which works against broadband-only customers. Comcast (and a lot of other providers) charges more for the broadband if you buy it alone. In this case they wanted $10 more for the standalone broadband than if I had also bought something else.

This is all due to the way they handle the bundling discount. What their pricing says is that if you buy more products you get an overall discount, and I can appreciate that. But many carriers do this in such a way as to antagonize the broadband-only customer. In advertising Comcast and others advertise only the lowered bundled prices, and so when somebody comes to buy just broadband they find they are facing a higher price than what is advertised. This is particularly an issue for somebody who drops down to broadband-only since their monthly rate for the data product increases.

Not every carrier does it the same way. Many of my clients have a single price for broadband, and if you then add on more products you get an overall discount. Under that pricing strategy the broadband-only customer feels like they are paying the same base price as everybody else, and they fully realize they could save money on additional products if they want them.

To some degree this second policy is a matter of perception. When I am told I have to pay a higher price than what’s advertised I am automatically unhappy with the ISP. It’s not hard for a company to do this without antagonizing customers.

This is an issue that every ISP needs to look at because more and more customers want to buy standalone broadband. Households have abandoned landlines and are starting to abandon cable and thus standalone broadband is going to be a more common product. I know cable companies are worried about becoming nothing more than data pipe providers – but that is what a lot of customers want from them.

The FCC probably has it within their purview to tackle the first issue. The agency required telcos many years ago to sell ‘naked’ DSL and could require the same 0f cable companies now that they are under Title II regulation. But the second issue is strictly a marketing issue and I think carriers need to get attuned to the fact that customers want to buy only data connections and they don’t want to feel taken advantage of while doing so.

The Power of the Bundle

coax cablesOne of the primary ways that the cable companies have built their market dominance is through bundling. We are all aware of the many bundles of cable TV, telephone, and Internet access that they sell, and for which they give you a discount.

But you have to wonder how much longer those traditional bundles are going to make sense. According to the American Cable Association, by 2020 most cable companies are going to be seeing zero profit margins on their cable product. And for many companies it’s not even that far away. I’ve done the math and many of my clients are already losing money on cable when you consider all costs of supporting the cable product.

I’m sure the very largest cable companies do a little better, but they can’t be making a lot of money on cable TV. They have economy of scale, which has to help, but other than Comcast who owns a number of the networks carried on their systems, the other big companies can’t be making a very big margin on cable.

The normal bundle discount works by providing a discount for buying multiple products. It’s not unusual to see a bundle discount of $20 for somebody buying the full triple play. Nobody outside the cable companies knows which products are discounted or how the cable companies count the discount on their books. I’m not sure that really matters to the companies, but it really matters to customers.

Bundles today seem to have become a tool for penalizing a customer for dropping a service rather than as a marketing tool to attract customers. Today most new customers at big cable companies are attracted by specials, and those specials then eventually revert to the bundle prices when the period of the special ends. So most new customers often don’t even know the bundle prices when they buy.

But you quickly learn the unbundled prices if you try to drop services. Let’s say you have cable and Internet product and are paying $69 for the bundle. If this bundle has a $15 bundling discount the products would cost $84 dollars if bought separately. If you want to cut the cord and cancel your cable, you will find that you will lose the whole bundling discount, and your remaining Internet connection might still cost you $45 or more per month, meaning that you save $24 or less from cutting cable. If you had planned on dropping cable and buying NetFlix and perhaps some other OTT service you might easily find yourself paying more after cutting the cord than you paid before with the bundle.

That is the power of the bundle. It is no longer a marketing tool to capture customers because the big cable companies only talk about their bundles prices in the very fine print in their advertising. Instead, the bundle is a way to penalize customers for cutting service. I see industry pundits wondering all the time why cord cutting isn’t happening faster. There are a lot of people in surveys who say they are going to cut the cord but then never do it. Since most cord cutters want to keep their Internet connection, I think a lot of cord cutters change their mind about cutting cable when they find out how paltry their savings are.

If anything, cable companies are probably going to have more opportunities to bundle in the future than they do today. People have been steadily dropping voice lines for a long time. And while cable cord cutting is starting slowly, it is picking up steam. But to offset these losses the big cable companies are adding new products like security, energy management, home automation and IoT, and WiFi phones.

The cable companies are probably going to have the opportunity to sell OTT cable packages. It seems likely that the FCC is going to give anybody the ability to sell smaller OTT products over the web, and one has to think that they are going to let the cable companies compete with the same smaller products. Today, cable companies have a regulated set of rules for how they must build their programming tiers. But I suspect that there is going to be more profit for cable companies to sell a 40-channel package than what they are making with today’s big 300-channel packages.

And so we are probably going to see a lot more bundling, but rather than the triple play bundle it will be Internet access bundled with these other new products. And certainly the cable company is going to continue to use the bundling discount as a way to make it hard for customers to drop their service. So my guess is that bundling is not only here to stay but that it has a big future as a tool for cable companies to continue to strong-arm their customers to stay with them.