The Industry

Telecom R&D

In January AT&T announced the creation of the WarnerMedia Innovation Lab, which is a research group that will try to combine AT&T technology advances and the company’s huge new media content. The lab, based in New York City, will consider how 5G, the Internet of Things, artificial intelligence, machine learning and virtual reality can work to create new viewer entertainment experiences.

This is an example of a highly directed R&D effort to create specific results – in this case the lab will be working on next-generation technologies for entertainment. This contrasts with labs that engage in basic research that allow scientists to explore scientific theories. The closest we’ve ever come to basic research from a commercial company was with Bell Labs that was operated by the old Ma Bell monopoly.

Bell Labs was partially funded by the government and also got research funds from ratepayers of the nationwide monopoly telco. Bell Labs research was cutting edge and resulted in breakthroughs like the transistor, the charge coupled device, Unix, fiber optics, lasers, data networking and the creation of the big bang theory. The Lab created over 33,000 patents and its scientists won eight Nobel Prizes. I was lucky enough to have a tour of Bell Labs in the 80s and I was a bit sad today when I had to look on the Internet to see if it still exists; it does and is now called Nokia Bell Labs and operates at a much smaller scale than the original lab.

Another successor to Bell Labs is AT&T Labs, the research division of AT&T. The lab engages in a lot of directed research, but also in basic research. AT&T Labs is investigating topics such as the physics of optical transmission and the physics of computing. Since its creation in 1996 AT&T Labs has been issued over 2,000 US patents. The lab’s directed research concentrates on technologies involved in the technical challenges of large networks and of working with huge datasets. The Lab was the first to be able to transmit 100 gigabits per second over fiber.

Verizon has also been doing directed research since the spin-off of Nynex with the divestiture of the Bell system. Rather than operate one big public laboratory the company has research groups engaged in topics of specific interest to the company. Recently the company chose a more public profile and announced the creation of its 5G Lab in various locations. The Manhattan 5G Lab will focus on media and finance tech; the Los Angeles lab will work with augmented reality (AR) and holograms; the Washington DC lab will work on public safety, first responders, cybersecurity, and hospitality tech; the Palo Alto lab will look at emerging technologies, education, and big data; and its Waltham, Massachusetts, lab will focus on robotics, healthcare, and real-time enterprise services.

Our industry has other labs engaged in directed research. The best known of these is CableLabs, the research lab outside Denver that was founded in 1988 and is jointly funded by the world’s major cable companies. This lab is largely responsible for the cable industry’s success in broadband since the lab created the various generations of DOCSIS technology that have been used to operate hybrid-fiber coaxial networks. CableLabs also explores other areas of wireless and wired communications.

While Comcast relies on CableLabs for its underlying technology, the company has also created Comcast Labs. This lab is highly focused on the customer experience and developed Comcast’s X1 settop box and created the integrated smart home product being sold by Comcast. Comcast Labs doesn’t only develop consumer devices and is involved in software innovation efforts like OpenStack and GitHub development. The lab most recently announced a breakthrough that allows cable networks to deliver data speeds up to 10 Gbps.

The Industry

Comcast as a Competitor

Somebody recently asked me about Comcast as a competitor. They have been a formidable competitor for many years, but I think they are pulling ahead of other cable companies in many ways. I’m sure that over time some of the other cable companies will try to emulate them. Consider the following:

  • They’ve created Comcast Labs (similar to Bell Lab). This group of scientists and engineers are concentrated largely on developing products that improve the customer experience. Nobody else has a research arm of this size and focus.
  • One of the first things out of Comcast Labs has been the proprietary X1 settop box, which has rave reviews and is heads above any other box. It has easy-to-use menus and is voice activated. It integrates the Internet into every TV. And it includes a growing list of unique features that customers really like.
  • Comcast has also now integrated Netflix and Sling TV into their settop box to keep customers on their box and platform. I suspect that Comcast takes a little slice of revenue for this integration. And it looks like they have a goal of becoming what the industry is starting to call a superbundler. There are around 100 OTT offerings on the market today and my guess is that over time they are going to integrate more of them into their ecosystem.
  • Comcast is working on skinny bundle packages that will let people buy smaller and more focused TV packages to keep them from leaving. Comcast is highly motivated to keep customers on the system since they own a lot of programming.
  • Comcast has 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. And this can all be easily monitored from the settop box or from a smartphone app. They don’t report numbers, but I’ve seen estimates that they now have a 7% to 8% customer penetration. Those customers are totally sticky and won’t easily drop Comcast.
  • Comcast has been an industry leader in in the race to unilaterally increase customer data speeds. They moved my 50 Mbps product to 75 Mbps with plans to raise it again to 100 Mbps after the DOCSIS 3.1 upgrade. I think they have figured out that faster speeds means a lot fewer customer complaints.
  • They are going to soon be offering cellphone services and will integrate them into the bundle. They just announced tentative pricing that looks to be lower than Verizon and AT&T in two-thirds of the markets in the US. Analysts say that over five years they could capture as much as 30% of the cellphone business in their markets. We’ll have to wait and see if that happens – because the cellular companies have better customer service than Comcast. But there is no doubt that they will get a lot of customers, and that those customers will also be sticky. They just bought a pile of spectrum that will help them offer some service directly to improve their margins.
  • One big advantage Comcast has over wireless competitors is that they own a lot of programming content. The industry expects them to use zero-rating, meaning that they will give their cellular customer access to all of their programming without having it count against cellular data caps.
  • As the biggest ISP Comcast probably has the most to gain from the reversal of customer privacy rules and net neutrality. Comcast already does well selling advertising but could become one of the major players online using customer data to target marketing.
  • Comcast is putting a lot of money into making their customer service better. They are quickly moving away from making everybody call their customer service centers. They also now have a decent customer service by text process. And they now allow people to ask and resolve questions by chat from their web site. Each of these improvements satisfies a niche of their customers and relieves the long wait times for a customer service rep.

They are also 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. But what they (and all of the other big companies) are banking on is the general belief that within five years there will be a decent artificial intelligence system for handling customer service. This will not be like the dreadful systems used today by airlines and banks. The expectation is that an AI will be able to satisfactorily handle the majority of customer service calls satisfactorily without needing a human service rep. Comcast will have these systems long before smaller competitors, giving them a big cost advantage.

I probably have a dozen blogs over the last few years blasting Comcast for their various practices and policies. But it’s not hard to see that they are possibly the most formidable competitor in the country. When you consider all of these positives and also understand that on a local basis that Comcast will match competitor’s prices – they are hard to beat. Like with any large ISP there are probably 20% of their customers that will choose somebody else out of reflex. But after that it’s a real challenge prying and keeping customers away from them.

The Industry

Comcast Labs

It’s easy to think of all of the big ISPs in the industry as roughly equivalent in terms of services, technology, and customer experience. But Comcast has invested in Comcast Labs, a research and development branch of the company that is starting to distinguish Comcast from the rest of the industry.

Comcast Labs has branches in Silicon Valley, Seattle, Philadelphia, Denver and Washington D.C. The Lab employs 40 PhDs, 10 Distinguished Fellows and hundreds of engineers and active inventors, all very focused on telecommunications and product research.

The lab is different than the more familiar Bell Labs, which has always done a lot of pure research and not just telecom research. Comcast Labs is very focused on developing specific products for the company as well as looking for ways to improve the Comcast networks.

The impact from Comcast labs is pretty easy to see. They developed the X1 settop box platform which is regarded as the most innovative box in the industry. The platform includes an easy to use navigation system and cloud-based DVR and can be used to control up to five TVs in a home. They are constantly developing new features and during the recent Olympics they rolled out a remote with voice control (you talk to the remote).

They have also developed a fully integrated set of home automation features marketed at Xfinity Home. Comcast Labs developed a custom hub, rather than relying on a hub made by somebody else. The company so far has integrated a number of home automation features into the platform which includes security, thermostat, water sensors, cameras, door locks, etc., all controlled from a smartphone or from a TV.

Comcast Labs doesn’t only develop consumer devices and you can read about some of their other research on their blog. The company has adopted the concept of moving network control to open source software and is heavily invested in OpenStack and GitHub development. They are also researching a future migration to IP video, which would free up more of the network for delivery of data.

The company and the Labs are also researching areas that will have a long-term benefit to the company such as finding network solutions that use less energy and moving towards a software defined network to be more flexible and to more quickly implement solutions nationwide.

A high-level Comcast executive recently bragged that the company through Comcast Labs could solve problems and deliver solutions within weeks that would take other companies in the industry many months or years.

I find it interesting that the company doesn’t talk a lot about Comcast Labs. There are very few articles on the organization outside of the Comcast websites and I assume that they dissuade those at the Labs giving interviews to outsiders.

But it’s clear that Comcast Labs provides the company with a lot of solutions that would not come from off-the-shelf electronics and solutions. This puts the company on par with Google, Facebook and AT&T as companies that have largely withdrawn from the normal industry vendors and taken their own path by developing their own equipment and solutions.

Of course, the company doesn’t operate in a vacuum. For instance, the FCC is currently strongly considering a requirement that the industry develop a standard solution to allow customers to buy off-the-shelf settop boxes. The custom X1 box that Comcast Labs has developed goes in the exact opposite direction of what the FCC is looking at and the company would probably have a hard time complying with such an order.

But overall Comcast Labs provides the company with a resource that other telcos can’t match. The company is constantly rolling out new features and products that companies without a research arm will not be able to match. I’m sure the reason for this research is to create more loyal customers by providing features and services that they can’t get elsewhere. I guess time will tell how good this strategy is, but it’s hard to argue with success, and as much as people like to complain about the company they are growing faster than anybody else in the industry in terms of new customers.

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