Record MVPD M&A May Spell Trouble for Consumers

If history is any guide, customer frustrations will mount in the next few years and providers will find their reputations almost impossible to improve. A series of articles last year said the megadeals will improve customer satisfaction only if the companies account for customer hassles before changing programming packages, product prices, technology and equipment (see 1411030031 and 1408080059). Now, Google's fiber, carriers' wireless broadband and other products increasingly threaten to eat some of cable's dominant market share, just as rising pay-TV bills frustrate customers, who have more options than ever for video entertainment.

Cable could become a technological relic if it doesn't quickly adapt to the digital age and customers' ever-increasing expectations, consumer satisfaction experts said. With wireless carriers offering faster data speeds and Google Fiber entering more markets, they said it's conceivable that unless the cable industry changes its customer-alienating ways, it could lose broadband market share. Cable boosters said they don't think that will happen because this time, unlike with past bouts of M&A-induced disruption, operators are serious about addressing customer frustration.

Providers' "flaws are very apparent to their customers if in any way they bungle the integration" of companies post-merger, "and these are very complex systems, so it is not uncommon for them to do so," said Dorie Clark, who teaches at Duke University and consults on marketing, strategy and crisis communications to clients that have included tech companies. For customers, "it is going to get worse before it is going to get better," she predicted. Rather than focusing on improving service, operators "are prioritizing relationships with legislators and making sure they’re not angering legislators. They are maximizing the value of their assets," Clark added, "and trying to squeeze out the last dollar like AOL did with dial up."

Cable operators increasingly rely on broadband for profit amid high programming costs and reductions in video customers due to cord cutting, experts said. They said that unless the operators address reputation problems with subscribers -- the American Customer Satisfaction Index (ACSI) continues to find that ISPs and MVPDs are bottom rated -- broadband momentum could eventually suffer. That would be akin to the current trend with video subscribers, which cable operators have been losing for a few years.

"There is no end in sight" of cable operators' video customer defections, SNL Kagan analyst Tony Lenoir said. Since hitting a peak in 2007, cable companies like Comcast and TWC -- which aborted their deal to combine amid potential FCC and Justice Department opposition (see 1504240066) -- have lost about 19 percent of video subscribers, ending 2014 at 53.7 million, SNL Kagan said. By year-end 2025, the researcher expects cable to have lost another 18 percent of video subscribers, to 44.2 million. "If they were to face competition on broadband and if we were to see substitution" of other fast-broadband products for cable Internet service, "we’d be in trouble," said Lenoir.

Charter, buying BHN and TWC, is "focused on continuing to improve customer service," a spokeswoman emailed Friday. It "will leverage the transaction to better our relationships with customers across the New Charter footprint. Over the last three years, Charter has brought back jobs from overseas call centers and hired thousands of people to improve our customer care services." The operator also has gone all-digital, improved products and raised the entry-level broadband service to 60 Mbps, she said. "New Charter will also return TWC call center jobs to the United States and will hire and train thousands of new employees for its customer service call centers and field technician operations."

AT&T, which bought DirecTV, "can now offer a nationwide TV service with a nationwide mobility service, high-speed Internet serving millions of U.S. homes, nationwide retail stores and top-rated customer service," a spokesman for AT&T said. Other companies taking part in the M&A spree had no comment.

Competition

Google Fiber and wireless broadband are among newer competitors experts said threaten cable's broadband market share, as Netflix and other online video distributors attract former MVPD subscribers. Google Fiber doesn't report the number of its subscriptions, and experts said the service with speeds up to 1 Gbps isn't widely available. But wireless broadband is widely available. Google Fiber declined to comment.

While cable operators are expected to keep adding broadband subscribers, wireless broadband connections are expected by analysts to rise at a much faster pace. Cable ISPs will add 3.7 percent more subscribers this year and 2.8 percent next year to end 2016 at 59.5 million subscribers, SNL Kagan forecast. ABI Research expects U.S. mobile broadband connections to rise 9.3 percent this year and 9.5 percent the next to end 2016 at 433.1 million total. "Wireless broadband subscriptions in the U.S. will continue to grow until 2020," though growth rates have declined, ABI analyst Marina Lu said.

Some said wireless carriers' better customer satisfaction ratings are a reason they're gaining more broadband customers than are wireline ISPs. They said if the customer satisfaction gaps between the industries continue, and wireless becomes a better competitor on speed and data caps, wireline ISPs may lose customers. "We could see a landscape where that wireless technology is what’s eventually driving" technological improvements, ACSI Managing Director David VanAmburg said. "We could see the [cable] industry go the way of Blockbuster. … It certainly would intensify competition, if you really had a viable wireless [broadband] product."

Wireless service, though not as beloved by consumers as other high-tech products, isn't in the customer service ratings basement like MVPDs. Wireless service satisfaction fell 2.8 percent to 70 in 2015, from the record high the year before, with consumers rating the service fifth from lowest among all industries, ACSI said; ISPs and MVPDs were in last place at 63. In absolute terms across industries, 80 or better generally is a good rating, scores in the 70s are average and below 70 is poor, VanAmburg said. The top spot among all services this year again went to TVs and video players, at 86. The next decade could see wireless data substitution for home Internet service, SNL Kagan's Lenoir said. "We seem to be headed toward a cordless world."

Wireless carriers are "hyper-focused on consumers," CTIA Vice President Scott Bergmann said, pointing to the breadth of devices carriers offer, increasing data speeds and lower prices. The "consumer-driven mobile wireless industry" is "meeting the needs of consumers," Bergmann said. With LTE high-speed wireless broadband subscriptions rising from no more than 1 million to 183 million in the past five years and mobile data usage soaring, "consumers are adopting mobile broadband, and their usage is increasingly flowing there," he said. NCTA had no comment.

Recovery in Sight?

With wireline customer frustrations likely to rise as the likes of AT&T and Charter absorb acquisitions, experts said they're looking a few years ahead to see whether those and other companies can start pleasing consumers after folding in the acquired systems. Some said they're counting on increasing competition to finally force ISPs and MVPDs to up their competitive game.

"It’s hard to imagine with that landscape a year from now, that things will be better," said ACSI's VanAmburg. Whether things eventually get better for users "depends on the emergence of alternatives" and their viability, he said. "There still seem to be some practical limitations to the competition."

MVPD optimists say the industry is engaged in a sustained push to improve customer service, often using technology to keep subscribers better informed. That should lift customer satisfaction, they said. Those experts pointed to a wide array of self-help and self-installation tools, better technology using newer equipment and increasingly the cloud, tutorials available through VOD and more information about bills. “From a consumer perspective, I think we’re seeing for the first time in a long time that value-added services” like Comcast's X1 services and Xfinity brand "are going to help reshape some of the mindset that may be out there," said Vice President-Product Management Chad Dunavant of CSG, which provides customer service, billing and other services to MVPDs. "You’ve got to do a better job in allowing customers to interact with you on their terms" as opposed to only being open during business hours and scheduling technician visits in four-hour blocks of time, he said.

With a lot of CSG's big customers combining, they are increasingly planning ahead by notifying subscribers months before changes, trying to minimize glitches from joining systems, and standardizing products, Dunavant said: "I’m seeing a more concentrated effort" among MVPDs to minimize customer disruption "way ahead of these deals closing, and before it was more of an afterthought." MVPDs are giving customer service representatives access to more information so they can better attend to subscriber requests, he said. With MVPDs increasingly offering a wider array of more complicated services, including home automation and security, plus households connecting more devices to broadband, he said, some operators are helping set up home networks. "It’s almost like a Geek Squad for the MVPDs," Dunavant said, referring to Best Buy's tech support service.

Some MVPDs don't frustrate customers to begin with. Consumer Reports found a sector-leading 79 percent customer satisfaction rating for broadband and a 76 for video at Armstrong, a cable operator with less than a million subscribers in five states in the eastern half of the U.S. The family-owned company credits those scores to its long focus on customers' experience, which Vice President-Cable Marketing Dave Wittmann said can be harder to achieve at big companies. He said Armstrong technicians have for years worn booties on their feet when entering homes, something many MVPDs started only recently. For some types of requests, such as installing broadband service or a product with TiVo that allows better searching for programming, Wittmann said Armstrong has always sent technicians to homes and not required self-installation. "We would go the extra mile to try to help you," such as by taking queries on how Microsoft's new Windows 10 affects customers instead of deferring to the software maker, Wittmann said. "A lot of ISPs will not have that stance."