Cablecos Get Serious About Business

Having established beachheads in many local markets, the five largest U.S. cablecos are launching a new offensive to attack the unprotected flank of incumbent telcos, and secure SMB customers.

Initiatives on this front include the formation by Comcast Corp. and Cox Communications Inc. of multimillion-dollar venture funds for new builds to commercial customers. And just this May, Cablevision Systems Corp. launched managed voice-over-metro Ethernet services across three states.

“We’ve set up a venture fund, a pool of money at the corporate level, that can be easily accessed if people from the field present a solid business case,” says Bill Stemper, president of Comcast Business Services. That funding can be drawn on for capital expenditures on network extensions to reach business customers if management is sold on the prospect, he explains.

Stemper has been working to make the fund more visible “so it’s not a mystery to the sales staff,” he says, adding that monies typically are used on network enhancements and extensions needed to deliver high-capacity, fiber-based services to SMBs. The efforts also often include a service interface and/or an edge router, but not on-premises equipment. “It isn’t a set amount, but we want to be open to sound business opportunities that require spending not in the capital budget.”

Stemper brought the venture fund idea to Comcast upon his arrival from Cox late last fall.

Like Comcast, the Cox business services unit typically uses its fund for network extension comprising fiber rollouts to support a combination of voice, Internet and often video services, with some regions using it for on-premises gear needed as part of managed packages, says Coby Sillers, vice president of commercial field operations at Cox.

Two types of customers whose communications needs warrant withdrawals from the fund include school districts and wireless operators requiring high-speed private lines for cellular backhaul applications, he says.

“The fund helps us address spending not anticipated in our prior year’s forecast,” explains Sillers.

The big five cablecos note that SMBs provide fatter margins than do residential customers and boast larger ARPU.

Cablecos also contend that the SMB space has a lower rate of churn than the residential space. “Churn is just under 2 percent a month,” says Comcast’s Stemper, adding that “the main reason for churn is people going out of business.”

BroadbandTrends.com’s Teresa Mastrangelo

And competition for SMB customers, which cablecos often can leverage their existing networks to reach, is far lighter than it is for residential customers, according to the MSOs.

“They’re wisely pitching to the 20-employee-and-under segment, which represents 70 percent of all businesses in the U.S.,” says Teresa Mastrangelo, principal analyst at BroadbandTrends.com. “They’re targeting doctor’s offices — any place with a waiting room — and similar places with a TV that need the voice, data and video services trifecta.”

For its part, Cox Communications-Las Vegas says it’s been particularly successful with individual auto dealers, a piece of the thriving 5-to-20-employee segment it targets, as well as a slew of hotels that define the city skyline and put big bucks for voice, data and video services into Cox’s pockets. “We estimate the business spending on voice and data services in our Las Vegas franchise area is about $300 million, and the amount where we have plant, at over $200 million,” estimates Leo Brennan, vice president and regional general manager for Cox Communications-Las Vegas. “It’s a natural extension of what we do. You don’t have to get a big piece of that for it to be a lucrative business.”

Cox has been in the commercial segment for five years now and claims double-digit penetration in terms of market share, says Brennan, adding that the market is growing at a double-digit percent rate annually. “It’s a great opportunity, and we’re going after it,” he says.

Meanwhile, Comcast Business Services claims the business opportunity for companies with fewer than 500 employees in its expansive territory, which includes the Northeast corridor, is about $50 billion annually, and about $15 billion for SMBs with 20 workers or less. “For customers that use both voice and data services, the ARPU is about $400 to $500,” Comcast’s Stemper says, adding that the company’s goal is to get 20 percent market share over five years.

Cablecos believe they have an attractive menu of services, including managed offerings, to attract SMBs. That includes digital voice, high-speed Internet, Layer 2 VPNs, private lines, video and more. And the cablecos are putting particular emphasis on packaging these services in ways that appeal to the SMBs.

Optimum Lightpath’s Dave Pistacchio

For example, Cablevision’s Optimum Lightpath unit in mid-May launched fully managed voice-over-metro Ethernet services across a broad FTTP footprint. The service, which it developed in collaboration with Cisco Systems Inc. and NEC Unified Solutions Inc., includes for a $4,500 monthly flat fee everything from transport to a set number of user handsets. “We firmly believed that pricing services on an [individual case basis] kept customers away, especially at the low end, because pricing was very complicated and they didn’t see what it would cost them specifically,” says Troy Glick, vice president of product development for the cableco’s SMB unit. “We think flat rates are an excellent example of simplicity.”

Cox Communications’ Leo Brennan

Dave Pistacchio, general manager of Optimum Lightpath, adds, “Voice over metro Ethernet offers the certainty of service and quality of performance businesses require today. Businesses in the tri-state area can now get their Internet, data and voice services from Optimum Lightpath metro Ethernet technology.”

The cablecos also feel the relationships and reputations they’ve built with customers and community leaders based on their residential efforts will be an asset in helping them win SMB customers. But given that cablecos traditionally have been far less meticulous about their networks than have the telcos and historically are known for keeping customers waiting at home for hours for service turn up, those existing relationships could be a double-edged sword, notes Tom Nolle, president of CIMI Corp. “Our research shows that the SMBs are most likely influenced in their broadband choice by their personal experiences at home,” says Nolle. “If they have ever had problems with cable broadband, they shun it for business purposes, and even a few episodes over a year is enough to turn them. They are also more likely to be price buyers than other businesses, and cable is almost never the price leader. Thus, it’s my view that the cable guys have their challenges.”

Read “Cablecos Ready Their Organizations, Networks for Business” for more details on what the cablecos have done and are doing to align their organizations and networks to attack commercial services.

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