U.S. CABLE OPERATORS likely ended up generating a record US$5 billion in commercial services revenue in 2010, up 25% from $4 billion in 2009, according to the latest data (figures in US dollars).
What’s more, the three largest American MSOs all scaled the $1 billion threshold for business services revenue for the first time last year. In December, Comcast, Time Warner Cable, and Cox Communications all indicated that they would easily clear the $1 billion mark for 2010.
Speaking at a Light Reading conference on cable business services in New York recently, Craig Collins, senior vice-president of services sales and marketing for Time Warner Cable Business Class, said his division was on track to boost revenues by at least 20%, meeting its growth target for the year. In 2009, the TWC business unit generated $915 million in commercial services revenue, putting it in position to reach $1 billion in 2010.
"We have a strong proposition that we are going to make that number," Collins said. He credited TWC’s gains to the hiring of 200 local sales reps in fall 2009 and the streamlining of its operating structure from 32 divisions to six regions.
To put these numbers in perspective, the $5 billion total represents a meager four percent slice of the overall $130 billion to $140 billion U.S. business telecom services pie. But the cable total still represents a healthy increase from the industry’s take in 2009, when it accounted for just three percent of the pie. It also demonstrates that commercial services have decidedly become the biggest growth area for many cable operators at a time when the industry’s residential service revenue is barely edging up.
In this respect, the big U.S. MSOs are following in the footsteps of their Canadian counterparts. Up here, such large cable providers as Rogers Communications, Shaw Communications, and Cogeco Cable have all enjoyed steady growth from investing in commercial services. In 2008, for instance, Cogeco bought Toronto Hydro’s telecom unit for $200 million to expand its presence in business services. Business services expansion was also behind Rogers’ purchase of Blink Communications and Atria Networks.
The big issue now, industry observers say, is whether cable can sustain its strong growth pace as the major telcos start to fight back by offering steep price discounts. So, cable operators are now setting their sights higher and moving “up-market.”
Indeed, after focusing mainly on firms with 20 employees or less, several large U.S. MSOs are now pursuing businesses with up to 250 employees by offering more advanced services, such as hosted voice, storage, security, and cloud-based services. Once again, they’re following in the footsteps of such Canadian MSOs as Rogers and Shaw, which have targeted larger firms for years. Rogers also has an advantage as being the wireless provider for many companies.
But, as U.S. cable operators pursue such companies, they need to prepare themselves for a vastly different market, industry experts say. Speaking at the same event as Collins, Dave Pistacchio, president of Cablevision Systems’ Optimum Lightpath unit, warned his fellow cable executives that there are critical differences between the large enterprise market and the small-to-midsized business (SMB) market.
"When you move up market, it’s a different game, a different league," said Pistacchio, whose division targets companies with 100 workers or more. “That’s not to say that the SMB space is not great, or that bigger is better. They’re just different."
Pistacchio said moving up-market offers a number of potential benefits, including the opportunity to sell higher-value services, build strong long-term relationships, and develop more value-added revenue streams. He noted that Optimum Lightpath has signed up many long-time customers, including some that have been onboard for up to 20 years.
However, Pistacchio stressed that these benefits can come at a high cost. For one thing, he said, larger commercial customers typically generate a lower sales volume than smaller firms. For another, he said, larger firms usually have longer sales cycles than smaller firms, sometimes as long as 12 to 18 months.
Despite such warnings, other cable business services executives said they plan to pursue mid-sized and larger firms with a mix of more sophisticated managed and hosted services, advanced Ethernet products, dedicated sales reps, and a new emphasis on customized solutions.
For example, Kristine Faulkner, vice president of product development and management for Cox Business, said Cox will pursue firms with up to 100 employees with a wide variety of managed services. In particular, Cox will focus on managed communications, storage, and security products, including hosted voice services and unified messaging, network WAN management, secure backup and file-sharing, and e-mail and web security.
As a result, the major MSOs expect to reach the $2 billion plateau faster than they hit the $1 billion mark. Take Cox, the industry’s business services pioneer with more than 260,000 commercial customers and over 800,000 commercial phone lines in operation. "We’ll be very much quicker than 10 [years] and we’ll go about it as fast as we can," Faulkner said.
Alan Breznick is a Toronto-based senior analyst at Heavy Reading, part of the Light Reading Communications Network.
