Cable companies intensify enterprise service ambitions

by Jim Duffy - Network World

For Comcast, it’s reportedly $3 billion to $5 billion in five to seven years. For Cablevision, it’s $1.5 billion in two years. And for Cox, it’s $1 billion in four years.

These are revenue targets cable companies say they can achieve from selling phone, data and other services to corporate customers, large and small. Indeed, cable multisystem operators (MSO) are increasingly investing in and targeting enterprise businesses to broaden their market and take competition with the phone companies beyond the residential market.

“It’s a quieter story, but the RBOCs certainly know we’re there taking business from them,” says Hyman Sukiennik, vice president and general manager of Cox Business Services in Omaha, NE.

Sukiennik says revenue from Cox Business Services is currently growing at 20% per year. That would put 2006 revenue at just under $500 million and 2010’s at just over $1 billion.

Cox Business Services has been in the enterprise market for eight years, but has predominantly targeted small and medium-sized businesses. Sukiennik says the company also has large enterprises in its sights and can offer them anything from a single POTS line to an OC-48.

“We have a customer purchasing 40Mbps Internet service that’s moving to 100Mbps in a couple of weeks,” he says. Another has a 300Mbps data connection for a data center, he says. “You have to show them, and show them convincingly, that you have a reliable platform,” Sukiennik says of the larger enterprise customer.

Time Warner Cable’s Business Services division last year was recognized by J.D. Power and Associates for having the top-ranked commercial broadband service in terms of customer satisfaction. That might be welcome news to the company’s 228,000 commercial users.

But larger companies demand more. SMBs will be the predominant business play for MSOs for the foreseeable future, due to the MSOs’ lack of national and international footprint, and the stringent requirements of enterprise telecommunications.

“All the operators have turned their sights to the SMB market since it is huge and not saturated,” says Maribel Lopez, vice president of Forrester Research. But larger companies require service level agreements (SLA), a broader array of services and a wider presence, she says.

“If they don’t have 80% of the footprint they can’t be cost competitive” due to multiple contractual arrangements with nationwide facilities providers, Lopez says. Stitching together that reach through multiple providers will also affect SLAs, she says, because of the individual arrangements that have to be hammered out with those providers.

“SLAs get back to the issue of how much of the network they own,” Lopez says. “It requires a lot of contractual engineering.”

As a result, Lopez believes the aforementioned revenue targets are “aggressive.”

Nonetheless, businesses are buying value-added services from their broadband providers. Worldwide sales of services such as security, application services, IP VPNs, VoIP, remote backup and videoconferencing to businesses grew 142% in 2005, from $3.7 billion to $9 billion, according to Point Topic Research.

Average broadband value-added service revenue per business user increased from $15 to $26 in 2005 as well, Point Topic says.

Market tracker Ovum/RHK estimates that North American service providers gained $16.6 billion in revenue from enterprises last year, of which MSOs had about $1.2 billion.

“They would have a lot to do to grow,” says Ovum/RHK Analyst Ken Twist.

In order to better address this opportunity, MSOs are increasingly hiring executives who they believe can take them to the promised enterprise land. Sukiennik came to Cox from AT&T, one of the two largest telecommunications service providers for large businesses.

Comcast recently recruited William Stemper away from Cox Business Services to guide its own enterprise business. Stemper, who in August was named president of Comcast’s business services unit, also logged 25 years at AT&T.

“I think the challenges MSOs face are related to mindshare – it takes a different marketing and sales strategy to sell to businesses, much more consultative in nature,” says Teresa Mastrangelo, principal analyst at broadbandtrends.com. “In addition, the rules of the game change as businesses are more likely to expect service-level agreements.”

Comcast ignored repeated requests for an interview for this story. But published reports quote a Comcast executive stating the company’s goal of $3 billion to $5 billion in business revenue.

And Comcast last month announced that it was the leading provider of Internet access for SMBs.

The same published reports quote a Cablevision executive stating that his company is targeting 600,000 businesses in its New York metropolitan area. Cablevision has said it could get a 25% share of a $5.8 billion business market in its area in two years in part by offering comparable services to AT&T and Verizon at half the price, the report stated.

Cox’s Sukiennik says the pricing disparity between MSOs and RBOCs is shrinking, however.

“We had to be 15% to 20% (lower) in order for people to look at us,” he says. “But as we’ve gained credibility… we’re at parity and even a premium in some cases. The spread between us and the RBOCs is much less than it was eight years ago.”

Creighton University in Omaha caught the MSO fever two years ago. The school is using Cox services to trunk its education, research and patient care facilities together, and is also running Cox coax to student dorm rooms for video and high-speed Internet service.

Cox is replacing AT&T, Alltel and three or four other carriers for that trunking business, says Brian Young, vice president and CIO at Creighton.

“We needed to clean it up, add reliability, redundancy and reduce costs,” he says, adding that Creighton is saving thousands of dollars over the academic year by working with a local operator like Cox. The school has a 40Mbps pipe coming into the main campus with 10Mbps split off to student dorms, while medical clinics tie back into the Creighton Medical Center over T-1s and cable modems.

While Creighton has the cost and reliability equation nailed, Cox’s Sukiennik says Cox and other MSOs will address the footprint issue through peering and interconnection arrangements, much like ISPs do today to provide national and international scope.

“In three to five years, as other cable companies catch up, we will haul traffic between our networks through interconnection points,” Sukiennik says. Peering with competitors is a “probability, not a possibility,” he says, and a “logical extension” of MSOs’ enterprise ambitions to date.

Even then, the chance of stealing significant mindshare and marketshare from incumbents is slim, says Ovum/RHK’s Twist.

“CIOs at large companies are less apt to trust their mission-critical operations and network to cable companies which are relatively new entrants to the market and are not known for having networks with five nines of reliability,” Twist says. “The MSOs still have a long way to go to erase that perception and prove to the market that they are every bit as capable as the big telcos.”

 

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