Cable Providers Push Into Middle Market and Enterprise Sectors

Comcast, Rogers Communications and Cox Communications are three North American cable providers making the biggest up-market push right now even as they still pursue many Mom-and-Pop firms. Speaking at a recent industry conference in New York hosted by Light Reading, senior business services executives from all three spelled out their plans to broaden their reach so they can capture a greater share of the mid-market and enterprise sectors.

In a conference keynote speech, Kevin O'Toole, senior vice president-product management and strategy for Comcast Business Services, said Comcast is using its twin rollouts of DOCSIS 3.0 and Metro Ethernet service to lure both more and larger commercial customers. He said small businesses and mid-sized enterprises are flocking to Comcast as cloud services drive bandwidth requirements in the last mile and the firms seek alternatives to the telcos. O'Toole said cable operators, unlike the incumbent telcos, don’t have any twisted pair to defend and, unlike the CLECs, don’t have to rely on someone else’s last-mile network facilities. For instance, he said, Comcast now has facilities-based, last-mile access in 20 of the top 25 U.S. markets, stretching across nearly 600,000 route miles.

Comcast, which reported nearly $1.3 billion in commercial revenue last year, has already eclipsed that total through the first nine months of 2011, putting it on track to report $1.7 billion for the year. With the company now posting commercial revenue of more than $400 million per quarter, O'Toole said Comcast’s business services unit is generating revenue at almost a $1.9 billion annual run-rate. Due to such growth, industry analysts project that the cable provider will easily blow past the $2 billion revenue mark in 2012.

In the lower end of the business market -- firms with fewer than 20 employees -- Comcast is leveraging its DOCSIS 3.0 rollout to offer download speeds as high as 100 Mbps for $369 per month. The service also features a cloud component, namely hosted access to Microsoft’s Communications suite. Comcast estimates such small firms spend $10 billion to $15 billion in its footprint, meaning it has siphoned away less than 15 percent of the market from the telcos so far. So, O'Toole said, there’s still plenty of room to grow.

At the same time, Comcast is shifting its sights higher to the mid-market, which it defines as companies with 20 to 500 employees. For this segment, it has already rolled out Metro Ethernet service in more than 20 markets, offering download speeds as high as 10 Gbps. MetroE is “poised to do to legacy TDM-delivered data services what cable modems did to dial-up,” O'Toole claimed. He said MetroE’s bandwidth boost will be the key to supplying revenue-generating cloud services because they require more data to run down the last-mile connection.

"MetroE and DOCSIS are unlocking cost-effective last network capacity,” O'Toole said, saying cable operators can carve out additional capacity from their networks by reclaiming analog spectrum, splitting fiber nodes and enabling higher quadrature amplitude modulation (QAM) modulation schemes: “I don’t think people appreciate the … last-mile capacity that (hybrid fiber-coax) HFC is capable of or where we stand relative to unlocking its full potential.”

Rogers, seeking to boost its share of the mid-sized and enterprise market, is pressing other North American cable operators to interconnect their networks and coordinate their commercial offerings. Speaking at the same conference, Terry Canning, senior vice president of Rogers Business Solutions, said cable companies have a great opportunity to lure enterprises away from telcos because of cable’s unique HFC architecture, abundance of fiber lines and DOCSIS 3.0 technology. He also said cable has the upper hand because its fiber networks are concentrated in suburban, residential areas where many small businesses are located, while the telcos have mainly installed fiber in large metro rings. “Owning the plumbing isn’t sexy, but it is a competitive advantage,” he said.

But Canning acknowledged that Rogers and other cable companies lack the multi-regional, national and international network reach of the big telcos. While Rogers has no trouble finding enterprise customers for its ethernet over fiber services, he said, the challenge is bringing the fiber to some larger companies. In particular, Rogers finds it tough to compete for larger companies with multiple locations scattered across the country or globe.

Aiming to resolve this problem, Rogers is developing network-to-network interfaces (NNIs) to link its wireline network to those of other cable operators. But Canning said more work must be done to create a standard commercial product set across the cable industry. “MSOs must work together to align their product offerings, establish interconnects with each other and evolve from regional players to integrated national ones,” he said. “Where you can’t build, partner."

Canning also urged cable operators to overcome their reputations as “best effort” service providers by delivering higher-quality service to their most important commercial customers. He argued that cable providers should go one step beyond the telcos, which have built their customer service reputations by guaranteeing 99.999 percent or better network availability. “Telcos were built on the five-nines, but they stopped there,” he said. “We have the opportunity to win huge shares of marketplace if we pursue 100 [percent availability]. But we're not there yet.” He said 100 percent availability is particularly important now as more enterprises move critical applications into the cloud and rely on network connections into the cloud for those applications.

Cox Business is now pursuing “large locals” in its franchise areas to boost its commercial service revenue, said Senior Vice President Phil Meeks. In particular, he said, Cox is wooing hospitals, school systems, universities, medical offices, government agencies and other entities in the education, healthcare and government sectors. “We're very focused on those three verticals,” he said, speaking at the conference.

Cox, which became the first cable operator to reach $1 billion in annual commercial service revenue, is shooting to hit $2 billion by 2016. Meeks said the cable provider should achieve that by recruiting the large locals, doubling its market share of small firms with fewer than 20 employees and doubling its wholesale carrier revenue over the next four years. “We plan to continue that growth trajectory,” he said.