Cable operators target business accounts
Local presence, price and bandwidth are key to winning accounts from telcos.
By Jim Duffy
Network World, 11/01/04
Think your cable TV company is just for video and residential VoIP? Think again. Cable multisystem operators are building a strong presence as providers of business telecom services, particularly to small and midsize businesses.
In the U.S. alone there are approximately 5.4 million SMBs, about 98% of which are passed by upgraded cable facilities, according to Current Analysis. U.S. businesses will spend roughly $3.2 billion on cable modem services this year, as compared with an estimated $3.3 billion for DSL services, according to In-Stat/MDR.
"It's small businesses - doctors' offices, car dealerships - those kind of places that have some data needs but don't have heavy-duty data needs," says Lynda Starr, an analyst at Probe Group.
In 2003, SMBs spent about $2.15 billion on "value-added" data services - broadband services, voice-over-X (VoIP, VoDSL and others) services, VPN services, managed services and other telco-delivered services provided over the wide-area data network. They spent the largest portion - 36% - of their wireline data service budgets on such services, the firm found.
"They're in the areas that are already passed by the cable systems," Starr says. "The residential market is pretty well saturated; there's not a lot of new business to be had. [MSOs] have to increase the revenue per subscriber they have or find new types of subscribers."
At-home workers and telecommuters also continue to drive broadband adoption. Nearly one-third of the U.S. workforce, or 44 million individuals, is expected to work at home on at least a part-time basis this year, according to In-Stat/MDR.
The firm expects that number to grow to 51 million telecommuters by 2008, nearly 14 million of whom are expected to work from home full time. Cable outpaces DSL in terms of number of subscribers in the U.S. business at-home workforce, In-Stat finds.
Cable company Cox Communications is finding a lucrative business in offering enterprise services. The company's Business Services unit, which was launched in 1998, provides data, voice and transport services to more than 100,000 customers.
Cox Business Services' customers include Boeing, First Fidelity Bank and MGM Mirage resorts. Its products and services include: dedicated data transmission up to OC-192 speeds over fiber, T-1 and ATM, and VPN; Internet access; switched voice and long-distance; video services; Web hosting and e-commerce; and carrier access services.
The Cox unit generated revenue of more than $287 million in 2003, a 25% increase over 2002. The company expects annual growth to continue in the mid-20% range.
"We focus for the most part on customers that are in our [local access] footprint that have 100% or maybe 80% of their needs in our footprint," says William Stemper, a Cox vice president, who came to the company 14 months ago after 25 years at AT&T. "So by definition, we pick up a different type of a customer than AT&T."
Ninety-five percent of Cox's business customers have 100 or fewer employees. Total telecom expenditures within the company's region is more than $8 billion annually, Stemper says, and business customers within 100 feet of the network spend about $3 billion annually.
"We think there's a fair amount of growth ahead of us," Stemper says.
Location, location, location
Traditional telcos also are gunning for that business. Cox's differentiator is local presence, Stemper says.
"We're embedded in the community," he says. Local Cox officials "are not wiring Atlanta headquarters for approval. That allows us to be very nimble, very intimate with the customers. These are customers that use our services when they're at home and have done so for a long time. So they understand our brand."
Cox also has a technological differentiator over the telcos in its region, Stemper says. The cable operator can offer higher-speed, higher-throughput 6M bit/sec cable modem services within its footprint while business DSL services from the telcos tops out at 3M bit/sec.
But the telcos have a much bigger regional footprint than the cable operators and have had so for a long time, Stemper notes. They also serve a broader customer base than Cox can, he says.
But Cox is looking to broaden too. It kicked off a National Enterprise campaign earlier this year to attract the business of larger, Fortune 500 companies needing local services.
"We're not providing them a nationwide VPN network," Stemper says. "We serve their local needs of how they link up a call center and a data center and an administrative office. Or how they might be backing up data centers."
Stemper says Cox is culling through lead data generated from the campaign. But he says it so far has led to a "strong uptick" in orders from all customers, not just large corporations.
One such customer is Care New England. The Rhode Island healthcare consortium had outgrown its Internet service and required higher-speed interoffice links between five main healthcare organizations and 50 remote doctors' offices and labs.
Cox set up a virtual-area network to connect the major sites, pulled fiber into three hospitals and selected remote locations, and connected the rest of the remote sites to the VAN over 384K bit/sec cable modem links.
Care New England chose Cox over a traditional telephone company because of "flexibility" and cost, says Howard Rubin, director of IS. "They're easier to work with, more flexible in terms of meeting our requirements, and they were able to price [our network] at a lower price. . . . No issues with service at all."
The only snag, Rubin says, is when Care New England purchased some telephony services from Cox. The cable company was "a little tight" on direct inward dialing numbers, he says.
"It's difficult for all the organizations to get numbers right now," Rubin says. "But other than that we have no complaints."
Also in the game
Charter Communications is another cable operator with a unit dedicated to deliver business services to corporations. Its Charter Business group does about $225 million in sales annually, and is growing about 26% per year.
Charter declined to be interviewed for this story, citing a quiet period before releasing third-quarter earnings. But Charter customer Wisconsin Rapids School District contracted with the cable company to connect 12 sites using OC-3 ATM over fiber and 100M bit/sec switched virtual circuits between sites.
"We had a choice between Charter and the local telephone company," says Jeff Gibson, technology supervisor for the school district. "At the time, Charter was in the process of wiring our community. So when we asked for quotes, they saw it as a way to piggyback on their existing project. They offered us bandwidth that was 100 times greater than what the phone company offered us, at about one-fifth the price. Obviously, the choice was easy to make."
Charter does not yet offer voice telephony service in the school district's region; but if it does when the district's current contract is up in two years, Gibson says it will be considered.
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