Heavy Reading: Cable Biz Sales to Hit $8.5B

NEW YORK -- Future of Cable Business Services -- Major US cable operators are on track to reach $8.5 billion in commercial service revenues this year, up more than 20% from nearly $7 billion a year ago, according to the latest research from Heavy Reading.

In his opening presentation here Wednesday, Light Reading Cable/Video Practice Leader Alan Breznick said US cable commercial revenues are still growing so strongly that they could hit $10 billion next year. Yet, even with that growth, there is still plenty of business opportunity left for cable, which today takes home just 6% of the annual US business telecom spend, he said.

Comcast Corp. (Nasdaq: CMCSA, CMCSK) continues to lead the pack with $2.4 billion in revenue through the third quarter of this year, nearly matching its full-year total of 2012. At this pace, Comcast will almost certainly become the first MSO to crack the $3 billion barrier for the full year, just a year after it became the first to reach $2 billion.

Time Warner Cable Inc. (NYSE: TWC) follows with $1.7 billion, close to its $1.9 billion for all of 2012. As a result, TW Cable will easily become the second MSO to cross the $2 billion line by year's end.

Privately owned Cox Communications Inc. , which was once the cable leader, is now well behind in third place with $1.2 billion, according to Heavy Reading estimates. But Cox, which took in an estimated $1.4 billion for all of 2012, is still well ahead of last year's pace.

Charter Communications Inc. has totaled $594 million through three quarters this year, also easily ahead of last year's performance. Cablevision Systems Corp. (NYSE: CVC)'s Lightpath unit has taken in $247.6 million so far this year while Suddenlink Communications has collected $229.2 million, rounding out the list. No figures or estimates are available for privately owned Bright House Networks .

"The only MSO not showing strong growth right now is Cablevision Systems' Lightpath unit, which focuses on mid-sized and larger firms," Breznick says. "That's why Cablevision execs said they would address the unit's laggard growth on the company's last earnings call."

For all that growth, however, cable is just beginning to tap its potential, Breznick notes. The US market of 27 million companies spends an estimated $130 billion to $140 billion on telecom services annually, meaning cable takes home only about 6% of that. Cable has particular opportunity in the very small and SMB market spaces, which represent the vast majority of the total number.

"Not only are these businesses that might feel neglected by their current service providers, but they commonly have access to cable hybrid fiber-coax (HFC) networks," Breznick notes. "The cable industry's HFC lines already pass more than three-quarters of the SMBs in the US."

The market opportunity in the very small/SMB market varies from about $50 billion for Comcast, to $21 billion for TWC, more than $10 billion for Cox, $9.5 billion for Charter, and up to $6 billion for Cablevision.

One thing cable must do to capture more of that opportunity, however, is to improve its business data satisfaction ratings, Breznick notes. Cable actually does well among very small businesses -- those with fewer than 20 employees. Four cable operators, led by Cox but including Cablevision, Charter, and Comcast, outranked Verizon Communications Inc. (NYSE: VZ), AT&T Inc. (NYSE: T) and CenturyLink Inc. (NYSE: CTL) in the J.D. Power and Associates 2013 US Business Wireline Satisfaction Study. Only Time Warner Cable struggles with this market segment.

Yet, in the SMB segment, only Cox outlasted Verizon and Frontier Communications Corp. (NYSE: FTR) in the J.D. Power ratings. And in the enterprise segment, Time Warner Cable was the only MSO that scored well, beating Verizon and CenturyLink to top the list.

Breznick noted that cable still seems to be hurting from the persistent public perception that its services don't match the telecom players for quality and assurance. In a recent non-scientific poll on the Light Reading site, one third of respondents said cable's "poor reputation for service performance and reliability" was the industry's single biggest challenge. (See Cable Can't Shake Poor Reputation.)

— Carol Wilson, Editor-at-Large, Light Reading