A Tale of Two MSOs

NEW YORK -- The Future of Cable Business Services -- In terms of sheer size, Cox Communications Inc. and Bresnan Communications LLC may represent different ends of the MSO spectrum, but both cable operators share a common goal: to increase their business service revenues and steal share from their telco rivals.

That much was evident here Tuesday as execs from Cox Business and Bresnan outlined elements of their respective commercial service strategies during the morning and afternoon keynotes at the second annual Light Reading Live event dedicated to cable business services.

Cable operators, both large and small, view business services as important growth engines. And why not? U.S. cable operators have barely scratched the surface of the revenue potential. Heavy Reading senior analyst Alan Breznick estimates that businesses spend between $120 billion and $130 billion each year on voice, data, and video services. Although cable networks pass as much as three-fourths of all small and mid-sized businesses in the U.S., the domestic cable industry takes home just $2.5 billion to $3.0 billion of that haul each year.

Cox Business, the commercial services unit of Cox Communications, isn't making an absolute killing on commercial services yet, but it does expect to pull down about $850 million in revenues this year, and more than $1 billion by 2010. (See Cox Biz: Cable's Next Billionaire? )

Cox Business represents about 10 percent of Cox Communications' total revenues, but the unit is expected to encompass 25 percent of the company's growth over the next three years, said Kristine Faulkner, vice president of product development and management for Cox Business.

Cox, she noted, expects to grow that business services base through a mix of footprint expansions, a broader wholesale effort, an expanded base of channel partners, and an extension to a lucrative group of "mid-market" customers.

Cox Business is starting to expand its footprint to downtown areas and industrial parks on a proactive basis, rather than waiting for a large deal to come through before approving new network build-outs. The division is also coupling its traditional "feet on the street" sales strategy with an expanded outbound sales effort, and looking to strike more VAR (value-added reseller) partnerships. Cox Business has already tapped Nortel Networks Ltd. to help the MSO move its existing commercial-class Internet subscribers to voice service packages.

As for the "mid-market," Cox Business will use committed data rates and service level agreements (SLAs) to go after businesses with 21 to 99 employees and expand well beyond its traditional bread and butter -- businesses with fewer than 20 employees. "There's a lot of capabilities in that HFC [hybrid fiber/coax] network," Faulkner said.

Bresnan: Small operator with big ambitions
While Cox Business hopes to drive more than $1 billion in commercial service revenues by 2010, Bresnan Communications, a mid-sized MSO that passes about 600,000 homes in largely rural parts of Montana, Wyoming, Colorado, and Utah, also sees some growth opportunities ahead, albeit on a much smaller scale.

Lenny Higgins, Bresnan's senior VP of advanced services, believes the MSO's addressable business voice service market is in the range of $85 million to $100 million. Bresnan launched commercial phone service about 18 months ago using gear from Metaswitch Networks .

And its competitive situation is much different than that of Cox, which is faced with several fiber-to-the-premises (FTTP) deployments. Qwest Communications International Inc. (NYSE: Q) is the primary competitor in 90 percent of Bresnan's footprint. The MSO comes up against just one CLEC -- Integra Telecom -- in Billings, Mont.

"We're not running into the FiOSs of the world," Higgins says, referring to Verizon Communications Inc. (NYSE: VZ)'s fiber-fed platform. "We have a smaller pond, but only two of us are fishing in that pond."

And it has beaten Qwest to some of the larger fish. The state of Montana recently awarded Bresnan a seven-year contract to support 500 locations with managed services. Bresnan is handling the load with its own HFC plant and fiber extensions, as well as leased DSL and T1 circuits. (See Montana Hires Bresnan.)

Outside of that deal, Bresnan is also considering some Docsis 3.0 trials for next year, just in case the competitive situation changes. "No one is offering 20 Mbit/s speeds in our footprint," Higgins says, but Bresnan wants to be prepared to offer speeds above its 10 Mbit/s (downstream) by 3 Mbit/s (upstream) tier should Qwest or other competitors opt to speed up their biz-class Internet service tiers.

SIP opportunities
Both Cox and Bresnan have SIP-based, hosted IP services in their crosshairs. Cox has already launched SIP in seven of its 16 markets, Faulkner says.

Bresnan, meanwhile, expects to deploy SIP-based offerings by the second or third quarter of 2009. "We don't have customers jumping up and down for [SIP], but we do want to be ready for when customers want it," Higgins says.

— Jeff Baumgartner, Site Editor, Cable Digital News