US Cable Firms to Bank $6B in Biz Services

NEW YORK -- The Future of Cable Business Services 2011 -- U.S. cable continues to pry away the telcos' grip on the business services market, with MSOs poised to pull down about $6 billion in commercial revenues in 2011, according to Heavy Reading 's latest estimates.

And there's much more upside to pursue. Cable's current take represents just 4 percent to 5 percent of the $130 billion to $140 billion that businesses spend each year on telecom services, says Heavy Reading Senior Analyst Alan Breznick, who shared his latest research here this morning at the fifth-annual Light Reading Live event on the topic.

He estimates that MSO hybrid fiber/coax (HFC) plant already passes about 75 percent of the nation's small- and mid-sized businesses, which together represent $50 billion to $70 billion in annual telecom spend.

Last year, U.S. cable raked in about $5 billion in the category with three MSOs -- Cox Communications Inc. , Comcast Corp. (Nasdaq: CMCSA, CMCSK) and Time Warner Cable Inc. (NYSE: TWC) -- each breaking the $1 billion mark in annual business services revenues for the first time.

"It's been amazing that the growth pace hasn't slowed down," Breznick says. "If anything, it seems to be speeding up," he adds, noting that Comcast and TW Cable are each seeing revenue increases in the range of 30 percent to 40 percent.

"It's what's been making a difference in a shaky economy," Breznick adds.

Here's a snapshot of how some of the top cable MSOs have fared so far on the commercial services front in 2011:

Table 1: MSO Business Service Revenues � 2011
MSO Q1 revenues Q2 revenues Q3 revenues Year-to-date revenues % Change
Comcast $394 million $435 million $464 million $1.29 billion +43.3%
Time Warner Cable $312 million $361 million $387 million $1.06 billion +31.0%
Cox $310 million* $320 million* $320 million* $950 million* +15.0%*
Cablevision (Optimum Lightpath) $77.3 million+ $77.1 million+ $77.5 million+ $231.8 million +9.4%
Charter $137 million $141 million $148 million $426 million +16.7%
*Heavy Reading estimates

MSO-supplied business services have emerged as a reliable growth engine at an important time for the cable industry, which has been faced with an eroding video customer base and a slowdown of residential voice service adds.

Breznick expects Comcast, which has recently added to its small-business strategy by using Metro Ethernet services to target mid-sized businesses, to crack $1.8 billion in commercial services revenues in 2011. The MSO ended the third quarter with $1.29 billion, already ahead of last year's total. (See Comcast Expands Metro Ethernet.)

And Comcast is expected to become the first MSO to pass the next big money milestone. "They'll crash $2 billion next year," Breznick says, predicting that Comcast could pull down close to $2.5 billion in 2012.

Most of cable's take has been in the small business category, with Cablevision Systems Corp. (NYSE: CVC)'s Optimum Lightpath unit as one of the more notable exceptions to the rule.

Cable faces longer sales cycles as it moves up-market with Ethernet services, but Breznick says MSOs are well-positioned to make some near-term strides in the cell backhaul market, and he expects them to pull down about $500 million this year, more than double last year's grab. U.S. cable ended 2010 with about 11,000 cell towers under contract, a number that Breznick anticipates rising to 25,000 by the end of 2011.

Please check back throughout the day for more coverage of today's event, which includes keynotes from Comcast Business Services SVP of Product Management and Strategy Kevin O'Toole; Rogers Business Solutions SVP Terry Canning; Cox Business SVP Phil Meeks; CENX Inc. President Nan Chen; and Marketing by Strauss & Partners Founder and Principal David Strauss.

— Jeff Baumgartner, Site Editor, Light Reading Cable

Jeff Baumgartner 12/5/2012 | 4:47:30 PM
re: US Cable Firms to Bank $6B in Biz Services

True, they have some weight behind it now and they're gathering some steam, but the operations behind all this will have to become a significant focus now that they have the platform laid out to attack the mid-section.

And, yes, great  catch... supposed to be $1.29 *B* on that chart, so it's been changed. JB


msilbey 12/5/2012 | 4:47:30 PM
re: US Cable Firms to Bank $6B in Biz Services

It's amazing how quickly Comcast has risen to the top of the ranks here. (Assume chart should say 1.29 billion for ytd revenues?) It put off efforts around commercial services for a long time, but I guess once it made so many network upgrades, there was a lot of low-hanging fruit to grab. I wonder how the MSO's customer support structure will change as it goes after larger corporate customers. 

AESerm 12/5/2012 | 4:47:29 PM
re: US Cable Firms to Bank $6B in Biz Services

Last year the TWC exec seemed already bracing for limits to cell tower backhaul growth. Guess that hasn't happened yet to the industry at large. Relatively lower growth for CVC aka Optimum LP (compared to the others) dovetails with the general Bernstein Research thesis that the MSO is reaching limits. Speaking of whom, I also recall that C Moffett last year raised a flag on declining margins in business services. Any news there?

Jeff Baumgartner 12/5/2012 | 4:47:29 PM
re: US Cable Firms to Bank $6B in Biz Services

It well may indeed be the case for TWC since they've been out in front in terms of cell tower support. Chuck Kaplan at Ciena just warned that cell backhaul is a nice business and all and a nice "cornerstone" for cable's biz services efforts, but that cable should not lose sight of serving larger businesses, which, to your point, offers more runway in terms of growth potential. 

Good memory on what Moffett brought up last year. The biz services margin notion hasn't come up again (yet),  but we still have a few sessions to go. JB


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