In fact, if the current quarterly trends hold, each of the continent's three largest MSOs will surmount $1 billion in commercial services revenues for the first time this year. Following robust increases in 2008 and 2009 and a similarly strong start in 2010, Comcast Corp. (Nasdaq: CMCSA, CMCSK), Time Warner Cable Inc. (NYSE: TWC), and Cox Communications Inc. each stand poised to pass the $1 billion mark for their commercial services operations by the end of the year.
To be sure, that's no great surprise for Cox, the longtime cable leader in the business services area. Privately owned Cox has long targeted 2010 as the year to clear the $1 billion hurdle. It closed last year with $985 million in commercial revenue, up 15 percent from $853 million in 2008.
"We will definitely hit $1 billion in 2010," predicted Cox Business VP Phil Meeks, speaking at our latest Future of Cable Business Services conference in New York. He noted that Cox Business came "perilously close" to reaching that milestone last year – and might have made it, if the recession hadn't hit such major markets as Las Vegas, Phoenix, and Orange County, Calif., so hard.
But now Time Warner Cable and Comcast are coming up hard right behind Cox, threatening Cox's supremacy in this market. In particular, Comcast, a longtime laggard in business services, is coming on strong.
In 2009, Comcast raked in $828 million in commercial revenue, up an impressive 48 percent from the $558 million that it generated the previous year. It then produced $263 million in the first quarter, up an equally impressive 49 percent from the same quarter last year, passing second-place Time Warner and putting it on pace to reach the $1 billion mark this year.
Although it's just been passed by Comcast, Time Warner hasn't exactly been a slouch either: It reported $254 million in commercial revenue for the first quarter, up 19 percent from the same quarter the year before, putting it on pace to join the $1 billion club as well. Last year Time Warner took in $915 million in business revenue, up 15 percent from $793 million in 2008.
Table 1: Cable Operator Commercial Revenue
|Cox Communications||$740 million||$853 million||$985 million|
|Time Warner Cable||$660 million||$793 million||$915 million|
|Comcast||$394 million||$558 million||$828 million|
|$215 million+||$249 million+||$256 million+|
|Charter Communications||$337 million||$391 million||$446 million|
|Source: Heavy Reading|
Where's the revenue coming from? In Time Warner's case, it's increasingly coming from a variety of media services. Not surprisingly, in its first-quarter earnings report late last month, the MSO said business data services accounted for $151 million of its $254 million commercial total. But it also reported $64 million in video revenue, $26 million in voice revenue, and $13 million in cell tower backhaul revenue.
Eager to keep their momentum going, both Comcast and Time Warner are now adding wireless broadband to their commercial services portfolios and rolling them out market by market. Just last week, for instance, Time Warner announced the launch of its new, commercially oriented WiMax service, Business Class Mobile, in Dallas, San Antonio, and two other Texas cities.
Both Comcast and Time Warner are also stepping up their capital spending on commercial service upgrades, despite cutting back their overall capex. In Time Warner's case, business-oriented capex surged more than 81 percent in the first quarter, even as the MSO's residential capex fell 12 percent and its overall capital spending slipped 4 percent.
So there's no sign yet that the big MSOs have topped out on business services. Instead, the big question is when the big telcos will really wake up to this growing cable threat.
— Alan Breznick, Senior Analyst, Heavy Reading