Cable Business Services

Moffett: Business Services Critical to Cable Growth

NEW YORK -- The Future of Cable Business Services -- Business services are a major growth engine for the cable industry, and Wall Street isn't paying enough attention. Those were two of the messages imparted by renowned financial analyst Craig Moffett in his presentation at the Light Reading Future of Cable Business Services conference today.

Financial analyst Craig Moffett with Heavy Reading analyst Craig Leddy
Financial analyst Craig Moffett with Heavy Reading analyst Craig Leddy

In a chart modeling cable financials, Moffett illustrated a standard gross profit growth rate of 4.1% including combined income from video, broadband, voice, commercial and advertising services. He called that number the "comfortable consensus" of how the market sees cable companies performing. Commercial services only make up roughly 10% of revenue contribution today, but they're growing at a 20% rate. And they'll have to shoulder a much bigger load in the future if things go further south in the video business, or if growth declines in the residential broadband market. (See Cable Gives Thanks for Business Services.)

Referring to issues like cord cutting, increased programming costs and broadband market penetration, Moffett pointed out: "There's reasons to be cautious about a negative variance in [video] subscriber growth. There's reasons to be cautious about a negative variance in broadband subscriber growth."

He also got very specific about what those negative forces could do to cable's dependence on business services.

"If we're still at negative 2% on video and broadband is still 9% growth, then I need 8.8% growth from business services; really easy because I'm already getting 20%," noted Moffett. "But if things slip just a little bit and suddenly the video business is a negative 4% business… and the broadband business decelerates just a little bit to 7%... well suddenly I need to take my 20% to 28% growth. And so there will be more and more and more pressure going forward on business services to deliver the goods."

For more on this topic, visit the dedicated cable business services channel
right here at Light Reading.

A jump from 20% to 28% sounds difficult, but potentially doable given the upside in business services at the enterprise level, and through increasing speed and efficiencies gained from New IP technologies like SDN and NFV. However, Moffett went a step further to show just how far business services growth would have to accelerate if traditional lines of revenue fell a bit further.

"At 5% declines for the video business, and the broadband business going from just 9% to 5% growth, I would need an extraordinary 44% growth from business services to make the numbers work."

Despite the importance of business services, Moffett said that Wall Street is barely paying attention. In fact, most investors in the telecommunications space don't even focus that heavily on wireline issues, much less how they pertain to the commercial services sector.

"Business services as a category tend to be reasonably low on people's priority list on Wall Street," he stated.

Wall Street might want to rethink that position. In the near-term future, business services will be increasingly critical to cable's continued success.

— Mari Silbey, Senior Editor, Cable/Video, Light Reading

alanbreznick 12/3/2015 | 2:12:38 PM
When Does Cable Mex Out? So Moffett says the pressure is on cable business services to perform even better on the revenue side. But can it? How long can MSOs keep boosying their commercial revenues by 20% a year? Will be very interesting to watch.   
DHagar 12/2/2015 | 9:31:53 PM
Re: tug of war KBode, true.  They will also have to relate differently to the business services customer.  So it won't just be the service models/pricing, it will also need to take into account the value for the business services.  They might not all be as good at competing in this space, don't you think?
KBode 12/2/2015 | 5:16:28 PM
tug of war I think it's going to be very interesting to see companies like AT&T and Verizon try to erode small business market share while companies like Comcast try to elbow their way into the larger enterprise segment. Going to be MUCH more competition on these fronts than on the residential side of the aisle to be sure. 
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