Cable Industry Hits $5 Billion Mark for Business Services

Furthermore, for the first time in the cable industry’s history, the nation’s three largest MSOs will all end up clearing the $1 billion threshold for business services revenue this year. Over the past few weeks, Comcast, Cox and Time Warner Cable have all indicated that they have already hit the $1 billion mark for 2010. In fact, both Comcast and TWC will likely pass the $1.1 billion mark or even higher by Dec. 31, according to the latest data available.

To be sure, the cable industry’s total take of $5 billion makes up just a 4 percent sliver of the overall U.S. business telecom services pie, which analysts estimate to be $130 billion to $140 billion in size. But the industry’s total still represents a sizable increase over its take for 2009, when cable accounted for a mere 3 percent of the overall business services pie. It also shows that commercial services have firmly become the most rapidly growing area for many MSOs at a time when cable’s residential service revenue is edging up only slowly, if at all.

Industry analysts say the big question now is whether cable can sustain this strong growth pace in the new year and beyond. As cable operators attempt to make further inroads in the small-to-mid-sized business (SMB) market and sign up larger companies as customers, the major telcos are starting to fight back. In August, for instance, former Time Warner Cable COO Landel Hobbs said telcos in three of the MSO’s largest markets -- New York, Los Angeles, and Dallas -- are now “offering discounts of 15 percent to 40 percent in exchange for multi-year contracts with small business customers."

For now, though, MSO business services executives are popping their champagne corks. Consider Cox, a cable business services pioneer that led the industry with $985 million in commercial revenue last year.

Speaking at a Light Reading conference on cable business services in New York earlier this month, Kristine Faulkner, vice president of product development and management for Cox Business, said her division expected to crack the $1 billion mark for 2010 sometime the following week. In fact, Faulkner joked, the company’s CFO had pinned down the exact hour and minute that Cox would reach this milestone. She stressed that the milestone was quite an achievement for Cox, considering that the entire company produced about $9 billion in total revenue in 2009.

Faulkner credited this achievement to Cox Business’s early start in the sector nearly a decade ago. She also credited the division’s focus on traditionally underserved businesses with fewer than 20 employees. She noted that 61 percent of Cox Business’s revenues come from such smaller companies, including 32 percent from firms with four employees or fewer. Slightly more than half of the division’s SMB customers take at least two products, usually data and voice.

The story is similar at Time Warner Cable, which generated $915 million in commercial revenue last year. In a discussion at a UBS conference in New York earlier this month, TWC CEO Glenn Britt disclosed that his company hit the $1 billion mark at the end of November

Speaking at the same Light Reading conference, Craig Collins, senior vice president of services sales and marketing for Time Warner Cable Business Class, said his division was on track to boost revenues by at least 20 percent in 2010, meeting its growth goal for the year. “We have a strong proposition that we are going to make that number,” he said. Collins said hiring 200 local sales reps in the fourth quarter of 2009, along with centralizing its operating structure from 32 divisions to six regions, drove TWC’s increase in commercial revenue.

Comcast, formerly a laggard in the sector, has seen even more dramatic growth recently than either Cox or Time Warner. Comcast, which produced $828 million in commercial revenue last year, became the first MSO to enjoy back-to-back quarters with at least $300 million in commercial services revenue earlier this year. In an appearance at the same UBS conference as Britt, Comcast Cable President Neil Smit said his company’s business services unit is now averaging an annual run rate of $1.3 billion.

Looking forward, cable operators are starting to move “up-market” to spur further growth. After focusing mainly on firms with 20 employees or less, several MSOs are now starting to pursue businesses with up to 250 employees by offering more advanced services, such as hosted voice, storage, security and cloud-based services. For instance, Cox is now targeting firms with 100 or fewer employees by developing and deploying managed services, including hosted voice and storage, network WAN management, security and business service applications.

Cable providers are also counting on such potential high-growth areas as cellular backhaul to fuel continued commercial expansion. Although it’s estimated that cell backhaul accounts for no more than about $200 million in cable revenue today, MSO executives believe there’s much more to be had as wireless providers seek extra capacity to support their new 4G services.

For example, Time Warner Cable is angling to boost revenue by providing cell tower backhaul services to wireless providers. With millions of consumers now using bandwidth-hungry smart phones, Collins sees it as a highly promising area. Time Warner Cable already generates at least $75 million in annual revenue from cell backhaul services through the 5,100 towers that it has wired, nearly half of the 11,000 towers wired by cable nationwide. “We have done a fabulous job in cell backhaul,” Collins said. “It has been a big winner for us.”

As a result, the major MSOs expect to reach the $2 billion plateau faster than they hit the $1 billion mark. Take Cox, the industry’s business services pioneer with more than 260,000 commercial customers and more than 800,000 commercial phone lines in service Company executives have indicated that they plan to reach $2 billion within the next six years or so, although they have declined to pin down exactly when. “We'll be very much quicker than 10 [years] and we'll go about it as fast as we can,” Faulkner said.