Cable Operators Face New Challenges in Wooing Large Businesses

There are critical differences between the large enterprise market and the small-to-midsized-business (SMB) market, which cable operators have concentrated on so far, said Dave Pistacchio, president of Cablevision Systems’ Optimum Lightpath unit, speaking at a Light Reading conference in New York earlier this month.

"When you move up market, it’s a different game, a different league,” said Pistacchio, whose division generally targets mid-sized and larger companies with 100 employees or more. “That’s not to say that the SMB space is not great, or that bigger is better. They're just different.” Pistacchio said moving up-market offers potential benefits for cable providers, including the opportunity to sell higher-value services, build solid long-term relationships that grow stronger over time, and develop additional value-added revenue streams.

But, Pistacchio stressed, these benefits come at a high cost. He said larger commercial customers typically generate a lower volume of sales than their smaller counterparts. He also said larger firms usually have longer sales cycles than smaller firms, sometimes as long as 12 to 18 months.

Pistacchio also said competition can be keen for highly prized “marquee” enterprises, such as leading Wall Street titans Goldman Sachs & Co. and Morgan Stanley. He argued that it takes more market know-how and sophistication to win their business, more capital to serve them, and better customer service to keep them. “Credibility is critical,” he said. “You have to earn it."

Price is also critical in the enterprise space, just as it is in the SMB space, Pistacchio said, but lower prices for commodity-type services are not nearly enough to compete in the enterprise sector. “Price is always the lead competition,” he said. “However, once they switch, you won’t keep them if you're not doing everything else right."

Pistacchio cautioned against spending heavily to land enterprise customers that have costly special needs. “Not all business is good business,” he said. “You need to have some discipline.” But he acknowledged that cable operators might have to go underwater for some big contracts if they can grow that business over time.

Cable operators to should be wary of pursuing larger enterprise firms because of intense competition from telcos and potentially low profit margins, said Craig Moffett, an analyst at Sanford C. Bernstein & Co. He said larger companies cut their telecom spending sharply during the Great Recession and have only just started increasing their budgets again.

Despite such warnings, other cable business services executives said they plan to pursue mid-sized and larger firms with a mix of more sophisticated managed and hosted services, advanced Ethernet products, dedicated sales reps, and a new emphasis on customized solutions, among other things.

Companies with more than 20 employees represent about 37 percent of the Cox Business’ $6.2 billion wireline market opportunity, or a nearly $2.3 billion market, said Kristine Faulkner, vice president of product development and management. She said Cox will pursue firms with up to 100 employees with a range of managed services as it continues to beef up its OSS and BSS systems. In particular, Cox will focus on managed communications, storage, and security products, including hosted voice services and unified messaging, network WAN management, secure backup and file-sharing, and e-mail and Web security.

As part of that drive, Faulkner said Cox will rethink and evolve the way it sells telecom services to businesses -- moving from a transaction-based model to one that prioritizes solution-based options. But Cox has already determined how it will deliver most of those services because it plans to use Ethernet over either its fiber or DOCSIS-based coax networks. “Ethernet is becoming the de facto mechanism to deliver all of our services,” she said.

Time Warner Cable Business Class is now setting its sites higher by targeting companies with up to 100 employees, which is the company’s “sweet spot,” said Craig Collins, senior vice president of services sales and marketing. He said such companies constitute up to a $10 billion opportunity in Time Warner’s footprint. Among other things, Collins said TW is running trials of cloud-based commercial products, such as messaging, backup, and storage services, and collaboration services for businesses. “It’s [the opportunity] huge,” he said. “We've just been nicking at the surface here.”

Collins said Time Warner Cable is also looking to emulate some of the more successful strategies of Apple, Target and Netflix. For instance, he praised Apple’s success in building customer relationships rather than just selling products and services. He noted how a customer who buys a Mac computer after using an iPhone or iPad “triples Apple’s revenue from that one customer relationship."

Collins said Time Warner aims to boost its commercial revenue by hiring more local sales reps and dedicating some sales reps to major national accounts “to deal with customers the way they want to be dealt with.” TWC will also expand its sales channels by working with third-party agents that have been “clamoring to work with us,” he said.