The latest evidence that cable operators are a full player - equal to the telephone companies and independent providers in all areas besides the biggest enterprises - is research released this month by Vertical Systems Group. Rosemary Cochran, a principal and co-founder of Vertical, said cable operators represent a bit less than a quarter of the carrier Ethernet segment. While the two are not synonymous - one is infrastructure and the other a group of services - the industryâs standing in carrier Ethernet is a good barometer of its standing in business services.
Cochran said the industry's share of the metro Ethernet market is growing more quickly than the other players.' MSOs, she said, "have been very aggressive in targeting Ethernet apps in their territories for SMBs .... They can install more quickly because they don't have the lead times of the incumbents and other providers."
Within the industry, the MSO market share rankings changed during the past year, according to Vertical's assessments. At the end of 2012, the top five providers, in order, were Cox Communications, Time Warner Cable (NYSE:TWC), CharterCommunications (NASDAQ:CHTR), Lightpath and Comcast (NASDAQ:CMCSA). At the end of last year, the leaders were Time Warner Cable, Cox, Comcast, Lightpath and Bright House Networks.
Of course, the combination of Time Warner and Comcast, if it comes to pass, will further upset the applecart. That looming move aside, the great change in the order of the top five MSOs - only Lightpath occupied the same spot (fourth) both years - and the overall growth of cable's piece of the pie in general suggests a rapidly changing environment.
At least some of the growth is coming from new or previously underdeveloped areas. Cable's commercial services strength always has been in the small- and medium-size business (SMB) sector. This not only includes SMBs themselves, but also satellite and home offices of enterprises. SMBs, of course, are experiencing the same data deluge as larger enterprises. This fits MSOs' business services game plan perfectly: As data needs increase, cable operators' HFC plant - which is capable of supporting high-speed Ethernet and the applications that come with it - is an increasingly attractive option while the phone companies' DSL services become increasingly problematic.
Two of the key cable players - Cox and Comcast - are doing quite well. They have taken different approaches to the market. Comcast is a relative latecomer to the market. Michael Tighe, the executive director of data services at Comcast Business, said that the company took its time getting into the business sector. "The initial strategy was to build capabilities with business customers then move up the stack and serve larger customers," he said. "We needed to invest in people, systems and processes. Comcast is extremely methodical. We waited until it was ready. We were in trials for 18 months when got into the Ethernet. We needed key components beyond just a great product."
Comcast's business is growing in a number of ways. For instance, the operator may be brought in as a second provider to a telco, which may have a national or international contract with the client. Comcast's role may be to serve the end client's locales in a particular region and support the main provider. In such circumstances, Tighe said, Comcast often takes a larger share of the pie over time as the quality of its services and modernity of its network become evident to the end user. "Our ability to provision and deliver services may in many ways exceed the incumbent's," he said. "We gradually move from being a secondary provider into the driver's seat for high bandwidth services."
Brian Rose, the director of product development for Cox Business - he, like Tighe, came from the telephone industry - said his company's involvement in business services is a bit different than other MSOs. Like Comcast, Cox has a powerful local and regional niche. "We are not chasing Home Depot [nationally],' Rose said. He indicated that the company is a wholesale provider of last mile Ethernet services to other carriers selling into the enterprise market. In that way, they may serve the local outlets, offices and other holdings of national companies.
For many operators, the key verticals for its business services are some combination of healthcare, financial services, government and education. These are entities that have significant data needs and, to a great extent, have more of a regional than national or international focus. There are anecdotal signs that healthcare may be separating itself a bit from the pack. In February, the Cable & Telecommunications Association for Marketing (CTAM) issued a press release extolling its presence at the Healthcare Information and Management Systems Society (HIMSS) Conference, which took place late in the month.
The idea is that healthcare is a perfect customer for cable operators. The data demands are expanding as approaches to imaging change. That, coupled with tight security requirements and changes brought on by the Affordable Care Act, makes various players in the healthcare sector especially receptive to cable operators' pitches.
Todd Esenwein, the director of business services for CTAM, sees a bright future for the industry as the category evolves. One of the keys is that the need is across the board. "The [healthcare] industry is so broad - from large hospitals to small rural acute care facilities to ambulatory facilities to doctors' offices, which cable lends itself to quite well," he said.
The cable industry long has had a good story to tell in commercial services. Its strength seems to be growing as time passes. "They are looking at targeting the existing customers of incumbents or other providers," Cochran said. "They are uniquely positioned to take advantage of the opportunity."
Carl Weinschenk is the Senior Editor of Broadband Technology Report. Contact him at [email protected].