Cable Operators

Going After Big(ger) Business

10/04/2010 5:02 AM Eastern

After feasting on the low-hanging
fruit of ultra-small business
customers for the past few
years, cable operators are poised
to move up the food chain, setting
their sights on larger enterprises
that could mean even bigger
profits.

Commercial services represent
a $50 billion to $70 billion market
for cable operators, or one that’s
about the same size as the entire
residential video and broadband
market today, according to
Sanford Bernstein cable and satellite
analyst Craig Moffett. Overall,
commercial services revenue
has grown at 30% to 45% annual
clip for the top cable companies.

According to Moff ett, commercial
services have the potential to
come close to and in some cases
surpass revenue from residential
cable services. The business
sector could also could off set lost
revenue from a declining residential
subscriber base.

For example, Comcast estimates
that the small- and medium-
sized business market
represents a $23 billion to $31
billion revenue opportunity, just
shy of the $33.9 billion in cableservices
revenue the MSO reported
in 2009. Time Warner Cable
could rake in as much as $20 billion
from commercial services,
surpassing the second-largest
MSO’s $17.9 billion in cable revenue
in 2009.

“We believe SMB [small-tomidsize
businesses] should be
viewed as a way for cable MSOs
to prop up growth rates as residential
growth rates wane or
even turn negative, and that
most models are built in such
a way that they are indifferent
to the segment distinctions between
SMB and residential,” Moffett
wrote.

ROOM FOR GROWTH
Moffett is not the only analyst
that sees the potential.
Most who follow the sector
have been impressed with the
growth so far.

In a research report in May,
Wells Fargo analyst Marci Ryvicker
wrote that the upside for TWC
lies in an improved economy, and
“a move upstream to the larger
part of the small and midsized
business segment.”

And though the small end
of the business is by no means
tapped out, operators are beginning
to turn their attentions
to larger businesses for the next
phase of growth.

At Comcast, small businesses
(companies with 20 employees or
less) represent about $1.2 billion
in annual revenue. Commercial
revenue increased by 54.4% in
the second quarter to $306 million
and the company has said
that it continues to see opportunity
in midsized businesses, or
those with between 20 and 250
employees.

At the Goldman Sachs Communacopia
conference last
month, both Comcast chief financial
officer Mike Angelakis
and Time Warner Cable chairman
and CEO Glenn Britt said
larger business customers are an
increasing focus.

Angelakis said at the conference
that Comcast will focus on
companies with 20 to 250 employees,
but that the bulk of the
impact will likely be felt in 2012.

TWC is being a little more aggressive
— Britt said that the MSO
will focus on businesses with up
to 1,000 employees.

“That’s where the opportunity
is,” Britt said at the conference.

COX DOING WELL
Of the top five cable operators,
one that has shown the most
success is Atlanta-based Cox
Communications, the privately
held MSO. Cox has been in the
commercial business for about
17 years and in a conference call
with Sanford Bernstein clients
earlier this month, said that going
after larger businesses is the
logical next step.

Cox is on the path to generate
about $1 billion in commercial
revenue this year, about the
same as Comcast, an MSO with
four-times the customers. In the
Bernstein conference call, Cox
Business senior vice president
Phil Meeks said the company
has about 250,000 business customers
and is on a path to double
commercial revenue to $2 billion
within the next six years.

One way to get there is by attracting
larger business customers.
To date, about 80% of Cox’s
commercial revenue comes
from customers with under 20
employees.

September