Narad to Ops: Think Small

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As cable operators face close to zero growth in basic subscribers — and even a slowdown with respect to digital video — they're turning their attention to other revenue opportunities.

Successful high-speed-data rollouts, coupled with critical failures by competing local-exchange providers, have opened an opportunity for cable operators to invade the small- to medium-sized business space with data and telephony services.

An added benefit: The necessary plant is already in place.

"The small- and medium-business (SMB) market offers cable MSOs the opportunity to capture new revenues and profits using the networks they already have in place," said Narad Networks Inc. manager of strategic marketing James Ratcliffe.

Cable's hybrid fiber-coaxial plant passes more than 5.6 million small- to medium-sized businesses.

"While cable companies have always passed SMBs, until recently, they haven't had the technology to cost-effectively deliver the higher levels of bandwidth and services that SMBs require," Ratcliffe said.

Narad contends that cable operators can generate as much revenue from commercial accounts as from residential video subscribers.

According to a revenue analysis Narad crafted for a smaller cable system within a large MSO, a nine-node cable system that passes 3,600 homes would generate $984,000 per year from video services. With a 30 percent rate of cable-modem penetration, a 30 percent rate of digital penetration, 25 percent VOD penetration and a 15 percent rate for residential telephony, Narad estimated, the system could generate another $569,000 per year in revenue.

Adding in a commercial portion — which would zero in on particular nodes predominated by wired-, computer-laden businesses such as government buildings, law firms, schools, banks and technology companies — and assuming SMB penetration rates of 15 percent for voice services, 15 percent for virtual private networks and 25 percent for Internet access, the operator could generate $933 per month, per business, according to Narad.

The result: $1,010,000 in annual commercial revenue, surpassing that generated by traditional cable video.

"Since SMBs spend much more per month than residential cable customers, capturing even a few SMBs in an MSO's footprint can have a significant impact on revenue and cash flow," Ratcliffe said.

SMBs with less than five employees might spend $100 to $500 a month on phone and data services, Narad estimated. Those with five to 100 employees spend between $350 and $3,500.

Narad is presently in beta trials with three unnamed cable operators.

"Network components can be added as customers are acquired," Ratcliffe said.

FIBER-LIKE BENEFITS

Narad can provide the same functionality as a fiber passive optical network for 25 percent of the cost. Operators can offer 1 mbps to 100 mpbs of dedicated flexible bandwidth with service-level agreements, VPNs and storage services.

"While in-house storage can cost a firm 84 cents per megabyte, network attached storage can cost 38 cents," Ratcliffe said.

That results in lower costs for the business, because there are fewer people and lesser storage, network, backup hardware and software requirements.

It also cuts companies' capital costs and provides them with improved reliability and backup service, Ratcliffe said.

On a cash-flow equivalent basis, the average sized SMB is equivalent in revenue to 28.6 basic-cable subscribers and 38.3 basic subscribers, he said.

Narad believes operators can achieve 20 percent penetration of SMBs by year five and could produce cash-flow margins of 35 percent.

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