Cable's Internet services now getting down to businesses
The business side of Internet and high-speed data services is lagging behind the lightning-quick pace of emerging technologies, prompting cable operators to mine deeper and wider for potential new Internet and data customers.
The new business of Internet service, and how it fits into a cable operator's business plan, is a 1,000-piece puzzle, with 900 pieces left to assemble. Yet once the puzzle shows some semblance of clarity, most operators agree it will be well worth the effort, and from a business perspective, the final picture will look very good.
Some operators are expanding their Internet customer search to include small to mid-size businesses in their local markets. And while schools, hospitals and city buildings have been the initial launching pads for many operators' Internet services, retail and other local businesses are now the target.
"We started looking at the business of Internet as a residential play. What we discovered was that our fiber went right by lots of businesses, too. The plant was already mixed in with the residential plant," says Lenny Higgins, vice president, telephony, for Bresnan Communications. From that point, Bresnan knew it would be in the Internet business.
The company's first Internet play was through BresnanLink in its upper Michigan systems, in which 40 percent of the households served by Bresnan have PCs. Bresnan-Link has connected 90 educational institutions through its fiber/coax networks. Now, it's adding businesses, including the Ogden Newspaper Group, City of Superior, Wis. and Superior Behavioral Health Network. "In some of our markets, there are large companies, like Schwan's Ice Cream. We want to provide them with telecommuting services for 300–400 employees," Higgins says.
The response thus far, Higgins notes, has been favorable. "We've been pleasantly surprised at revenues in our upper Michigan launch. It's really gone beyond all of our expectations."
Guinn Leverett, president of Internet of Beaufort County, N.C., concurs. "A year ago, if you had told a businessman to commit $1,000 a month to market his company on a Web site, he wouldn't have done it. Today, the ones who did are glad they did it. Now, the interest is there. For example, a local hospital is doing a $250,000 Web site. That's a big business."
Yet, the business of Internet is not without its inherent difficulties. Adds Leverett: "For a cable guy, it's hard to understand (the business of the Internet). It's a real 'gulp,' and serious money for hardware. And it runs so fast, you can make mistakes."
Running too fast can lead to complications, says Higgins. "When you put the first business customers up on your network, there will be lots of profits from the business, and it's easy to have a secure, reliable network. However, when you get 15 or more businesses, you scratch your head on how to secure it with firewalls and other security. Your internal and monitoring capabilities are very important."
The path to Internet and high-speed data prosperity is not a smooth one, insists Jim Balderston, industry analyst for Zona Research Inc., and is bound to include some scary moments. "It's not a walk in the park. It's more like a walk through a dark alley in a bad neighborhood, with people trying to thump you," he warns.
The real challenge to cable operators, Balderston says, is convincing businesses that they can provide these services. "It's a sizeable investment. Is it worth it to cable operators? And even though operators have wired to most of the last mile with newer, bigger wire, it's only one step, and entering the Internet business is easier said than done. Margins are razor-thin, and selling the service to businesses includes a more complex set of challenges."
Steve Adams, Chairman and CEO of Online System Services (OSS) agrees, to a point. "Data services is a complicated business. There's been lots of fear and hype for cable operators to get into computer-based businesses. Right now, it's up to cable to take advantage of its window of opportunity."
The "fear and hype" of climbing aboard the Internet train is not reserved for cable operators. Says Leverett: "There's a certain amount of 'gosh, the train's leaving the station, and I'd better get on quick' attitude among small to mid-size businesses. There's a fear of being left out because they've read and heard about selling books, ads, etc. on the 'Net, and that's appealing to them."
And speed counts as well, according to Grant Gabrielson, general manager of US West Telechoice in Omaha, Neb., which offers cable modem service. "Our marketing is based on speed, and since we have exhausted our early adopter market, we've spoken to banks, telemarketing firms and other small to mid-size businesses about telecommuting and other services. Their question to us is: How can we get information faster to our employees?"
Gabrielson has been able to sell Telechoice and its cable modem service by word-of-mouth to about 1,500 customers out of 17,500 video customers. Next up is the business sector. "Over time, we want to sell the service to telecommunications companies, banks, brokerage firms, software developers, personnel placement firms and others.
Though Telechoice's word-of-mouth marketing strategy has been, according to Gabrielson, "extraordinary," he has no illusions about the next step. "We will need significant marketing and promotions plans for the next level of customers. The product has to be demonstrated to justify its premium price. We have to take it to the customers," he said. "Now, we have more business than we can handle."
Whether that will continue, however, is debatable. Says Balderston: "The Internet has a different dynamic than cable TV. The Internet services are more capital-, resource- and people-intensive, and cable operators must radically change their business model. At what point do they become non-cable? Plus, there's competition out there. ISPs are adding value services like security and telling customers that they will manage their networks for them. Are cable operators ready to go head-to-head with that? I doubt it."
Despite lingering doubts about the wisdom of entering the Internet business, a growing number of cable operators are bullish on taking their Internet services to businesses — large and small — with the upsides far outweighing the negatives. "We're focusing on Fortune 500 companies," says Matt Fanning, vice president, marketing and sales for Comcast Commercial Online. "The Internet opens up a company's employee pool because employees are not geographically bound. If you are trying to attract people with lots of skill sets, they could effectively work anywhere."
|About the author|
|Craig Kuhl is a contributing editor to CED and a Denver-based freelance writer.|