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The commercial services market

Thu, 08/31/2006 - 8:00pm
Brian Santo, Senior Editor

The business communications market has long been locked up by the telephone companies. Cable operators are finally in a position to steal some of that business away. And with the phone companies distracted by their rollouts of video and cellular broadband, there couldn't be a better time to do it.

U.S. companies spend approximately $130 billion on datacom and telecom services every year. MSOs tapped a little over $1.9 billion of that $130 billion in 2005, according to Kagan Research, up from about $1.1 billion in 2004. That's not even two percent of the total market. Kagan projects MSO revenue from commercial data and voice services will more than quintuple, to $10.7 billion, by 2009.

Folks, the commercial market is nothing but unguarded fruit, ready for the taking.

Cox Business Services and Time Warner Cable's commercial services division both cater directly to the entire business spectrum from the SOHO to the enterprise markets. Cox offers dedicated data transmission up to OC-192 speeds over fiber, T-1 and ATM, high-speed Internet access as well as VPN; local telephone and long distance services; Web hosting and e-commerce; and carrier access services in addition to video and music. TWC offers Ethernet services, managed services, Web hosting, storage hosting and other services.

Both were recently recognized by J.D. Power & Associates for earning better customer satisfaction ratings among business users than the telcos.

Those were the only two MSOs in the J.D. Power study, but if anyone has taken note of their success, it is the biggest operator in the land. Comcast was impressed enough to hire away Cox Business Services Vice President William Stemper to become president of its Comcast Business Services unit.

Business customers represent a sliver of Comcast's $6.2 billion in revenue, but the very fact the company is accounting for it testifies to its seriousness in targeting the segment. During Comcast's Q2 2006 analyst's conference call, CEO Brian Roberts went out of his way to mention the MSO's new focus on commercial business.

"I would add one other point on that which is the commercial side of the business is perking up as we begin to now get comfortable with rolling out phone, and I imagine that you're going to see us begin to talk more about–over the rest of the year and well into next year and beyond–how we're going to have a high-speed data business that's going to be able to also include voice–so really a two-play," Roberts said. "If people want video, they can get it, but [the voice/data bundle is] a much better small business, medium business initiative."

Butter comes in pounds, European artesian well water comes in liters, and datacom for small and medium businesses comes in T-1 lines, which have transmission speeds of 1.5 Mbps both downstream and up. Of the $130 billion or so that companies spend each year on datacom/telecom, about $14.7 billion is spent on T-1 lines.

Cable modem service at about $40 a month is far cheaper than a T-1 line, at about $400 a month. That has made cable modem service popular in the SOHO and SMB markets. Every single cable operator offering high-speed data (HSD) is, as a natural consequence, already tapping into the business market. The same goes for flat-rate VoIP. Because VoIP is carried on the same DOCSIS plant as HSD, aiming VoIP at small and SMB businesses is a no-brainer.

BendBroadband of Oregon actually rolled out VoIP targeting the SOHO business market. "If you can provide quality of service, then residential is a cakewalk," says BendBroadband CEO Amy Tykeson.

DOCSIS-based HSD and VoIP are perfectly adequate for the bulk of the SOHO market. But for much of the SMB market, medium-sized businesses and large enterprises, neither service is really up to snuff.

Unlike T-1 lines, cable HSD is not symmetrical–download speeds far exceed upload speeds. And no matter where HSD speeds are capped, the service is generally offered as a best-effort product.

One way to address that objection is with sheer muscle. Comcast, for example, is now offering Workplace tiers. Workplace Standard is 6 Mbps downstream for $95 a month, while Workplace Enhanced is 8 Mbps downstream at $160 a month. Comcast trumpets the latter as being over four times faster than a T-1, while eliding the fact that the up-to-1-Mbps upstream offered is slower than a T-1.

That should be adequate to entice a good number of potential SOHO customers, but the approximately $400 a month ARPU and margins in excess of 70 percent you get for a T-1 line constitute a compelling argument to offer T-1 service.

By the way, a little under half of the $14.7 billion spent on T-1 service–$6.7 billion–is spent by companies in smaller markets. Which means T-1 service is an equal opportunity technology–almost any cable operator regardless of size has a shot at a portion of this market.

Enabling any operator to offer T-1 service over existing hybrid fiber/coax plant is Vyyo Inc.'s value proposition. The company describes its products as a cable system spectrum overlay that can double downstream capacity and quadruple upstream bandwidth–enough to accommodate T-1s and other advanced services. The service is not IP; it's TDM, just like classic T-1 service from the phone company.

"The key is to attack the telcos now," says Steve Santamaria, Vyyo's senior vice president and general manager of business services. There are billions of dollars of T-1 business there to be taken, he says. "The issue is: why wouldn't you go after it?"

Santamaria also notes that MSOs themselves are some of the biggest users of T-1 lines. "Hell, carry your own T-1s. Reduce your costs and test it out."

As for cable VoIP, it is generally rated at three 9s (99.9 percent uptime), which is proving to be perfectly adequate. But the phone company's telephone service is five 9s (99.999 percent uptime), setting the standard for business-class service. Over the course of a year, the difference is between minutes and hours of downtime.

MetaSwitch is addressing that concern with its new Internet Protocol Multimedia Subsystem (IMS)-based telephony softswitch, which has a tortuous name that renders a snappy little acronym: the Cable Operator Multiservice Platform for Enhanced Telephony Evolution, or Compete!

For about $200,000, operators can drop in a MetaSwitch unit between a CMTS and the public switched telephone network (PSTN) and begin offering voice services to both business and residential customers, including business services such as hosted private branch exchange (PBX), unified communications and converged T-1 services over Internet Protocol (IP)–all at five 9s reliability.

CableMatrix Technologies has thrown its lot in with iNOC to help operators target the commercial services market. The two have integrated the former's PacketCable Multimedia (PCMM) policy management platforms with the latter's network monitoring system. The combination allows operators to guarantee service levels on DOCSIS networks.

Some operators are giving short shrift to QoS, figuring that they can sidestep the question by over-provisioning services (e.g., Comcast throwing 8 Mbps downstream at business users with Comcast Workplace). But eventually, as the number of services in the business bundle grows, and as operators start pitching larger companies demanding service level agreements (SLAs), MSOs are going to have to deal with QoS.

"That's where we have to evangelize," says Jay Malin, CableMatrix's VP of sales, marketing and business development, "QoS is needed for the SMB market."

"On the business side, video is not that important. You have to offer converged services," Malin says. "Cable operators have the infrastructure to do that. The can pull fiber over if needed. They can extend the HFC plant, they can go with WiFi or WiMAX–they have a big bag of tricks they can offer."

The joint venture with Sprint will contribute mightily by allowing MSOs to bundle and converge wireless communications, Malin says.

Narad Networks has developed switched broadband technology that allows cable operators to deliver IP services, including voice, data, video, and enterprise networks, at symmetrical 100 Mbps rates, all on the HFC network. The system can work in combination with wireless access where appropriate; wireless backhaul is also an option.

According to Narad, the SMB market is ripe for these services. The company has determined that since most businesses are zoned into industrial areas, and are therefore clustered, it is fairly easy to target businesses with just a few nodes.

Most of the larger operators already have Gigabit Ethernet fiber backbones. It can be a fairly straightforward process to run fiber to a customer and provide Ethernet-based datacom services (essentially what Cablevision Systems Corp., Cox and TWC are doing).

"The main issue is the will to do it," says Mitch Auster, senior director of product marketing at Ciena Corp. "There's not a lot of upfront capital required, and the business is mostly success based. The key question is: Do you have the fiber to the business or close to the business?"

Sometimes stretching coax or fiber to a corporate campus or a business park is not practical, especially when the campus or park is new. Even though a business represents a higher-ARPU, higher-margin prospect, sometimes businesses fail–and that can be just as true of an established company as it is of a startup. If it costs $100,000 or so per HFC network mile, it's understandable that operators carefully evaluate each situation and sometimes decide it's not worth the risk to pull fiber.

Sometimes the target business is simply situated beyond some physical barrier. Arcwave estimates there are 4 million small and medium businesses that simply cannot get business-grade broadband.

For those situations, there are any number of wireless systems to extend the HFC plant. Arcwave has a series of DOCSIS-based wireless products that allow operators to offer a variety of services that range from simple Internet connectivity to Ethernet-based data services. The company claims 14 of the top 15 MSOs have deployed Arcwave solutions.

But even though the market is there for the taking, and even though equipment vendors are making it easier, operators should move into commercial services with their eyes open.

Marketing to the business segment is different from targeting the residential market. "We'll probably spend more effort this year showing customers how to sell services to companies," says Ciena's Auster. "But it's not rocket science. It's just a new mindset. The barriers are really not that high."

Vyyo's Santamaria, who used to head Charter Communications' business services operation, cautions that "the business market is nonstandard. It doesn't scale easily, and every install is different. You usually need to work with someone like Cisco if you want to get in." (Vyyo's product scales, he adds.)

How to start? At Charter, Santamaria says he wasn't given much of a budget to start commercial services. In fact, he had to create line items for profit and loss, formulate some numbers to hit, commandeer one or two employees at the network operations center and set them the task of monitoring business accounts.

But, as the operation grew, he was able to get a dedicated service manager at the NOC, then some dedicated installers, and eventually created a growth path to go from installers to sales engineers.

"Use the network you have today," he says.

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