Chasing big business
The ramp is steep for cable but well worth the climb
The lucrative small- to mid-size business (SMB) services market is growing organically to include larger enterprises and is now in phase two as cable operators and related service providers accelerate the expansion of their business services model to include the enterprise market.
With revenues topping $7 billion in the SMB market alone, and with impressive margins, it’s no wonder the cable community has the highly coveted enterprise business services market high on its radar screen.
By leveraging advanced technologies, creating operational efficiencies and applying lessons learned from experience with the SMB market, progression from the SMB market to the grandiose enterprise market seems a natural – replete with myriad challenges and risks, of course – but with an opportunity of near-epic proportion.
But it’s not a simple goal.
“It’s a big step, and cable operators will need to include partners to target the enterprise market, and they don’t have the system integration or experience of the larger telcos,” said Mike Paxton, senior analyst for the research firm MRG.
“That’s why they might be moving more deliberately, since it’s outside their comfort zone. Taking that next step beyond the SMBs into the enterprise market is a tricky one. Nevertheless, they are going after the larger enterprise market.”
Tricky indeed. Are cable’s operatives on the ground, and do they have the experience and technology to service the larger enterprises? Yes, Paxton maintains, but with some caveats.
“In some markets, yes, they’re ready. Across their whole footprint? No. If they’re approached by a big hospital to be ready in three months, they probably couldn’t do it.”
What they can do, and are planning to do, is push the business services model forward into the rarified air of larger enterprise services. And that, says cable consultant Ken Wright, is a good thing.
“Most of the potential business service customers are SMBs. They are easier to service, and there are more of them. But even in the 1990s, cable offered dedicated fiber networks for larger businesses. So the SMBs are a natural starting point to transition to larger enterprises, which will continue to be a growth area,” he explained.
Much of that growth is being driven by technology, including DOCSIS 3.0, fiber feeds, routers, switches and an “always up” mentality, a crucial dynamic in the large enterprise service model, Wright noted.
“There’s a whole different level of expectation for business services versus residential and SMBs because QoS and service-level agreements are more stringent. There’s a big leap from residential and SMBs to larger enterprises. But cable gets that, and they’re already stepping up. The biggest challenge now is to convince larger customers they are a serious alternative to an LEC,” he said.
Cox Communications, explained Phil Meeks, senior vice president of Cox Business, has been serious about its business services for 20 years and is moving confidently into the larger enterprise market.
“A smart person told us that in building to residential, we were passing businesses, so why not repurpose our infrastructure? Fast-forward to today, and we’re at $1.4 billion with 300,000 business customers and projecting $2 billion by 2016. Now we’re focused on ‘larger locals’ with unique profile companies in our footprint.
A considerable portion of our growth will come from those and larger enterprises,” Meeks said.
The three most appealing vertical markets for growth, he added, are government, education and healthcare. “There’s tremendous growth in those verticals.”
And plenty of challenges, from sophisticated technologies to operational issues and BSS/OSS concerns. Once a service provider such as Cox takes the leap into the large enterprise market, it’s game on.
“Are [cable operators] willing to step up to the service- level agreements larger enterprises are used to having? Is the network in place with monitoring tools? Do they understand the telecom space and operational issues? Those are crucial because they won’t get a second chance,” Wright maintained.
Meeks concurred and has no illusions about the bumpy road that leads to the large enterprise market: “The expectations at larger enterprises are much greater. They want support, carrier quality, network management, tools and more. They are very demanding customers.
But we already do business with some very large Fortune 500 companies and are in real dialogue with potential partners for a national presence.”
Arris, BroadSoft, Cisco and Sandvine are just a few in the expanding universe of supporting vendors playing in the enterprise space and are seeing an uptick in activity.
“We’re seeing larger investments in the hospitality industry, managed offerings for computers and in cellular backhaul. We’re also seeing security and access as the most common needs as companies are forced to go up the value chain and provide IT and OSS infrastructure, an area where cable isn’t as strong as the telcos. That’s probably where partners will be needed,” said Don Bowman, CTO of Sandvine.
One partnership example is smallish Rensselaer TV Cable in Fort Wayne, Ind. It partnered with larger MSO Mediacom to sell services and dark fiber to the larger operator.
For leading MSOs such as Comcast, partnering is a next step, as it redefines the SMB market to include 50 to 500 employees and looks to create a national footprint in the enterprise market. (By traditional definition, small companies have up to 10 employees, medium- size companies have up to 250 and enterprise companies more than that.)
“We have a great foundation for business services and the potential for future investment. Our next step is to develop a model for the larger enterprise market,” said Karen Schmidt, executive director of enterprise product marketing for Comcast B u s i n e s s Services. “We made a $600 million investment in business services in 2011, and we’re not chasing larger enterprises yet. But we’ve got the people, steps and systems in place to turn up new customers with 2,000 employees. We’re ramping up that business.”
It’s not exactly a smooth ramp to the large enterprise market, however. And Comcast knows it.
Added Schmidt: “We’ve learned about Ethernet and cut our teeth selling cellular backhaul. It’s a leap to larger enterprises with service-level agreements, operational challenges and always-up time.
“And customers are asking for cloudbased services for off-premise storage,” she continued.
“Then there’s building to economies of scale, cost-effectively. But we’ve learned some important lessons servicing large customers and understand what they expect.”
Some of those lessons are being learned through CableLabs, which has focused greater attention on clearing a path for cable to the larger enterprise services market.
“We’re getting away from the residential + package. Now it’s business-class focusing around DOCSIS, voice, Metro Ethernet and SIP trunks and making sure solutions are standard-compliant. The leap to the enterprise market is a ramp-up for cable and an incremental build, so there’s a set of stairs they’re climbing,” said Glenn Russell, vice president of business services at CableLabs.
Those stairs could eventually lead beyond cable’s enterprise market, Russell contended, and include other service providers.
“Early on, we can’t define a cable-only way to provide business services. So there are multi-vendor/carrier solutions. Now we’re working with organizations that are full of other service providers, including telecoms. We want to be sure that cable’s needs are addressed by these other efforts. It’s becoming a very diverse market with lots of partnerships and acquisitions.”
The Society of Cable Telecommunications Engineers is part of the effort, as well, evidenced by the organization’s new certification process for the enterprise market.
Its Business Class Services Specialist certification is designed to give technicians and engineers a deeper and wider understanding of the larger enterprise business services installation and maintenance process.
“It offers an in-depth leap into advancing technologies and is aimed at engineers, too. The certificate is available, and the marketing is in place,” said Pam Nobles, director of education and certification for the SCTE.
The supporting vendor community stands to benefit from the accelerated move by cable into the larger enterprise space, as well, with a growing number following the value chain.
“All of the major cable operators are embracing business services as a growth opportunity and are looking at cloudbased services like remote storage, and for partnerships. For us, we’re following the operators up the chain. There’s a long, slow and deliberate ramp-up with technology, operational and competitive challenges. But we’re participating with operators in the ramp-up to the enterprise market,” said Stan Brovont, senior vice president of marketing and business development for Arris.
Companies such as Comcast, Cox and Time Warner Cable are expected to lead the way up that ramp, and as partnerships are formed, technologies are advanced and the large enterprise services business model matures, the outlook for growth is likely to be sunny, albeit with a bit of heavy weather along the way.
Concluded Comcast’s Schmidt: “We’re in 40 states and will have more national footprint in the future. There’s absolutely growth in the enterprise market.”