It’s going to be a banner year for cable operators’ business services revenue before turning into a case of diminishing returns going forward.
A report by The Insight Research Corp. said that cable operators could collectively generate over $7 billion in business services revenue this year, but that “they will be chasing a declining business telecom services segment and face fierce competition from entrenched telco providers with very deep pockets ready to staunchly defend their existing base.”
Overall, Insight Research, which lists AT&T and Verizon among its client list but no cable operators, said cable operators would gain some market share in the business services sector, but would remain small players in a big industry with low margins and little cash flow.
"While their legacy in providing services to residential segments may give them confidence they can grow profitably in this adjacent segment, the cable operator's challenges will be steep and growth is dependent upon taking market share from entrenched players" said Fran Caulfield, research rirector at Insight Research. "Our study concludes that despite these obstacles, cable operators will forge ahead and the entrenched telco providers will likely respond with investments, price, and improved performance to combat this threat. It should be an interesting few years.”
Business services divisions from Time Warner Cable, Cox Communications, Comcast, and Cablevision, among others, have collectively increased their commercial services revenues over the past few years. In particular, Comcast’s Ethernet portfolio has been luring medium-sized business customers way from telcos’ T-1 line offerings, while Cox, an early business services pioneer among cable operators, has stated it expects to hit $2 billion in commercial services revenue by 2016.
There’s no doubt that the telcos have taken note of the cable operators’ business services ambition, but they have a lot of legacy equipment to replace. With business customers demanding more bandwidth and flexibility, cable operators have been able to lure customers away with their Ethernet offerings.
At a recent investor conference, Verizon said it planned on driving more of its business customers off of its legacy ATM and frame relay systems to its IP network in order to increase performance levels.