Cable MSOs: A phoenix rising in the Ethernet industry

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by Sean Buckley

Cable business services providers

(Source: iStockPhoto)

Cable companies have a long heritage of providing television services for consumers, but over the course of the last decade MSOs have been making a name for themselves in the business services sector, providing a set of higher speed data services, including Ethernet.

Initially, cable's foray into the business services arena began by selling its residential product suite of video, HFC-based data and voice services to small to medium business customers (SMBs).

But as they move into larger business accounts, cable operators have had to realign their business service products to deliver similar reliability and Quality of Service (QoS) that businesses have gotten from telcos' T1 lines and Frame Relay circuits.

Each cable operator delivers Ethernet, and overall business services, from a different angle. What all of them have in common is that they realized they needed to have a unit with a dedicated staff that understands how to deliver business services.

"There is a correlation between the companies that determined they needed a business-oriented entity to deliver business services, because there's a difference doing residential cable services versus wholesale or business services," said Rosemary Cochran, principal of Vertical Systems Group, in an interview with FierceTelecom. "What this means is a company is not going to take a standard residential cable offering and transform it into a business offer, which they can do but they find very quickly even with small businesses they don't fit."  

Here's a breakdown of the current performance of the top five cable MSOs delivering Ethernet:

  • Cox Business Services: Cox Business' Ethernet heritage can be traced back to the early 1990s when it became the first cable MSO to begin delivering business services and wholesale transport to other service providers that resided in its territory. The idea of providing Metro Ethernet services was a logical step for Cox Business. It has built a portfolio of Ethernet services that serves over 200,000 business customers in Cox markets across the United States, including small businesses, multi-location enterprises, regional healthcare providers and federal, state and local government organizations. Driven by sales of Ethernet and wholesale services like wireless backhaul, Cox Business Services revenues have grown from $96 million in 2000 to $1.48 billion in 2012. The operator has set a goal of growing revenue to $2 billion by 2016.
     
  • Time Warner Cable: Like Cox, Time Warner Cable Business Class (NYSE: TWC) was one of the early movers in the business services space. In Q4 2012, TWC's business services revenue grew 25.9 percent to $515 million. Last August, it announced a $25 million initiative to expand its fiber optic network to established and emerging business locations in New York City in an effort to attract growth businesses that need high-speed bandwidth for their operations. Since 2007, Time Warner Cable has held a top 10 spot on Vertical System Group's U.S. Business Ethernet Leaderboard.
     
  • Charter Communications: After emerging from bankruptcy in 2009, Charter (Nasdaq: CHTR) has rapidly expanded its business services and Ethernet profile. In Q4 2012, the MSO reported $168 million in business revenues, up from $139 million in Q4 2011. One of the differentiators that Charter brings to the table out of this group of five is providing Layer 3 access to VPNs. With the Layer 3 VPN service, a business could, for example, converge all of its voice, video and data traffic.
     
  • Lightpath (Cablevision): Beginning in the late 1980s Optimum Lightpath, the business subsidiary of Cablevision (NYSE: CVC), made a name for itself in the New York Metro area, delivering a mix of optical and Ethernet services to a host of state & local government agencies, schools, hospitals, and financial services companies. Last December, the service provider shortened its name to "Lightpath." By dropping the Optimum brand from Lightpath Cablevision could distinguish the commercial subsidiary's Ethernet-based services from its consumer Optimum products. Lightpath continues to be a star performer in Cablevision's portfolio, reporting $81.8 million in Q4 2012 revenue. Leveraging its strong on-net building presence and Ethernet products, Lightpath has been crafting Ethernet-based product suites for the education, healthcare and government verticals. Given its proximity to the New York City financial sector, Lightpath has also found utility with its low latency optical transport service.
     
  • Comcast Rises Up: Comcast Business Services (Nasdaq: CMCSA) is later to the game, as it launched its Ethernet service suite in 2010. Having already built a strong SMB services channel delivering its HFC, in 2009, the MSO got serious about serving larger business customers by making two acquisitions: Chicago-based Cimco, which gave it immediate access into the medium-sized business market, and NGT Telecom. Building on these assets, Comcast launched an expansion of its fiber network and upped its staff in Chicago in an effort to attract new business customers to its Ethernet, telephone and video services. Comcast Business' increased focus on serving larger business customers is paying off. In Q4 2012, business services were the MSO's fastest growing segment. During the quarter, it reported $660 million in business services revenue. One near-term differentiator that Comcast can bring to the table is that its Ethernet services have been certified as Carrier Ethernet 2.0 (CE 2.0) by the Metro Ethernet Forum (MEF).

Looking forward, the next logical step for the cable industry in delivering business services will be the expansion of their respective footprints via organic initiatives and possibly through acquisitions. Although cable operators have not been as aggressive in acquiring other service providers, new FCC regulations have lifted restrictions on cable operators purchasing other CLECs.

Cable business services chartTake a look at these cable MSOs' unique metrics in the chart on the next page.