Comcast-TWC combination poses long-term threat to Windstream, other business providers
With much of the attention on the Comcast-Time Warner Cable merger centered on how it will affect the consumer video and broadband segments, it's easy to overlook its influence on the business services market.
Jeff Gardner, CEO of Windstream, said during the recent Sanford C. Bernstein Thirtieth Annual Strategic Decisions Conference that he's not really worried about the pending mega TWC-Comcast deal--or at least its near-term effect--since these MSOs' initial focus is on serving small to medium businesses (SMBs).
Windstream and its larger counterparts like AT&T (NYSE: T), CenturyLink (NYSE: CTL), Verizon (NYSE: VZ) and Level 3 have the ability to serve the needs of multinational corporation customers that require more complex solutions that span multiple markets.
While it's true that Comcast and Time Warner Cable's business experience has been mainly focused on serving SMBs, service providers like Windstream know that the combined entity could eventually be a larger threat.
"They'll get better," Gardner said, according to a Seeking Alpha transcript. "And so it's incumbent upon us to really focus over the next 15 to 24 months, as they are preoccupied with this large transaction and all the challenges that a big merger like that brings, to really continue to improve our game, to get better at that enterprise space so that we're well-positioned with our customers as they get better in this space."
Like other cable MSOs, Comcast (NASDAQ: CMCSA) and Time Warner Cable (NYSE: TWC) have focused mainly on enterprises with regional locations that fall within their on-net footprints, such as school districts and sports teams. Comcast, for example, has won multiple contracts to provide Ethernet and IP-based services to teams such as the San Francisco 49ers and the Boston Red Sox.
Charlie Reed, senior analyst at ATLANTIC-ACM, acknowledged in a report issued earlier this year that while large multinational corporations (MNCs) will continue to rely on large providers that have nationwide and even global reach, Comcast will greatly enhance its on-net reach and ability to serve larger businesses.
"The 'new' Comcast will have a larger on-net footprint, greatly increasing its potential customer base," Reed wrote. "As the company improves its technical, operational and sales capabilities, it will become positioned to fiercely compete for revenues further and further up market."
Both Comcast and Time Warner Cable come to the table with a wide set of fiber and traditional hybrid fiber coax (HFC) assets that they use to effectively target a mix of small businesses and a growing set of medium-sized businesses.
An early business services pioneer, Time Warner Cable's network assets include 58,000 unique fiber lit buildings, 100,000 near net and 860,000 HFC on net buildings to address business customers' needs.
The MSO itself has also grown its business service holdings via targeted acquisitions that have complemented its network reach and service capabilities. In 2011, TWC purchased Navisite, giving it a set of managed services and cloud computing solutions and over 10 data centers in the United States and the United Kingdom. More recently, it acquired DukeNet, which came with an 8,700-mile regional fiber-based network serving a set of wholesale and business customers.
Albeit a bit later to the business game, Comcast has continued to grow its business segment organically and through acquisitions of regional CLECs like Cimco. Comcast Business today offers its growing mix of IP-based voice and Ethernet services in more than 22 markets.
Ethernet, in particular, has become a major growth area for both MSOs. According to Vertical Systems Group's recent cable MSOs Ethernet Leaderboard, Time Warner Cable and Cox saw the biggest port share gains, while Comcast led in overall growth.
Rosemary Cochran, principal of Vertical Systems Group, said in an interview with FierceTelecom that while cable is the "smallest in terms of total U.S. installations, it's the fastest growing segment" in the Ethernet services market.
Overall, business services may be still a small portion of both MSOs' revenue streams, but it's growing. During the first quarter, Comcast Business revenue rose 29 percent to $917 million, while Time Warner Cable reported business revenue up 24 percent to $668 million.
In the short term, Comcast and Time Warner Cable can't readily address the nationwide needs that larger established incumbent and competitive carriers do today, but they will begin to pose a larger challenge as they advance their standing in the large business market segment.--Sean