Comcast's TWC deal will deepen its medium business Ethernet niche

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Sean Buckley, FierceTelecom

Comcast (Nasdaq: CMCSA) may have been one of the last major cable MSOs to enter the business services space, but its bid to acquire fellow cable operator Time Warner Cable (NYSE: TWC) will make it an even more dominant force in the traditionally underserved mid-sized market.

Just as it announced this landmark deal, Comcast Business advanced to the No. 8 spot in Vertical Systems Group's latest Ethernet Leaderboard.

Even before it beat out Charter for TWC, Comcast's growing presence in the business service market has been rising every quarter. In its fourth-quarter 2013 earnings report, the MSO's business services revenues rose 25.3 percent for the quarter to $876 million and 26.4 percent for the year at $3.24 billion.

The medium-sized regional markets have been largely overlooked by large incumbent telcos and competitive providers like AT&T (NYSE: T), Verizon (NYSE: VZ) and Level 3 Communications (NYSE: LVLT), which spend much of their attention on serving large multinational corporations.

"When they are going up market into medium businesses, that's where there's more and more underserved area because if you look at larger companies like AT&T and Verizon, they going after large multinationals," said Rosemary Cochran, principal of Vertical Systems Group, in an interview with FierceTelecom. "There's a big skew from nationals and serving regional companies and metro-based networks."

Beginning in late 2009, Comcast put the pieces in place to extend its presence into the medium-sized business space by acquiring Chicago-based Cimco and VoIP wholesaler NGT Telecom. But its biggest move came in 2011 when the MSO introduced its fiber-based Metro Ethernet service in 20 markets, offering point-to-point and point-to-multipoint options.

These moves proved to be fruitful for the cable MSO. It has been able to garner a number of regional customer wins, including a number of large sports teams such as the Boston Celtics and more recently, the San Francisco 49ers.

But Comcast's move to acquire Time Warner Cable will immediately deepen its fiber and on-net building presence even further. In the fourth quarter of 2013, TWC added 16,000 commercial buildings to its network, ending the year with a total of 860,000 on-net buildings.

Prior to this deal, Time Warner Cable itself was already a strong player in the Ethernet market. During the second quarter, TWC's business services revenue grew 20 percent for the year to $616 million.

TWC also strengthened its retail and wholesale Ethernet capabilities when it purchased DukeNet, a regional fiber and Ethernet provider. This deal gave the MSO an 8,700-mile regional fiber-based network that currently provides services to a mix of business and wholesale wireless backhaul customers, particularly wireless operators, in North Carolina and South Carolina, as well as five other states in the Southeast.

It makes sense for cable operators like Comcast to expand their presence in the medium-sized business space. They can not only leverage their growing base of fiber plant to deliver Ethernet, but also appeal to businesses that are looking for alternatives to the limitations of copper-based T1 circuits that they got from local ILECs.

While it will take time to understand the overall influence Comcast Business will have in the Ethernet and broader business market, it will be a bigger business service force to be reckoned with.--Sean