Level 3's Patel: Cable faces cultural, network challenges to compete for large businesses

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Level 3 Communications is aware that cable operators like Comcast (NASDAQ: CMCSA) are making a move to advance into the larger business markets, but the service provider sees that the sector has a number of challenges it will have to overcome to be a viable threat.

Speaking at the Citi 2016 Internet, Media and Telecommunications Conference, Sunit Patel, executive vice president and CFO, said that while cable operators have gained market share with multisite regional businesses, these operators don't have as much experience in serving customers that span multiple markets.

"With the cable guys most of their success has been in more of the lower end of enterprises or generally enterprises that have single locations," Patel said. "I think they are moving towards enterprises that have multiple locations in the same city, which is entirely different than from serving customers that have lots of people in lots of locations in different geographies and I think that that's an organization and a cultural challenge that takes a number of years to figure out."

Given the limitations of the markets cable operates in, Patel added that cable operators also will have to go out and establish a series of external network to network interconnection agreements (E-NNIs) with not only fellow cable operators, but a host of CLECs and ILECs.

"The other thing to solve is in many cases that to serve a large customer that's in many geographies your cable network might not be there so you'll need to source access and have the purchasing power to go buy access so they have a lot of things to figure out," Patel said.

Regardless of the challenges cable will have, Level 3 will face a number of larger cable competitors driven by a new wave of consolidation.

Charter Communications is leading what will be two of three of the largest acquisitions in the cable industry -- Time Warner Cable and Bright House Networks. Its acquisition of Time Warner Cable will give Charter access a wider array of on-net buildings and fiber facilities Meanwhile, Comcast announced a new division focused on serving satellite offices of large enterprises. It has also established E-NNI agreements with various cable MSOs and continues to expand its fiber network into new markets and win new customers like New Haven, Conn.'s College & Crown development.

But cable operators could also be an asset to Level 3.

Given the issues that Level 3 has in negotiating special access last mile circuits with large incumbent telcos like AT&T (NYSE: T) and Verizon (NYSE: VZ), Level 3 could potentially use cable's last mile facilities to extend services to their multisite business clients.

Such a relationship could make sense as cable operators already purchase long-haul and metro optical circuits to backhaul their own video and business traffic in various markets.

"We help them with infrastructure needs they have on the long-haul network," Patel said. "On the other hand, we can also provide them business for access services, and I think that's a relatively newer area for them."

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