by Sean Buckley
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Cable MSOs continue to expand their wholesale access service portfolios, providing services to a mix of traditional carriers and wireless operators. Having a wholesale channel is another way cable can offset residential video subscriber losses.
According to Vertical Systems Group, cable is the fastest growing segment in the wholesale and retail business Ethernet markets. But the cable wholesale services market could be shaken up if two major multi-billion dollar deals are approved: Comcast (NASDAQ: CMCSA)/Time Warner Cable (NYSE: TWC) and Charter Communications (NASDAQ: CHTR)/Bright House Networks.
While these deals still need the FCC's stamp of approval, it's clear that Comcast and Charter will have an even larger arsenal of capabilities to challenge the traditional telcos that have enjoyed a near monopoly of the wholesale market over the years. In the meantime, these two operators and other cable operators continue to expand their fiber networks to penetrate more buildings to support Ethernet while increasing the bandwidth capabilities of their existing hybrid fiber coaxial (HFC) networks--two initiatives that make them even more compelling alternative sources for wholesale services.
By acquiring Time Warner Cable, Comcast would immediately increase its fiber and HFC footprint as well as its wholesale market experience. Likewise, Charter would have an expanded footprint into various markets in the Midwest and Southeast.
"TWC has been a player in advanced business services longer than Comcast and has a higher portion of revenues attributable to medium and large businesses, and wholesale services," wrote Charlie Reed, Partner for Atlantic-ACM, in a research report.
The top four U.S. cable operators--including Comcast, Time Warner Cable, Cox and Charter--offer a host of fiber and coax-based services to carriers.
Cox and Time Warner Cable, in particular, have been dominant players in the wholesale market. Having offered wholesale services since the early 1990s to a host of ILECs and IXCs, Cox serves 100 different carriers including the major U.S. wireless service providers, while Time Warner Cable has 31 fiber networks densely deployed in metro markets across 29 U.S. states.
Special access opportunities
Special access services have been in the forefront lately as the FCC completes its review of special access rates from AT&T, Verizon and CenturyLink.
Besides offering fiber to wireless operators, cable operators can use their existing HFC network to get a larger take of the $14 billion special access market. According to Atlantic-ACM, cable only has about $1 billion of the special access market, which mainly consists of lower speed T-1 circuits.
Besides their aggressive push into the wireless backhaul segment, cable could also offer lower speed tiers using a mix of DOCSIS 3.0 and DOCSIS 3.1 equipment to serve the wireline access space, Reed says.
"In that market, more than half of the special access segment is T-1 access to businesses and data centers and I think cable is moving in that direction and beefing up their mid-speed and lower speed access products," Reed said in an interview with FierceTelecom. "We've seen Cox and Time Warner Cable be in that area a little earlier and Comcast slowly moving in that direction and it's all about having a different option for T-1s with lower 2 or 5 or 10 Mbps Ethernet services."
Like other cable operators, Charter Communications' wholesale unit has broadened its scope to target last mile opportunities. It provides optical Ethernet scaling from 10 Mbps to 1 Gbps, wavelength service 10 Gbps and IP transit, but 1-100 Mbps is the sweet spot.
"Part of our value proposition as a carrier service provider is we have very deep fiber networks in relatively underserved Tier 2 and Tier 3 markets, which goes beyond cell tower backhaul and more toward traditional wireline connections," said Stephen Webster, VP of Carrier Sales for Charter. "That focus on Tier 2 and Tier 3 markets makes us a natural carrier provider because when you're talking about markets like Duluth, Minnesota, or Saginaw, Michigan, or even Asheville, North Carolina, it's probably Charter and the ILEC that's the fiber provider in those markets."
Cox Business and Mediacom are also examining other options to address wholesale connectivity needs, including HFC. Cox has yet to announce such a product yet, while Mediacom is developing a similar product for carrier customers.
"We're also looking at other options to deploy and leverage more of our plant to get more buildings on net as quickly as possible," said Jeremy Bye, vice president, Carrier and Wholesale for Cox Business. "Fiber is our main solution, but we look at other options as well, which means we would do something ultimately that was HFC from a special access perspective."
Mediacom said it has gotten requests for services for its Ethernet over DOCSIS (EoD)-like product from an ILEC for customers transitioning off of lower-speed T-1 circuits. By using this HFC-based product, one carrier said it could save 30-40 percent on wholesale costs.
"A number of the incumbent LECs whose T-1 solutions are coming to their end of life means that EoD is going to be a game changer," said Dan Templin, EVP of Business Services for Mediacom. "A particular carrier has identified in our markets about 15,000 coax on-net customers looking for connections that go beyond T-1 and approached us to say, 'if you can make this work, we would like to wholesale this from you.'"
Time Warner Cable is seeing wireless backhaul growth, but its main ingredient is selling last mile access to other carriers such as ILECs and CLECs. It has also been selling to international carriers coming into the United States.
"I am seeing good growth in cell tower, but the real growth driver in carrier services is in our last mile access strategy," said Thane Storck, group vice president of Carrier Services for Time Warner Cable Business Class. "That's a maturing segment and we're at the point now where we have the competitive elements that we need to survive in the last mile, including building lists, getting ready to turn up order entry management systems that allow us to systemically bond with our carrier customers and give us more of that transactional status."
Wireless backhaul rising
Wireless operators have become one of cable's largest wholesale customers. This opportunity ties in well as operators have been aggressively building out their own fiber networks to compete for more business services dollars, with Ethernet and IP-based services.
Cox has been working with wireless operators directly and tower companies to place equipment in their cabinets and distribute to each operator or feed the tower sight from a right of way perspective.
"It varies by market where in the West wireless operators have more mono poles, which have a focus on height that include only one carrier so it makes better sense for us have a cabinet location sitting in a right of way and individually feed those individual locations as best you can," Bye said. "We partner quite a bit with the RF vendors to deliver a seamless solution for the mobile network operators (MNOs), which is not based on a formal contract agreement, but more of a partner arrangement."
Charter's Spectrum Business has also found a sizeable niche in the wireless backhaul market, already having lit over 3,800 towers in the markets it serves with average bandwidth of 50-100 Mbps via switched Ethernet.
Webster said while the company isn't seeing as many new tower requests as when wireless operators unveiled their 4G LTE plans in 2010, operators are asking for higher bandwidth solutions at existing sites.
"We're still going to see our fair share of new towers added this year and next, but the days of the big RFPs from wireless providers are sort of over so now we're talking about bolt on or add on sites we've already built for them," Webster said.
At the same time, cable operators are keen to take advantage of the small cell opportunity. A recent ABI Research report revealed that small cells will be a $5 billion market by 2019, something that could bode well for cable operators and other fiber-centric providers like Zayo.
However, cable operators acknowledge small cells have been slow to take off. Bye attributes the slow pick-up of small cells to vendors still developing network equipment.
"If you go back to 2011, people were thinking it would be a boom in 2013, but it was more of a case of the equipment vendors were not ready with the type of solutions from an RF solution perspective to meet the need," Bye said. "Now the equipment vendors are starting to catch up and at the same time some of the larger MNOs are seeing a need where they have to do it."
Whether it's deployed outside on a utility pole or inside of a building, Cox's small cell backhaul solutions have a number of unique characteristics. In addition to leveraging either its existing HFC or fiber networks and a mix of Ethernet or Internet services, the power facilities for the small cell equipment is provided using existing strand power from its HFC network.
Time Warner Cable's entry into the wireless backhaul space came at a time when wireless operators decided they would need more than T-1 circuits to support their 4G LTE deployments.
If Comcast is successful in purchasing Time Warner Cable, it will not only be the largest cable operator on the consumer side but also on the business side.
"On the wholesale side, TWC, DukeNet and Comcast have collectively established a sizeable backhaul business by connecting their fiber networks to wireless towers and selling Ethernet backhaul services," wrote Reed in a research report. "With wireless data demand exploding, and wireless carrier small-cell build outs ramping up, significant future revenue opportunity exists in wireless backhaul. The combined company will be able to make larger deals, which could come with lower bulk pricing and easier contract management for wireless carriers."
Dark fiber realities
Driven by Verizon Wireless' (NYSE: VZ) desire to have control over its wireless backhaul destiny, dark fiber has become a blessing and curse for cable operators.
Some are willing to offer it on a case-by-case basis if it means they could get access to a lucrative contract. While WOW! Business and RCN Business are happy to provide dark fiber, others like Cox prefer to offer lit fiber services.
Reed said even those cable MSOs that don't offer dark fiber as a product will do it, especially if it means they could lose out to a competitor.
"Traditionally, cable and ILECs have not played in that space, but I think we have heard there are some one-off deals that they are considering, and that is especially where there's tens of hundreds of towers at play and they don't want to lose the whole business to Fibertech, FiberLight or Crown Castle," Reed said.
RCN Business has been leveraging its fiber assets in markets like Boston, New York and Chicago to offer dark fiber solutions for small cell deployments and even large enterprises.
"The small cell unit uses our fiber interconnectivity we have in these metro markets," said Rob Roeder, vice president of RCN Business. "We have the ability because of the large amount of fiber to deliver dark fiber for customers. It's partly wireless carriers and partly people looking for fiber point to point, especially with the Fortune 500 companies, and somewhat in the hospitals and banking realms too."
While it does not provide dark fiber per se, Mediacom does give wireless operators and others the option of controlling their fiber connection.
"Dark fiber and dark fiber leasing is not a core competency," said Templin. "It does not make a lot of sense for us, but demand has increased for what I call unmanaged lit services, meaning we are providing some creative solutions for carriers that want to control the bandwidth and throughput so we worked out a way to do it."
Time Warner Cable is willing to do it if the deal is big enough. "We look at dark fiber on a case-by-case basis," Storck said. "One area where we have an appetite for dark fiber is in macrocell, where we're hauling dark fiber to towers, but what we would shy away from are single sites or a few sites."
Using a mix of standard HFC and fiber, cable can help shake up a segment that's been long overdue for new competition. Cable operators may still have a long way to catch up to the dominant telcos in the wholesale market, but they have great potential to grow their wholesale market share as an alternative source to a host of wireline and wireless providers.