Charter's Bright House deal could further disrupt competition in the Ethernet, business services market

Sean Buckley, FierceTelecom

Charter Business (NASDAQ: CHTR) will instantly gain more clout in the business services and Ethernet services race if its proposed acquisition of Bright House Networks is a success.

In addition, if the proposed acquisition between Comcast (NASDAQ: CMCSA) and Time Warner Cable (NYSE: TWC) goes through, Charter will gain various properties from both cable MSOs as one of the conditions of their deal.

Even before these deals have been approved by regulators, Charter has been retooling its business services line by separating its business services division into two separate units, one which will address small- and medium-sized clients, and another that will handle larger enterprise customers. Each of these units are now part of Charter's Spectrum Business unit.

Going up market to serve larger enterprise customers is a key priority for Charter's Spectrum Business unit as it looks to enhance its business services revenue share.  

"They are now called Spectrum Business, which I look at from timing-wise makes sense to separate themselves with all of the major cable companies looking to go up market," said  Rosemary Cochran, principal of Vertical Systems Group, in an interview with FierceTelecom. "Business bundles on the low end have always been their bread and butter, but now moving up to look at other opportunities and expanding the network and offering different types of services is one area of opportunity."

With scale being a big focus of the acquisition for Charter, the Bright House acquisition is a pleaser.

First, there's the network and geographic footprint. By acquiring Bright House, Charter would gain new markets in California, Florida, Alabama, Indiana and Michigan. Having a broader geographic and fiber network footprint means that the combined entity can address both larger markets and even Tier 2 and Tier 3 markets that Charter traditionally serves.

A larger geographic and on-net building fiber footprint will enable Charter to perhaps be more valuable to existing business customers that had to use multiple providers to connect all of their sites. 

Bright House has also been growing its business customer base. Today, Bright House currently has more than 135,000 business customers, a figure that it said grew 11 percent in 2014. For the year 2014, Bright House's overall business revenue grew by 19 percent. 

Like its fellow cable MSO brother's Comcast move to acquire Time Warner Cable, Charter and Bright House bring something to the table.

Besides gaining a broader Ethernet and fiber network footprint, Charter can now offer its Layer 3 VPN service to existing Bright House customers. Having VPN services means that Charter can potentially address existing large Bright House business clients that are requiring such a service to address remote employees or satellite offices.  

"Charter is one of the few cable MSOs that have Layer 3 services with IP VPN service in addition to the Ethernet offering so that has always been a differentiator on their end," Cochran said.

Meanwhile, Bright House brings expertise in developing solutions for various industry segments like hospitality. Having a strong presence in Florida, the service provider has aggressively pursued and won a number of deals to equip hotel chains such as Westin Lake Mary and Rosen Hotels & Resorts with its suite of voice, video and data services.

Perhaps the larger combined company could enhance its ability to serve these vertical segments with a broader service set.

"Bright House has been more positioned like a solutions sell," Cochran said. "They are not in a lot of markets, but they have presence in markets such as Tampa, Orlando, Detroit and Indianapolis."

Cochran added that Charter would be able to apply the solution mentality to its own customers. "Looking out where Charter is heading with the more strategic Spectrum Business piece and Bright House selling more solutions to vertical markets that probably together they would continue along that path," Cochran said.

Ethernet will also be a key service for the combined company. While cable operators don't have the broad scale and market muscle of large telcos in large multinational corporations, cable is the fastest growing segment in Ethernet market.

If the sale does go through, Charter not only becomes the second largest cable MSO, making it not only a threat to the No. 1 cable MSO Comcast, but also to a host of competitive providers and large incumbent telcos, like AT&T (NYSE: T) and Verizon (NYSE: VZ). While neither telco is backing down on their business service drives, deals like this should make them aware that they going to face newer challengers that don't have to deal with the challenge of replacing legacy TDM revenue with IP.--Sean