Cincinnati Bell’s business services threatened by Charter in nonfiber markets, sees cloud, UCaaS growth

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Cincinnati Bell may be building out a large fiber network to serve consumer and business customers in its home territory, but Charter Communications has been making progress in winning over business customers in areas where the telco has not yet built out fiber.

This trend continued into the first quarter as the cable MSO pursued businesses whose only option was slower, copper-based DSL broadband services.

Leigh Fox, president and COO of Cincinnati Bell told investors during its first-quarter call that the telco saw Charter advertise higher speeds for businesses that leverage its existing hybrid fiber coax (HFC) networks.

RELATED: Cincinnati Bell's Fox: FTTH is helping us reduce churn, drive up broadband adds

“From a business standpoint they got fairly aggressive with business marketing in the quarter where they’re offering no contracts and really attempting to attack where we don’t have fiber,” Fox said during the earnings call, according to a Seeking Alpha transcript. “In areas where we have fiber built out to businesses, we saw minimal impact.”

Copper churn

As a result of Charter’s aggressive push as the new business provider in town, Cincinnati Bell noted it saw churn rise with business customers that were on its copper-based products.

Leigh Fox, CEO of Cincinnati Bell
Leigh Fox

“In those areas, we definitely saw an increase in churn,” Fox said. “What it proved to us was where we have fiber, we win and where we don’t have fiber, we’re at risk.”

Charter has been able to win over business customers in the copper-based territories with a 60 Mbps data services product.

“What they’re targeting is at 60-meg starting speed where we have 5 Mbps DSL,” said Andy Kaiser, CFO of Cincinnati Bell. “That has been obviously a point of vulnerability that they’re going to after.”

Despite seeing growing competition from Charter in the business segment, Cincinnati Bell’s overall business and wholesale revenues were positive, rising $4 million year-over-year to $51 million for the quarter.

Cloud transition continues

But local business is just one part of Cincinnati Bell’s business service strategy.

The service provider foresees greater growth in its out of territory business via its Cincinnati Bell Technology Solutions (CBTS) unit and hardware and IT services.

“As a leading IT provider in Cincinnati, our long-term strategy is to grow our IT services and hardware statement, and adjusted EBITDA to $100 million over the next several years—and to further capitalize on the growing demand of our strategic services, particularly our UCaaS and cloud services,” Fox said. “We increased headcount in branch locations and acquired SunTel Services in Michigan.”

By purchasing SunTel Services, the service provider will be able to immediately scale its Midwest business presence. Cincinnati Bell has cited purchasing other service providers that offer unified communications as a service (UCaaS) and network as a service (NaaS) as key areas of interest.

Fox said the SunTel acquisition was “a great opportunity for us to fill in a hole in the northern part of the Midwest.”

Similar to larger telcos like AT&T, Cincinnati Bell is not immune to revenue growth pains as customers migrate off legacy TDM to IP-based services.

During the quarter, Cincinnati Bell reported that Telecom & IT hardware revenue was $86 million, down $16 million from Q1 2016. The service provider said the decline reflects customers’ shift to cloud services like Unified Communications as a Service (UcaaS).

Cincinnati Bell has $80 million of UCaaS revenue that’s growing at mid-teens percentages every year.

Fox said that the emergence of UCaaS reflects its business customers ongoing move towards cloud-based services.

“With IT services, the real opportunity is if you look at what’s happening in the industry, people are starting to move from the on-prem solutions, which are really hardware based to really platform-based solutions and we have got great product,” Fox said. “There is only so much we can do in Cincinnati and we are attempting to move that out of territory.”