Cincinnati Bell may have come into 2015 with a conservative outlook for its business service segment, but it is finding new growth in the segment as it wins new contracts and expands its out of territory reach.
Speaking to investors during the Bank of America Merrill Lynch 2015 Media, Communications & Entertainment Conference, Leigh Fox, CFO of Cincinnati Bell, said that while the SMB is getting a boost from the ongoing Fioptics fiber to the premises (FTTP) rollout, the real impact is coming from new enterprise customers.
"It's a combination of pull-through from some of the Fioptics build, which you see more on the SMB and mid-market, but I'll be candid: That won't move the needle to a huge extent," Fox said. "I think more of what we're seeing is on the enterprise side, as we seem to be doing quite well with building relationships with the suite of products we have."
Evidence of the success in the business segment was seen in the second quarter where the service provider reported strategic revenue for business customers totaled $42 million (including $2 million of Fioptics revenue) for the quarter, up $2 million year-over-year.
One service that has been a key growth driver in the second quarter was VoIP. The telco won three large deals in its territory, including two state and local government deals -- the State of Indiana and the State of Kentucky -- and a large enterprise customer.
But winning enterprise customers over in its own territory is only one part of its strategy.
"We're starting to branch out also and part of that is the company starts to follow customers into areas like Dallas and Denver and seen positive reaction from that," Fox said. "The core out of territory offices that we have is also growing at a nice pace year-over-year so it seems to me we're hitting our stride, but it's no specific product or area."
In addition, Cincinnati Bell is seeing positive results in its IT and Hardware segment. It reported that second quarter revenue were $106 million, up 5 percent year-over-year, which Fox attributes to a few "one-time anomalies that occurred last year."
Fox said that while there's a lot of volatility on the hardware sales side, the company can use it as a way to get a foot into the door of a new account. After winning over a new customer with a hardware solution, they could potentially upsell that customer with its set of IP-based and cloud services.
"I look at it as a value-add that's easier to build a relationship off of," Fox said. "If you're a sales person, it's very hard for them to enter an account and immediately begin to talk about managed services or technology integration, but they can say, 'What are [you] doing for your hardware needs?' So it's a way to begin to penetrate relationships."
Now that Cincinnati Bell has been proven out the profitability of Fioptics in the consumer and small to medium business segments, the company sees the next wave of growth coming from retail business services. Business services are 70 percent of the telco's total revenue.
Within the business segment, the telco is also seeing continual growth from the wholesale services it sells to carriers, particularly wireless operators inside and outside of its territory.
"Our carrier markets business, does business with all of the major carriers and is a large percentage of our EBIDTA," Fox said. "It is even seeing opportunities to grow outside of Cincinnati. So even on the wholesale side we're starting to branch outside of the city."
Fox added that "it's a combination, and it's not in one segment like technology solutions, but also in wireline in both retail and wholesale."
Like other wireline providers, Cincinnati Bell faces the inevitable challenge of balancing out legacy service declines with the rise in next-gen IP and cloud-based services.
While Cincinnati Bell initially takes a hit on margins as it migrates one of its business customers off a TDM-based T-1 circuit to Ethernet, it often sees a boost in customer APRU.
"We have found that when we have won deals off of writing down a T-1 or a combination of T-1s for business from a margin standpoint we end up slightly compressed, but from a total dollar value standpoint our ARPU grows," Fox said. "I think that's what most folks in our sector think through and know that you can't replace margin for margin on a percentage basis, but they try to win on a dollar basis."
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