Comcast Business threatens Verizon, AT&T with enterprise unit, but VPN, mobility, and scale remain key issues

Sean Buckley, FierceTelecomComcast Business (NASDAQ: CMCSA) has emerged as a potentially new threat to AT&T (NYSE: T), Verizon (NYSE: VZ) and Level 3 Communications on the large business front with the introduction of a new unit that will offer business services to large Fortune 1000 business customers in the U.S.

Establishing a division focused on large businesses is a logical step for Comcast Business.

Beginning with delivering HFC-based data and voice to SMBs (small to medium businesses), the service provider has continued to go up-market targeting large and medium sized businesses (e.g., schools, hospitals and banks) with Ethernet and fiber-based services. It has also continued to expand its fiber network reach into new markets in Northern New England, California and other regions, while establishing NNI (network-to-network interconnection) arrangements with other carriers.

Evidence of Comcast Business' growth was seen in the second quarter when it reported revenues were $1.16 billion, up 20.4 percent from $965 million in the same period a year ago. Bill Stemper, president of Comcast Business, told Bloomberg that large business customers likely won't show up in the company's results until 2018.  

Within the Fortune 1000 space, Comcast Business' focus will be on upgrading and backing up the U.S.-only branch and regional network sites from low-speed legacy services to higher speed, lower cost managed connectivity from its on-net facilities and off-net through partnerships with MSOs and wholesale partners.

"When we looked at the next market Comcast Business wanted to penetrate, we looked at the large enterprise space, which is kind of defined as Fortune 1000-plus," said Glenn Katz, VP and general manager of enterprise services for Comcast Business, in an interview with FierceTelecom. "Those are network related sales and are not product-related opportunities so we're fulfilling a network need for one of these large enterprise customers across the United States."

Of course, there are a number of questions. The service provider must abide by much stricter SLAs and create other NNI agreements that might not be served by its cable operator partners.

Comcast Business is addressing the off-net issue by establishing NNI wholesale agreements with a number of other Tier 1 cable MSOs including Cox Communications, Time Warner Cable (NYSE: TWC), Charter Communications (NASDAQ: CHTR), Cablevision (NYSE: CVC) and Mediacom.

"Working with other cable companies is a logical step because they don't compete with each other and nothing overlaps so it would behoove them to support the off-net sites of a customer that's in one territory that has a couple sites outside because there's no competition," said Rosemary Cochran, principal of Vertical Systems Group, in an interview with FierceTelecom. "Once you start with going nationwide there's coverage, but there are some buildings where you may not get that and you may need to deal with other NNIs or other business arrangements with others for that footprint."

It also purchased Contingent Network Services, a unit that will assist Comcast Enterprise in deploying services, particularly for those enterprise customers that outsource their day-to-day network operations.

"We on our own being Comcast Business created the Type-2 relationships with the largest MSOs," Katz said. "One of the other aspects that Contingent brings to the table is they themselves have aggregated wholesale relationships with many other CLECs, ILECs, small cable providers so with that piece and our agreements with the large MSOs we can fulfill a nationwide deployment of broadband infrastructure."

Another question is scale. Some analysts suggest that it could purchase another larger carrier to scale its national and perhaps international footprint. Having this reach is essential if it wants to become a serious contender to AT&T and Verizon.  

A recent Cowen and Co. research report suggests that the service provider could purchase Level 3 or Zayo, both of which have scaled their networks through a mix of organic builds and large acquisitions like tw telecom and AboveNet. 

In the near-term, the more likely scenario for Comcast Business would be to work with providers like Level 3 and Zayo to extend its footprint.

Level 3, which is now moving through the integration of its tw telecom acquisition, recently said that they would be happy to serve as both a national and international partner for Comcast's Enterprise business.

The other three elements that will be important are Layer 3 VPNs, mobility, and international reach.

"When you're working with Fortune 1000 that immediately puts you into the non-U.S. space as well because all of the Fortune 1000 companies have global presence or supply chains and customers so that's a different area," Cochran said. "The other particular issue is that Layer 3 MPLS VPNs is part of many of those networks."

Cochran added that "the other area becomes mobility and more emerging applications for mobility so all of those pieces have to be there."

Regardless of the issues it will face, Comcast Business has set a high bar for itself and for others that serve large Fortune 1000 companies that are looking for alternative solutions.--Sean