Level 3 says cable companies' limited resources make it tough to compete in enterprise services

Level 3 Communications sees cable operators as a growing threat in the business space it serves -- as well as a potential ally for special access -- but said their geographic nature and lack of experience means they will have a tough time competing with ILECs for large business customers.

In an FCC filing, Level 3 said that while cable operators like Comcast Business (NASDAQ: CMCSA) and Charter (NASDAQ: CHTR) are making progress in serving medium-sized businesses within their respective territories, their networks don't reach nearly the amount of buildings ILECs have on their network.

"The incumbent LECs have significant advantages over their competitors because, among other things, their networks reach virtually every commercial building in their respective territories, and their large and diverse legacy customer bases give them economies of scale and scope that competitive LECs cannot come close to achieving," Level 3 said. "The competitive LECs' and cable companies' networks reach only a small minority of commercial buildings."

The service provider's comments to the FCC come as the regulator begins to review the special access service data from the ILECs and other providers it collected.

Cable operators have made strides in rolling out fiber-based Ethernet in the markets they operate in but they face limitations in serving large multi-site enterprises that typically span multiple geographies and regions.

"Cable companies participate in dedicated services markets where they offer Ethernet-based and DSn-based dedicated services over fiber optic facilities," Level 3 said. "However, they have explained that their ability to compete with the incumbent LECs is somewhat limited, especially with respect to multi-location enterprise customers with complex needs."

But network reach is only one issue that limits cable operators in serving large multi-site enterprise customers.

Large ILECs like AT&T (NYSE: T) and Verizon (NYSE: VZ) have established long-term relationships and have requisite experience in building out not only networks to them but developing a broader solution sets. ILECs also have the experience to work with service provider partners outside of the regions to offer guaranteed SLAs.

Comcast Business' new Enterprise division, for instance, will target Fortune 1000 business customers through established External-Network to Network Interconnection (E-NNI) agreements with other cable providers. The cable MSO has wholesale agreements with other cable companies including Charter, Time Warner Cable, Cox, Cablevision, and Mediacom, and it acquired Contingent Network Services.

"Comcast's recent creation of a new unit to target Fortune 1000 businesses does not appear to support the conclusion that cable companies have overcome these longstanding limitations," Level 3 said. "Comcast plans to target these businesses using a "partner model."

For more:
- see the FCC filing (PDF)

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