August 3, 2005
Not Just TV: Cable Competes for the Office Domain
By KEN BELSON
NY Times
http://www.nytimes.com/2005/08/03/business/media/03cable.html?pagewanted=print
When Leon Thomas moved his company's headquarters across Omaha last month,
one of his top priorities was to get improved high-speed data lines so his
company, which helps clients manage their online strategies, could keep
expanding.
Like most corporate clients, Mr. Thomas called the regional Bell company,
Qwest Communications, and Alltel, another fixed-line phone carrier. Then he
did what a growing number of small business owners are doing: he called his
local cable provider, Cox Communications, to compare prices, services and
installation times.
In the end, he chose Cox because it could put in the fiber line all the way
to the computer servers in his office for 15 percent less than the others -
and it could do it in days, not weeks. Cox, which also required a shorter
contract, had workers installing the line after midnight (the least
disruptive time to do that work), and its engineers remained on call 24
hours a day via their cellphones.
To attract business customers like Mr. Thomas, cable companies are
increasingly positioning themselves as a friendlier, cheaper, more flexible
alternative to the Bells and are aiming to win the smaller corporate
clients that the big phone companies have tended to neglect.
They are selling data and phone services to hotels, restaurants, schools
and hospitals that already buy television programming from them, and they
are making headway with smaller establishments like mom-and-pop shops and
gas stations. More than 90 percent of the businesses that Cox sells to
employ fewer than 100 workers.
"Cox completely blew the traditional carriers out of the water," said Mr.
Thomas, whose 20-person company, Jelecos, also buys its television and
phone service from Cox. "Even though they are a big company, they know how
to act like a small one."
Cox, Time Warner Cable and other cable providers have tried for years to
crack the business market long dominated by the Bell companies and
long-distance giants like the AT&T Corporation. But they have had limited
success because their networks did not offer phone service, and they lacked
sales teams focused on selling to businesses.
That has changed. Internet-based calls can now be transmitted through cable
data lines instead of traditional phone lines. The cable industry, having
spent $85 billion in the last decade to upgrade networks, is now able to
offer companies comprehensive telecommunications services: phone, TV and
high-speed Internet connections.
"They've taken the same cable modem delivered to your home and beefed it
up," said Lindsay Schroth, an analyst at the Yankee Group in Boston. "The
low-hanging fruit is a perfectly good business."
Ms. Schroth estimates that together, the cable providers sold $1.2 billion
in phone, data and video services to companies last year, and she expects
revenue to grow to $2 billion in 2005, a 67 percent increase.
The cable companies have gotten a strong reception in part because
businesses are looking for service options other than the Bells, which are
rapidly absorbing their former long-distance rivals. Verizon Communications
and SBC Communications are awaiting regulatory approval for their
respective purchases of MCI and AT&T. If approved, the two resulting
companies will control 56 percent of the country's $134 billion market in
serving businesses, according to the Yankee Group.
The BellSouth Corporation, Qwest and Sprint together control 19 percent.
With so much power in so few hands, more customers are going to consider
the cable companies, analysts said.
"Despite the best efforts of the F.C.C. to create competition, after the
bubble burst, there weren't any competitive alternative to the Bells," said
Craig Moffett, a cable industry analyst at Sanford C. Bernstein & Company.
"Now that the cable operators are able to offer voice service to complement
their high-speed data, commercial services are a cherry waiting to be picked."
While the cable companies have only 1.5 percent of the business market,
their share is growing. At the end of 2004, 995,000 businesses got their
high-speed data lines from cable companies, 60 percent more than in 2003,
according to In-Stat, a research firm.
Cox added 40,000 business customers since 2003 and now has 140,000. Revenue
generated from those clients jumped 26 percent last year, to $395 million.
In the second quarter this year, revenue grew 21 percent compared with the
same quarter last year. While still a sliver of the $22 billion in
corporate sales at AT&T, the market leader, it accounts for about 7 percent
of Cox's total revenue.
"Small businesses are the centerpiece of our opportunity," said William
Stemper, the vice president of Cox business services, who expects his
division to generate $1 billion in sales by 2010. "The MCI's and AT&T's
tend to stay with the multinational customers. Our focus is a set of
customers that have not been served very well."
Time Warner Cable, the second-largest cable company after Comcast, had
182,000 business customers at the end of the first quarter. Revenue from
these clients has grown by 50 percent in each of the last five years. The
company will start selling digital phone service to businesses next year.
"We've got everything we need to compete," said Ken Fitzpatrick, who heads
the commercial services division at Time Warner Cable, a secondary provider
to companies like Procter & Gamble and Ford Motor.
Cablevision, Time Warner's chief competitor in New York, built a fiber
network to connect Long Island, Westchester and New Jersey, where its 3.1
million residential and commercial customers are located. The company hopes
that this investment will make Cablevision more attractive to business
customers who want to maintain auxiliary facilities for their data in
various locations.
Cablevision can invest heavily in its network because all its customers are
in the New York metropolitan area. But most other cable operators serve
many geographic markets, which makes it more difficult for them to compete
with phone carriers that have more complete national and international
networks.
And while cable networks blanket suburban neighborhoods, they have a harder
time winning over large corporations that need to connect a constellation
of offices in far-flung metropolitan areas.
Another big advantage for the Bells is that they can pitch additional data
services, because almost all of businesses already get landline phone
service from the Bells. And the top three Bells - Verizon, SBC and
BellSouth - own cellular phone carriers, enabling them to sell wireless
products easily.
Still, to fend off cable, the Bells are having to battle their reputation
as bureaucratic and unwilling to tailor their services for smaller
companies. Qwest, for instance, introduced a program last summer called
"Feet on the Street" in which salesmen go door to door calling on small
business owners.
Cable companies acknowledge that the Bells can afford to send big teams of
salesmen and engineers into the streets. But they say their tight
connection to the communities where they operate gives them a leg up with
small businesses.
"They get us up early," said James O. Robbins, Cox's chief executive,
speaking of the Bells. "But we are at or below where their radar is."
================================
George Antunes, Political Science Dept
University of Houston; Houston, TX 77204
Voice: 713-743-3923 Fax: 713-743-3927
antunes at uh dot edu
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