Cable's Blind Spot: Untapped SMB market hovers beyond MSOs' grasp

Telecommunications, Feb, 2002 by Ted McKenna

Like oil fields below the Earth's surface that energy companies cannot yet reach, millions of SMBs (small to midsize businesses) today remain unserved by cable networks that pass their doors. For the most part, MSOs simply lack the technology to provide SMBs the right services at the right price, and instead are focusing on digital upgrades and providing video-on-demand to residential customers.

Business customers not served by cable companies don't go unclaimed--regional phone companies and IXCs greedily snap them up, while MSOs enjoy a steady flow of new residential customers for both traditional cable TV services and cable modem-based Internet access. Many of the largest MSOs also operate separate business units that target large enterprises with fiber-to-the-premises services.

From Cox Business Services and Adelphia Business Solutions to Cablevision's Lightpath subsidiary and Time Warner Telecom, the major MSOs have devoted sales and marketing expertise to supplying data services to businesses using their fiber backbones. The problem, though, is the cost of the last mile: Besides cable modem service, which comes with no SLA guarantees, MSOs lack an inexpensive alternative to fiber.

Limited Options

Businesses that want more than best-effort cable modem service running at 10 Mbps upstream (or less, depending on how many others may be using a particular fiber node), must now turn to ILECs to provide them with broadband, whether through private lines, DSL or some other medium. Businesses spending less than $7000 or $8000 a month on telecom services just cannot support the cost of fiber deployment.

"The present [cable] approach to offering business services, at the middle to high end of SMB, is to run fiber directly to the business location," says Gartner Dataquest principal analyst Patti Reali. "This can cost between $30,000 and $50,000, a considerable expense and construction undertaking."

So MSOs largely miss out on the 8 million or so SMBs in the United States, which spend a total of $62 billion every year on telecom services, including $150 to $1500 a month or more on Internet access, according to market research firm Yankee Group. George Peabody, Aberdeen Group's vice president of communications infrastructure and services, says cable operators recognize that the typical SMB has so far been limited to ILECs for its broadband and phone service and is hungry for an alternative, both in price and customer service (see Figure 1).

"As we see it, cable is going to be dominant on the consumer side and ILECs will be dominant on the business side," Peabody says. "But cable units that focus on small businesses have a chance if they've got the right technology and the right systems in place to deploy the services that are really sticky."

But the ability to deploy these sticky services requires both hardware and software changes. Cable operators have been busily upgrading their networks over the past five years to deliver digital cable services, so they are already heading in the right direction, according to Peabody, who says delivering more predictable bandwidth rates to businesses requires only adjustments to existing infrastructure, not wholesale change, plus the addition of software that allows more sophisticated network behavior.

DOCSIS 1.0 standardized cable modems, so cable operators had more choice in which CPE they could use with their systems. DOCSIS 1.1 should let MSOs provide SLAs for bandwidth, so that customers receive guaranteed QoS. Cable modem makers recently receiving DOCSIS 1.1 certification from CableLabs include Arris, Ericsson, Scientific-Atlanta and Tellabs.

The importance of the other half of the broadband equation, software, was underscored by the implosion late last year of Excite@Home. The many cable operators that opted to outsource their Internet service provisioning were suddenly scrambling to develop their own, more sophisticated provisioning capabilities, enlisting the aid of OSS companies such as Sigma Systems, BroadJump and Alopa Networks. Whereas provisioning in the 1980s and early 1990s was simply a matter of flowing data back and forth across the network and using set-top boxes to descramble the signals, today cable operators are exploring the types of software they need to provision a range of new services, says Ragan Wilkinson, a director of product management for Dorado Software.

"If you look at their OSS software, it's pretty primitive. It's tailored at delivering broadcast video," Wilkinson says. "But business customers might buy tiers of service that change throughout the month. That requires a whole different level of provisioning and IT software to manage."

Alternative Solutions

Hoping to sell cable companies the equipment that will help them reach this untapped stream of revenues, start-ups such as Narad Networks, Advent Networks and SwitchPoint note that, even with the upgrade of cable modem equipment to handle two-way traffic at guaranteed rates of bandwidth, MSOs' HFC networks will still offer asymmetrical broadband access at rates too slow to offer more than four or five phone lines, let alone highbandwidth applications such as video conferencing or outsourced storage.