Analysis: New Front in Cable-Telco War: B2B

Verizon, AT&T Face Challenges from Cable Operators in Business Telephony

By Jon Hemingway -- Broadcasting & Cable, 9/29/2007 8:00:00 AM

Cable operators are opening a new front in the war with telephone companies by selling services to businesses, and telephone is a big part of the strategy.

Thus far, the cable and telephone industries have engaged in a battle of bundles aimed mainly at residential customers. Telcos Verizon Communications and AT&T have introduced television services that they can add to their phone and broadband offerings, while cable companies are offering voice as a complement to traditional video and high-speed-Internet services.

That battle is spilling into the commercial arena as cable companies take aim at small and midsized businesses in their footprint. While operators have offered commercial data services for years, many are just now ramping it up and pushing commercial voice services.

Industry heavyweights Comcast and Time Warner Cable are both beating their chests on the buildup of their commercial business. In a presentation at a recent investor conference, Comcast co-chief financial officer John Alchin said the company was targeting 20% penetration over the next five years into these markets, generating $12 billion-$15 billion in revenue. The company plans to invest $3 billion over the next five years to push its commercial offering of voice and data.

Time Warner sees these small and midsized businesses as a $9 billion-$11 billion opportunity in its footprint, of which $6 billion-$7.5 billion is commercial phone. By the end of the year, the company will have commercial phone available across its legacy footprint, and by mid-2008 in its acquired Adelphia Communications systems, as well.

"It’s a market that has been ignored and underserved" by the telephone companies, said Ken Fitzpatrick, senior vice president of business services for Time Warner.

Cable companies entering the phone space commonly position themselves as a "local" alternative to a large impersonal telephone company. Time Warner said it will use a multiplatform marketing assault in 2008 to deliver this message, and it also plans to undercut telco pricing by 10%-15% to drive penetration into these markets.

Bring it on, said market leader Verizon. The telecommunications giant has some experience going head-to-head with cable operators in the commercial phone business, competing with Cox Communications, which launched its commercial business 10 years ago, in Virginia and Rhode Island and with Cablevision Systems in New York and New Jersey.

"We welcome the competition," Verizon director of small business marketing and strategy Mike McLaughlin said, adding that network reliability and the ability to customize services is what sets Verizon apart. "These other guys may dabble, but when you get into serving commercial customers, it’s a whole other business and set of requirements."