Many broadband providers have traditionally offered both business and consumer services, but cable companies have often been strongly biased toward consumers because of their cable TV roots. Now, cable giant Comcast, having acquired Masergy, is looking for a stronger business position, even for enterprises. It’s a logical move, given that their telco competitors are all selling in the SMB and enterprise space, but cable companies like Comcast have some work to do, and targeting “enterprises” may not be the way to do it.
In the consumer space, cable companies generally had a lower level of customer satisfaction, and that’s true of Comcast, but Comcast has recently been named the most improved in that metric, and in some surveys they top all broadband providers. Issues with installation, with customer support, and with broadband performance and availability have all been reduced, according to the surveys. One might think that this kind of improvement, which measured over the last two years has been truly significant, would have changed cable, and Comcast’s, market numbers. Not so much. Comcast rode the broadband tide created by COVID lockdowns, and that tide is now receding. The company expects a slowdown in growth now, as work-from-home declines. No wonder business broadband is looking more interesting.
Comcast and other cable companies have long offered “business broadband” from essentially the same infrastructure that supports the consumer, but with enhanced customer care offerings. Most of my SMB contacts who use cable broadband are using it for business Internet access, email and texting, and other services that mirror what consumers use broadband for. The percentage who actually use a service like VPNs or SD-WAN is very small. My surveys don’t have a large SMB representation so statistical significance is hard to come by, but while they show almost 100% growth in VPN usage by cable customers, the 2021 numbers are low single-digit.
The reason this is important is that the ARPU for business broadband depends on how much it can be differentiated from consumer broadband. Businesses will (and do) pay more than consumers for “more reliable”, “more secure”, services, but not all that much more. Adding on other features, such as VPN/SD-WAN capability, is a great way to boost ARPU, but these features aren’t valuable or even useful to all businesses. Since differentiable features are also critical in sustaining pricing power in a competitive market, you can see how important it is that business broadband be more than re-branded consumer broadband.
Data from my surveys (with the same significance proviso) says that the reason given most often for selecting cable broadband was that no other provider was available. This suggests that the growth in business customers for cable companies may be due more to growth in the number of businesses that have come to depend on broadband. Cable companies have to get beyond that, but that means targeting businesses who would value something beyond. The demographics of these businesses offer us a hint of the cable company business service opportunity, because they can help us derive just how many businesses would be prospects.
Of the roughly 8 million business sites in the US, half have fewer than five employees. These have an average of 1.001 sites per business, meaning that they’re nearly all single-site businesses. While most businesses with over 500 employees have multiple sites, there are only roughly 20 thousand of them, representing an average of 66 sites per business. Drop down to businesses with between 100 and 499 employees and the average business has roughly 4 sites, and overall it appears that three-quarters of all businesses are single-site.
These single-site businesses tend to be prospects for consumer-like business broadband, of course. You’re a competitor if you pass the prospect with your infrastructure. Differentiable business broadband, broadband services with non-consumer features, would likely have to be targeted at the rough 120 thousand firms that actually have multiple sites, and this represents only about 2% of the business population. My surveys indicate that multi-site businesses tend to have all their sites in areas where there are several broadband providers available, which makes differentiable business services important for competitive reasons, too.
It’s my view, also based on my surveys, that the single characteristic that identifies a true “business broadband” prospect is that they have multiple sites and need connectivity among them. That would suggest that the Masergy deal Comcast made could have much broader impact than the “enterprise” market that the article cited above says the deal targets.
Just what defines an “enterprise” is slippery, so let’s look at the raw data again for guidance. The top group in US statistics, companies with 20 thousand or more employees, contains only 537 companies, with an average of about 1,100 sites per company. Many use 10 thousand employees as the boundary of an “enterprise”, and this group has just short of 700 average sites per company, but number just about 1,100. Those are obviously high-value prospects, but they’re solidly in the telco’s pocket and tossing the telcos out could be problematic. In addition, the goal of 100G service to an “enterprise” means a fiber network rather than CATV infrastructure, and telcos can build out fiber more easily because they have a lower ROI target than cable companies.
Comcast and cable companies need to think smaller, but not small. The sweet spot, according to my modeling of the data, would be companies between 1,000 and 5,000 employees, a group with an average of about 38 sites per company. My surveys have consistently suggested that the network features and issues users in that group found significant were pretty congruent with those of the top-tier (10,000 employees or more) enterprise companies. However, network literacy and the extent to which companies in the mid-sized group could acquire and retain network specialists, was much lower than for enterprises. That would make this group more likely to respond to a managed services offering built around a VPN and including other Masergy services. This group is also less likely wedded to a telco broadband offering.
I suggested in my blog about the Comcast/Masergy deal that Comcast may hope that being able to serve enterprise sites too small for MPLS VPNs could get their foot in the enterprise door. It could, but the enterprises could actually deploy SD-WAN rather than a managed SD-WAN service, and even if Comcast won the SD-WAN business, they’d still have to displace the MPLS VPNs, which is more than just fiber access. Mid-sized businesses with between 1,000 and 5,000 employees could be a better place to target, offering more sales and a higher return. An average of 38 sites per business could generate respectable business revenue, and managed service add-ons could improve ARPU.
Since most of the data I’ve cited here is public, it’s hard to believe Comcast doesn’t see this, and it may be that they are already planning a push like the one I’ve described. If they aren’t, they need to think seriously about taking a shot, and quickly.