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December 01, 2006

Commercial Is Cable's Next Big Opportunity....But Is The Industry Ready?

Bears Stearns Cable Analyst Spencer Wang recently held a conference call with a couple of experts on the opportunity that the cable industry has to offer commercial services. Today, cable is primarily a residential business with commercial customers representing less than 5% of revenue.

According to Bear Stearns, the revenue opportunity for cable in commercial services is $40-50 billion. To put that in perspective, the five big publicly traded cable companies (Comcast, Cablevision, Charter, Cox, and Time Warner) are projected to have cumulative revenue of about $60 billion in 2006. The commercial opportunity includes small and mid-size business with up to 100 employees, hospitals and health care facilities, lodging, government buildings, schools and wireless backhaul.....

Last quarter cable industry observers were a little disturber by slightly slower than expected growth in cable telephony subscribers at Cablevision and Time Warner. Nobody was overly worried but it make me think that it would be important for the cable industry to begin discussing the next big opportunity that would keep investors believing in double digit long-term revenue and EBITDA growth. Commercial services could be the answer.

That said, my firm, Northlake Capital Management, had a very bad experience on Wednesday with the commercial services of Comcast. The building where I rent an office offers T-1 broadband access with the monthly rent but the service occasionally goes out. As a result, I decided to add Comcast high speed data as an alternative so I had virtual certainty I would be up 100% of the time.

Comcast promised they would complete the install between 8AM and 5 PM. They also promised an early morning call to give me a rough idea of what time they would arrive. By 10 AM IU had heard nothing so I called customer service. The woman who answered was pleasant and helpful but it was clear that she could not access any information about my account beyond the name and address. It took her about 20 minutes to get through to dispatch and assure me that the installation was scheduled.

By 2 PM I still had not heard anything from the installer so I called back. This time another helpful customer service representative said that there was nothing in her database that indicated Northlake had even ordered the service. I explained that someone earlier had confirmed with the install dispatch that we were scheduled. After about ten minutes, the representative said she was able to talk to another part of commercial services and we were in fact scheduled for installation and that the installer had until 8 PM to show up. Seeing as it was Thanksgiving eve I wasn't happy but I work less than a mile form home so I put a note on the door, went home and waited for a call. It never came.

I am not a big believer that isolated incidents like this can be extrapolated into a broader investment theme. However, give the cable industry's long-standing customer service issues I do wonder if the industry has built the internal service and installation infrastructure to rollout commercial services.

Comcast was penalized severely by investors when it completed a slow rollout of VOIP telephony. Management consistently said it wanted to make sure it was able to deliver a consistent, high quality customer experience and would accelerate the rollout when it was ready. Other cable companies were running ahead of Comcast which raised concern that the problem might be unique to Comcast.

I don’t think that cable investors have a big expectation for commercial services but as we move into 2007 and concern begins to grow that high penetration of the triple play will lead to slowing growth, commercial could step into the breach. I hope the industry is ready to deliver.

Update: After another no-show by Comcast on November 27th, they finally showed jut before closing on the 28th and got the install completed. The service is great: much faster and more reliable than a T-1, however, it is clear that at least in Chicago, Comcast is not ready for a full scale rollout of commercial services.

Posted by Steve Birenberg at December 1, 2006 11:56 AM in Comcast/Cable TV