Comcast: Business services is sweet spot in Time Warner Cable deal

Tue Apr 1, 2014 5:45pm EDT
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By Liana B. Baker

(Reuters) - Selling Internet and phone service to businesses is hardly the sexiest part of the cable industry, but it has got a definite allure for the architects of the $45.2 billion merger of Comcast and Time Warner Cable.

The two companies' sales to businesses of broadband Internet, voice lines and network services already total more than $5 billion, with the growth rate of 20 percent or more expected to be kept up at both the companies' business units.

If the merger is approved, the two companies' networks will run through 23 of the 25 largest cities - including New York, Los Angeles, Chicago, San Francisco and Dallas - giving the merged company a reach that rivals AT&T and Verizon in the $60 billion market for core telecom services such as Internet access and voice services, according to IDC.

The push to grab more business clients also reflects how cable companies are searching for new growth avenues as their traditional business, selling TV services to residential clients, matures.

"If the Time Warner Cable deal is meant to come about, and therefore we have a bigger footprint, then it opens up a great landscape to bring customers business solutions they never had before," Comcast's president of business services Bill Stemper said in an interview.

Unlike fickle residential customers who often defect for satellite and telephone competitors, businesses tend to sign long-term contracts with at least six months lead time.

Equally important, these contracts have richer margins than serving home customers. Comcast, for example, can bring in more than $50,000-$100,000 per month and potentially millions in revenue per year from a single customer like a large hospital.

Last year, Comcast generated $3.2 billion in business service sales, growing at a 26 percent rate, while revenue for residential cable increased 3 percent. The 22 percent growth in Time Warner Cable's $2.3 billion business service sales helped to offset a small 1.2 percent increase in its residential sales. That being said, this remains a small slice of revenue - about 10 percent for Time Warner Cable, and about 8 percent of Comcast's cable unit.   Continued...

A Comcast sign is shown on the entrance to its store in San Francisco, California February 13, 2014. REUTERS/Robert Galbraith