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An independent analysis of the $98 billion wireline US business telecom market confirms several ongoing trends, including the cable industry's encroachment onto telco turf. The report also shows some widely varying strategies that are allowing companies such as CenturyLink and Windstream to do better among national businesses, while cable operators such as Altice and Cox achieve higher penetration within their local footprints.
Industry veteran Matt Davis, now the principal analyst with Independence Research LLC, did a deep dive into individual company financials and combined that with some of his own estimates to produce "SMB & National Enterprise Market Trends Report," which includes both an evaluation of the overall market breakdown and detailed assessment of top players. You can see an abridged version here.
The key trend Davis notes is that cable is successfully moving upmarket from its well-established SMB play into what the analyst calls the National Enterprise segment, which includes both mid-market regional players and national companies with multiple locations. This segment generated $24 billion in wireline revenues for cable and telco units in 2017, with 80% going to telecom players and 20% to cable in 2017, a 4% swing in cable's direction from 2016. That means cable's share increased almost $500 million year over year, Davis reports.
"A 4% swing doesn't look like very much, but it is a fair amount of revenue," he comments. That would grow much faster if cable can fully realize a distributed enterprise play which is built on partnerships of cable players, including the two big national footprints of Charter Communications Inc. and Comcast Corp. (Nasdaq: CMCSA, CMCSK), he adds.
"If they take that strategy where they might win remote office contracts and partner with Charter or Comcast and do cable-first for remote access and then once you get a good portion of the remote connectivity, then you sneak in and try to take the Ethernet services and higher-end stuff," Davis comments.
SD-WAN helps further that approach by enabling cable to offer services outside their footprint where they don't own the pipes.
Davis credits players such as CenturyLink Inc. (NYSE: CTL) and Windstream Communications Inc. (Nasdaq: WIN) with leveraging key M&A activity -- CenturyLink bought Level 3 and Windstream acquired Earthlink and Broadview -- to "basically punch above their weight" when it comes to this national enterprise group.
"They have taken on the strategy to focus on the mid-market and from the research that I have been looking at, it produced dividends," Davis says. Both companies were under pressure from Wall Street, especially in 2017, because they were losing legacy revenues faster than they grew their newer strategic services, he admits. (See Investors Flee US Rural Incumbents.)
— Carol Wilson, Editor-at-Large, Light Reading
This is an edited version of a story that was originally published on Telco Transformation's sister site, Light Reading. To see the full story, click here.
