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Cable Technology Feature Article

November 29, 2012

New Pressures on Independent CLEC Revenues

By Gary Kim, Contributing Editor

Though one hardly would expect executives to talk about it, cable operator moves into the small business and mid-market have to pose serious threats to other independent competitive local exchange carriers operating in those same markets.

Comcast (News - Alert), for example, says business services now represent 26 percent of the company's total cable operator revenue growth. Comcast currently is just shy of an annual run-rate of $2.5 billion, up from $1.9 billion in 2011.

Metro Ethernet services aimed at  businesses such as hospitals, school districts and government customers now represents about 15 percent of business revenues.

Comcast sees business services as a $20 billion to $30 billion market opportunity.

There are other issues as well, namely a shift of business spending to mobile services.

“Once IP communications take over (if not already), the artifacts of telephony, including digit dialing and wired access will become obsolescent and will be replaced by a range of mobile IP-based communications tools,” says consultant Russell Bennett.

Consider the implications. If the mobile device becomes the object that uses broadband access, what happens to markets for fixed access? If the mobile displaces the desk phone, what happens to demand for hosted PBX (News - Alert) services, SIP trunking or even fixed broadband?

The shift to cloud computing doesn’t necessarily help fixed network service providers, either. Consider the use of basic business productivity suites.

Once upon a time, business and consumer buyers purchased such products as “shrink wrapped” physical products, at retail outlets. These days, such purchases are not made, or are made online. In other words, distribution shifted from retail partners to online partners.

At the same time, average selling prices have dropped. In some cases, retail price now effectively is “zero,” when users use Google (News - Alert) Docs, for example.

But, you might argue, there also are subscription-based business versions. Yes, that is true.According to Cloud Sherpas, money can be made in the cloud-based document suites business, despite the fact that no enterprise or smaller business pays very much for such apps. Business access to Google Apps costs $5 a month, or $50 a year.

Sam Kumar, CEO of Denver competitive local exchange carrier Microtech-Tel (News - Alert), argues that CLECs no longer can compete with cable TV operators in the SMB business broadband access business. If the carrier cannot compete, then the carrier’s channel partners will have difficulty as well.

A major disruption of the hosted PBX or premises phone system business is a bit further off. But if a business buyer can obtain enough of the same call management features from a mobile service that a buyer would formerly have gotten from a hosted PBX solution, buying ultimately will shift. If the device to be supported is a mobile or a tablet, and if reasonable functionality can be provided, then purchasing should shift to “mobile direct” modes.

The point is that a shift to mobility, cloud-based applications and competition from cable companies is going to put serious pressure on CLEC business models.

Want to learn more about the latest in communications and technology? Then be sure to attend ITEXPO Miami 2013, Jan 29- Feb. 1 in Miami, Florida.  Stay in touch with everything happening at ITEXPO (News - Alert). Follow us on Twitter.

Edited by Rich Steeves

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