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Report Identifies Major SMB Market Opportunities for Cable; OSS and Labor Costs a Major Factor
By Jill Morgan
Cable companies are well-positioned to draw new business from small and medium-sized businesses (SMBs) but will likely see their labor costs rise dramatically as a result, market research firm Pike & Fischer concludes.
In a new report on the U.S. cable industry, P&F forecasts that cable operators can achieve commercial revenues of $10 billion to $11 billion per year by 2012. But the cable companies will face escalating salary costs as they invest heavily in the “human infrastructure” required to penetrate the business market.
Cable companies will also increase capital spending on physical facilities, as well as on operations and business support systems, says Tim McElgunn, chief analyst at P&F’s Broadband Advisory Services and author of the report.
“Ongoing improvements in terms of ordering, billing and service-provider interactions are absolutely critical to continued success in the SMB market,” he says. “Those improvements will not be economically achievable unless and until highly capable and scalable OSS and BSS systems are specified, installed, integrated, tested and optimized.”
Cable operators have been making significant investments in their OSS/BSS over the years, according to McElgunn, but more investment will be necessary. “For years the cable companies have invested in point solutions and a core point of pain was billing. … Given the numerous acquisitions over the years, consolidating these systems alone has been an investment,” he says.
To address the SMB market, a single bill is compelling. “But when you look at the consumer side of the business, say a consumer has an investment property, a summer home and a main residence all in one state, using the same cable provider. Today, that consumer can’t get a single bill to pay for those services,” says McElgunn.
Functionality such as a single bill for disparate locations is not as simple as it seems, and “most in the billing space realize the complexity,” says McElgunn. Still, this is an offering that cable MSOs must be able to provide, if they want to address the SMB market.
“In the past, there was a potential disincentive to combine these systems, because for many operators, they weren’t sure if they were going to hold on to the systems or not. Once you heavily integrate a system, aside from the expense, it is now just that much harder to split the system off if you are going to swap it with another provider,” McElgunn explains. In the not so distance past, “the industry has been diligently integrating these systems, across functional areas and so forth, to more effectively run their business.”
But again, there is a caveat. In many cases the MSOs have pushed the individual OSS applications to address operational areas beyond their core functional domains. “In many cases, MSOs extended their billing systems into the CSRs’ domain, for example,” he says. “Now, they are finding that they have to go back and redo some of these efforts, because it was just too much of a stretch.”
Consumer Market Perceptions to Influence SMB Market
Looking at the cable market from a historical perspective, five years ago, if your cable went down, it wasn’t the end of the world; you could unplug your cable and use an antenna. There were ways around an outage. If you had to make a call, you used a landline; VoiP was not yet on the radar screen. Consumers are more demanding today, and a high-profile outage just won’t fly. If the cable goes down during the Super Bowl, that’s enough to make national news.
Instances such as this will impact the SMB market. Cable consumers who have experienced repeated outages “are not likely to select a cable operator to provide service to their small business as well,” says McElgunn. “These perceptions are going to be a big deal going forward, given the mission-critical nature of the business environment. Some cable operators have proven themselves, such as Cox Business and Cablevision’s Lightpath. Others have not yet proven it.”
“For a cable MSO, they have to prove their ability to provide mission-critical service to the SMB market. And to be honest, they can’t afford to fail—there is too much at stake,” says McElgunn.
He points to Cablevision’s earnings announcement where the company highlighted $ 116.95 in average revenue per user for this quarter. Cablevision also has a 90 percent market share in the regions it serves. “$116.95 in ARPU is substantial,” says McElgunn. “However, from a growth perspective, how much more money is a consumer willing to spend? There are potential limitations here. They need a new source of revenue, as Wall Street is looking for growth.” SMBs represent a growth market, and on the consumer side, cable is looking to add wireless into the mix. “All of these initiatives are going to require strategic OSS/BSS initiatives,” says McElgunn.
Will Cable Companies Give OSS Respect?
“If you treat OSS as just a tool, instead of a strategic asset in terms of future evolution, that is when you get into trouble,” McElgunn says. Increasingly, though, the cable executives regard OSS as critical. Take, for example, the new CTOs who have been coming on board within the MSOs such as Chris Bowick, CTO and senior vice president of engineering for Cox Communications, David Fellows, executive vice president and CTO of Comcast Cable Communications, and Time Warner Cable CTO Mike LaJoie. These are truly forward thinkers, and they very aware of the strategic nature of OSS.
But as much as analysts and other industry experts talk about the importance of OSS, you still won’t hear much about OSS/BSS efforts at a shareholders meeting. In the past, this was probably because the topic was truly viewed at boring. However, in today’s environment, “the reality is, it is so strategic that they don’t talk about it. Knowing how much your competitor is spending on OSS is quite the little factoid,” says McElgunn. “I don’t think they want anyone to know.”
“Bottom line,” he says, “is that OSS is so strategic that shareholders should demand more detail in OSS/BSS spending and strategic plans, because a cable operator’s OSS strategy will determine the outcome of how successful they are in the future. The shareholders have every right to understand the sophistication of these systems, as they are mission-critical.”
Want some proof that cable plans to spend? “If the cable companies didn’t need OSS/BSS, then the vendors such as Amdocs, JacobsRimell, Sigma Systems and CSG wouldn’t be so compelled to invest in new cable OSS BSS products.”
Comments and feedback welcome, please email Jill Morgan at jmorgan@billingworld.com.
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