The ongoing weak economy has proven one fact in telecom: Businesses – SMBs and enterprises alike – turn to IP services when forced to crimp spending. The trend has especially been a boon for the CLECs that focus on SMBs. Such a boon, in fact, that cable wants in on the action. For real.
Several years ago, analysts predicted it wouldn’t be long before cable started competing for SMB market share. Those forecasts have yet to pan out as a meaningful trend; however, the largest cable company in the United States has made good in a small way. In October, Comcast Corp. (CMCSA) bought Chicago-based Cimco Communications, which specializes in IP services for SMBs. Cable operators need additional revenue sources, analysts say, and SMBs relying on digital networks are among the best targets. Indeed, the numbers support cable’s increased interest in this segment. By the end of 2009, for example, IP Centrex and hosted unified communications service revenue alone will have shot up 26 percent, year over year, according to Infonetics Research. That’s among the reasons why Comcast snapped up Cimco. And CLECs had better pay attention.
There’s disagreement about whether Comcast’s move will spark copycat M&A. On the one hand, Comcast is the first operator to fulfill observers’ projections, perhaps indicating that its peers are ready to take the same risk. Cable MSOs are “frantically looking for additional revenue sources,” said Mike Jude, a program manager at Stratecast. SMBs represent a segment where cable can “make more money without a whole lot of additional infrastructure investment,” he added.
On the other hand, cable executives know SMBs have high expectations, so they may need more time to ensure their networks and employees can handle the demand. “You can’t make mistakes in serving larger-sized SMBs,” said Steve Hilton, a vice president at Yankee Group. “MSOs want to take very careful steps in building their more advanced telecommunications businesses. Improper acquisitions would be distracting and possibly harmful in the longer term.”
Either way, Comcast is setting a precedent, and its integration and treatment of Cimco will speak volumes about how cable MSOs view their smaller rivals.
To that point, Cimco did not return a request for an interview. The company likely has been instructed by Comcast not to talk about the deal – the terms of which have not been disclosed – until the merger is complete. Thus, there was no insight into how Comcast intends to absorb Cimco, from retaining its executives and corporate culture to its plans for the indirect channel. Likewise, when asked for an interview, Comcast would only provide a prepared statement from Bill Stemper, president of Comcast Business Services.
“Cimco is a strong, well-respected company that presents us with an opportunity to accelerate our growth in the midmarket commercial business,” Stemper said. “They have built their business on providing superior service to companies with 20-250 employees and we look forward to integrating their expertise into our offerings.”
