broadband service for small businesses. These customers are a natural target because cable companies’ web-like residential networks are perfect for targeting small offices. Cable companies can connect telecommuters or branch offices in residential areas to regional or headquarters offices, giving them the ability to make inroads in the SMB market.

To penetrate this segment, the cable companies are modifying their approach. Comcast, for example, plans to serve its SMB customers with a completely separate, 1,600-person sales and support team that the Company says is more attuned to the needs of business customers. Other cable companies are following suit, recognizing that a salesperson, customer service representative, or service technician whose work day is devoted primarily to solving residential consumers’ issues cannot fully serve the needs of business customers.

To a lesser extent than they have in the small business market, cable companies are dabbling in the enterprise segment, which has historically been the turf of the former Bell companies (RBOCs), IXCs, large CLECs, and IT services companies (e.g., IBM and EDS). Large MSOs like Cox, Time Warner Cable, Charter, and Comcast have leveraged their extensive fiber networks in a few cities by building more robust central business district backbones, but the build out has been relatively minor.

Hopes are much higher for the recently announced Sprint-Clearwire deal. Helped by investments from Comcast and Time Warner Cable, the two largest MSOs, as well as from BrightHouse Networks, the new Clearwire entity combines WiMAX networks from Sprint and “old” Clearwire in an attempt to build a nationwide mobile broadband service. We expect Clearwire to accomplish two things for the MSO investors. First, it gives them access to a wireless play, and, importantly, without tying up the kind of capital needed to build a network on their own. This alone would blunt a primary RBOC marketing message. Second, should the nationwide build out proceed as planned, the venture will have a two to three year head start on AT&T’s and Verizon’s plans to introduce 4G service using LTE technology. For now, the RBOCs are publicly insouciant: for all the hype surrounding WiMAX and high-speed wireless in the industry, consumer up-take of services has been slow, and they believe LTE will provide superior levels of service once the market does materialize. But with the cable industry already taking aim at the commercial segment—the telcos’ highest-margin business—early indications are that the Clearwire service could give the

Our research over the past few years indicates that cablecos plan to work progressively "upmarket."  That is, they initially rolled out business-class service to telecommuters, are now extending service to small office locations with no more than a few seats, and will soon offer services that support slightly larger sites. Longer-term, cable MSOs will creep into the mid-sized segment where business cases are enticing.

The Near-Term Outlook

For years, the cable industry has been at a strategic disadvantage because system operators do not have their own wireless networks. The advent of triple-play bundles (wireline voice, video, and Internet) in recent years has only exacerbated this gap, as the RBOCs, namely AT&T and Verizon, have a clear path to building comprehensive wireline and wireless packages--and the first-mover advantage in rolling out tightly integrated inter-modal services. A multi-operator joint venture with Sprint Nextel called Pivot Wireless was unsuccessful due to back-office issues at the operator level.