Comcast, TWC Bullish on Biz Services

One point that came through loud and clear at the Goldman Sachs Communacopia Conference in late September: Time Warner Cable (NYSE:TWC) and Comcast (NASDAQ:CMCSA) are bullish on business. The former predicted doubling its business services within the next four to five years."The overall business services operation is actually in excess of the overall margin of the Time Warner Cable business," said Arthur Minson, Jr., TWC EVP and CFO. "So in aggregate, it will help the margins. As we roll out more and more products, the margins on those products as well are very attractive."At Comcast, business services are also posting impressive annual growth percentages. Small business services continue to grow in the 20s, while medium-sized business services are growing in the 50s, said Michael Angelakis, Comcast vice chairman and CFO."We've invested about $2.5 billion over the last five years in building the business services business," Angelakis said. "And today we have a $3.2 billion run rate business. We have accretive margins, we have meaningful free cash flow, and we have, give or take, 10% to 12% market share."Small businesses - those with fewer than 20 employees - account for 85% of Comcast's $3.2 billion. The product is primarily a 25-50 Mbps data service (offered in competition to DSL) and unified VoIP services. "For us, it's really about execution and boots on the street, and we made major investment in the product," Angelakis said.The remaining 15% of the $3.2 billion can be attributed to medium businesses. Over the last two years, Comcast has invested in making Metro Ethernet available across its entire network in order to serve this market, which Angelakis said is a "bit more of a complicated sale" in competition with T-1 WANs."We are investing in that business pretty heavily, and when we look (out) over the next three, four, five years, we have pretty strong expectations where we think revenue, operating cash flow, free cash flow (can) grow in that business," Angelakis sad.Returning to TWC, the operator will organically achieve the doubling of business services, in part by moving "up-market," Minson said. "That provides meaningful opportunities. The wholesale transport part of (the) business is a business that we just got into when I was here last time, and now it's up at a $200 million run rate," said Minson, who returned to TWC earlier this year after serving in various senior management positions at AOL since 2009. Prior to that he was an executive with TWC from 2006 until 2009.In the realm of business services, it is "easy" to figure out what returns will be for a particular building, Minson said. "What do we think the penetration will be? How much is it going to cost, and what's the return back?"Likewise for wholesale transport, which "always" involves a contract. "We're able to really from day one say, 'OK, just from this deal alone, we know that we can lock in this return,' which is a very good return," Minson said. "This is a really, really good business for us to be investing in."Monta Monaco Hernon is a free-lance writer. She can be reached at [email protected].Transcripts of the conference were provided by www.seekingalpha.com.