Spectrum Business, the business services division of Charter Communications, is gearing up to better serve its growing enterprise customer base and bring the SMB back to growth. However, the cable MSO faces a growing threat from telcos looking to win back share in the mid-market business segment.
These trends were evident in the second quarter.
The cable MSO reported that enterprise revenue was up by 3.2% year-over-year as primary service units (PSUs) grew by 6.2%, or 6,000, in the second quarter of 2023 versus 3,000 added in the second quarter of 2022. Taking out wholesale revenue, enterprise revenue grew by 7.2%.
Christopher Winfrey, CEO of Charter, told investors during the Goldman Sachs Communacopia and Technology conference that it breaks out the business services opportunity into two main domains: enterprise and SMB.
“In the enterprise space, it’s all fiber and we’re doing well in that space,” he said. “Enterprise sales are up significantly even though cell tower backhaul is in decline.”
SMB headwinds
For Charter, the SMB space continues to be a source of growth for the cable MSO.
SMB revenue grew 0.2% year-over-year, reflecting growth of 1.7%. SMB customer relationships grew by 4,000 during the second quarter.
“SMB has been a grower for us,” Winfrey said, but it is “facing short-term headwinds we’ve seen in residential as it relates to fixed wireless access.”
While SMB growth has stunted, Winfrey said he “expects SMB to be back where it was in terms of growth.”
Telco business threat
Cable operators like Charter have continually expanded their presence of fiber into more business buildings.
Spectrum Enterprise only trails AT&T on Vertical Systems Group’s year-end 2022 U.S. Fiber Lit Buildings LEADERBOARD. The cable MSO joins 11 retail and wholesale providers with 15,000 on-net fiber-lit commercial buildings. This enables the cable to deliver high bandwidth services like Ethernet, Dedicated Internet Access (DIA) and SD-WAN services.
While Spectrum Enterprise’s on-net fiber growth reflects how aggressively the cable industry has grown its business fiber base, it could face a more significant threat from large telcos such as AT&T and Lumen, two telcos that seem to have a desire to take back some share of this market.
These two operators have indicated that the mid-market represents new potential for their business services units.
AT&T traditionally focused much of its energy on winning large enterprises, enabling the cable industry to gain a share of the SMB and medium business segments.
John Stankey, CEO of AT&T, told investors during the Communacopia and Technology event that to better serve the medium-sized business market with cloud and virtual services, it must understand how these segments purchase services.
“AT&T was not well suited to the mid-part and the low end of the market based on how customers are buying today two segments that use cloud-based services and SDN,” he said. “Those customers buy differently: sometimes they use integrators, sometimes from online communities. We've been retooling the business to ensure we're present in those areas to win and build the right distribution partnerships.”
Likewise, Lumen has seen ongoing churn with mid-market VPN service customers and is looking for ways to win back and retain mid-market customers. The telco is focusing on helping customers on legacy services migrate to new services like SD-WAN and leveraging the security capabilities of its Black Lotus Labs. Lumen’s predecessor, Century Link, rebranded its Threat Research Labs as Black Lotus Labs earlier.
“We are resourcing the mid-market team, so they have the right tools to allow us to reach those customers and engage in those conversations,” said Chris Stansbury, CFO of Lumen.
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