Broadband, bundles lure SMBs

Cable companies, CLECs and telcos are ramping up their offerings to small- and medium-sized businesses

Judging by the number of telecom companies targeting small- and medium-sized businesses, it would seem these are salad days for customers in the space. Cable companies are pursuing them and CLECs are courting them. Even large incumbents, including AT&T and Verizon, are beefing up what they offer SMBs.

Driving all this interest is the reality that SMBs represent the largest segment of the business market — up to 80%, by some estimates — and that, in general, they now require more bandwidth and more sophisticated services than ever before.

“Small businesses do have a need for speed as more of them adopt software-as-a-service — on-demand applications — and as they host their own Web sites with e-commerce functionality,” said Steve Hilton, analyst specializing in the SMB space for Yankee Group. “I think they are getting more sophisticated also in knowing there are more options out there.”

Bandwidth demand has grown as well, said Eric Vallone, vice president of marketing at Actelis, which makes Ethernet-over-copper (EoC) gear.

“We are seeing bandwidth requirements for small businesses go up significantly, beyond what DSL or cable modems or even T-1s can provide,” Vallone said. “SMBs are now requiring 5, 10, 15 Mb/s symmetrical services.”

For more than a decade, CLECs have targeted this SMB market because they see these customers as being underserved by incumbents — and therefore easy targets. CLECs such as Cbeyond, MegaPath, New Edge Networks, Reliance Globalcom (formerly Yipes!), XO Communications and more still target SMBs, increasingly developing integrated voice/data bundles over IP networks.

The cable industry's more recent focus on SMBs is having its own impact on the market, too, although there isn't general agreement as to what that is.

“We know they are out there, but we aren't really seeing them yet,” said Jim Delis, president of sales for XO Business Services. “Certainly I've noticed they are interested, and I keep my eyes pretty closely focused on what they are doing and what they're offering, but we don't see them yet, in terms of the market.”

Rosemary Cochran, principal and co-founder of Vertical Systems Group, is definitely seeing cable, however, as she tracks sales of Ethernet ports.

“Absolutely, they are a factor,” Cochran said. “They are now in our share — Ethernet port share. Both Cox and Time Warner made the top tier. We are seeing port growth among cable, particularly at the low end. AT&T and Verizon may have more high-speed ports, but in terms of growth in the number of ports, the cable companies had the highest growth rate.”

One result of cable's interest may be renewed vigor on the part of incumbents, as some recent signs have shown.

“Where we are beginning to see a shift is in the Verizons and the AT&Ts of the world getting more aggressive,” said Kristine Faulkner, vice president of product development and management for Cox Business. “Five years ago, Cox wasn't called out in advertising; now we are being called out, specifically in their messaging.”

For all of this activity, however, there are still SMBs that can't get basic broadband services, mostly based on geographical location.

“We break it out into four categories: urban, suburban, exurban and rural,” Hilton said. “The first two are fairly competitive. Exurban — fringes or small towns — and especially in rural areas, the competition is less. Maybe there's a CLEC in town; you obviously have the incumbent, but the local cable company may not be offering voice services to small business.”

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