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Cable Overbuilders on the Rise in Commercial Broadband

By March 15, 2017 No Comments

If you’re like me, you probably haven’t ever heard the term, cable overbuilders. You most likely classify business internet service providers into two camps: Telco and cable. Each has fiber in the ground and is aggressively growing their fiber footprint, primarily through their indirect sales channels. On the low-end, telco leverages copper TDM technology (T1, DSL, EoC) and the cables leverage asymmetric coax with download speeds up to 300 MB (as of Dec 2015).

Each camp has its pros and cons. For example, cable companies suffer from a stigma of poor customer service and up-front construction costs that can scare new clients (and agents) away. The telcos—over copper—can’t shake a stick at the speeds being offered by the cables for the same price.

Each camp also has its own rules. The cables can’t geographically overlap, and the telcos have to provision their last-mile copper over lines owned by the incumbent local exchange carrier (think AT&T, CenturyLink, Verizon), introducing the possibility of finger pointing when things get dicey.

Or so I thought.


Enter the Cable Overbuilders

When the cable systems started, local governments figured cable would be a natural monopoly, much like gas or electricity service. You wouldn’t need two gas lines dug up to your house; that would be economically ineffective. The same thought applied to cable TV. You would not need two wires, two trenches, two cables strung to telephone poles. So, cities would grant a franchise to a cable company. This formed, what we call today “MSOs,” (multiple service operators) or cable companies that franchised service in different cities. None of the original MSOs compete with each other as they all have different geographies.

Recently, Telarus signed up to be a member of the WOW! Business indirect sales channel. WOW! Business is part of a group called “cable overbuilders” – a cable company that can build both cable AND fiber on top of the local phone company AND/OR the local cable MSO.

The original MSO’s Telarus works with include names you’ll recognize: Comcast Business, Time Warner Cable, Spectrum Business (formerly known as Charter), SuddenLink, BrightHouse, and Optimum.


Cable Overbuilders Will be a Threat

From what I’ve seen with my limited exposure to cable overbuilders like WOW! Business, Grande Communications, and Frontier, they pose renewed threats to MSOs because they’re poised to take advantage of the state and federal video franchising law changes that AT&T and Verizon are now heavily promoting around the nation, much to the cable industry’s chagrin. Hoping to loosen the cities’ and counties’ tight grip on franchising rights, the phone giants have been strenuously lobbying for statewide, and even nationwide, franchises so they can start offering video service faster and with fewer regulatory restrictions.

In December 2006, private equity firm Avista Capital Partners agreed to shell out an estimated $800 million to $850 million for WOW!, the nation’s second largest overbuilder. WOW! had about 357,000 subscribers in Columbus, Chicago, Cleveland and Detroit, and passes about 1.4 million homes in these four markets. Avista reportedly beat out two other interested parties—RCN and private equity firm Diamond Castle Partners—for the prize.

At that price, WOW!’s new owners paid at least nine times the company’s annual cash flow of about $90 million, a very healthy valuation indeed for a firm that overlaps with conventional cable systems operated by such industry powerhouses like Comcast and Time Warner Cable. It’s interesting to note, some publicly-owned MSOs trade for as little as six and a half times annual cash flow on the stock market.

Cable overbuilders bear watching these days because, as smaller, nimbler firms than the telco giants, they tend to be bolder and more innovative in launching new products and services. For example, WOW! just launched a 300 MB download business internet product for its coax customers.

This ability to deliver crazy-fast speeds for a few hundred bucks, combined with their intense focus on customer service, will give the big dogs (MSO’s and Telcos) a major run for their money.


What WOW! Business Means for Your Business

On November 1, 2015 we added WOW! Business to our real-time broadband search engine: GeoQuote. In the first month, WOW! Business won a majority of the deals where it went head-to-head with a traditional MSO. This result was a shock considering the amount of volume we’ve seen going to the MSO’s each month through our agency agreements over the past 5 years.

When I polled some of our top partners who have experience with WOW! Business and the traditional MSO’s their story went something like this: “ WOW! Business offers speeds at least as fast as the big guys, but they are small enough to provide high-touch customer service without making a customer feel like a number.”

WOW!’s net promoter score backs up my observations. They came in at an astounding 24 score. To give you some context, here are the MSO’s scores as of late 2014:

Source:http://customergauge.com/news/2014-net-promoter-benchmarks/

I’ve seen companies like WOW! move hard into the business sphere, selling coax service bundles on their existing cable network, while also aggressively building fiber to buildings previously overlooked by the big guys of both camps. The ironic thing for me is, previous to October 2015, I had never heard of cable overbuilders.

Like many in the telecom space, I thought I had things figured out—cable provider per town/building/home. I thought I knew where things were going. Turns out, thanks to my experience with WOW! business, I’ve had to readjust my thinking and recognize trends where they pop up.

If you’d like to learn more about WOW! business, or have a discussion about your future strategy selling services offered by cable overbuilders, feel free to comment below. I welcome and encourage feedback!

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