Slow, Steady Progress For Cox Business Unit

CASE STUDY: SMB CLASS SERVICES
By MATT STUMP
From The May 27, 2002 Edition Of Broadband Week

If Cox Business Services had a motto for these new economic times, it could very well be: Slow and steady wins the race.

The MSO’s business-to-business service division supplies voice and high-speed Internet service to small- and medium-sized business customers, leveraging Cox’s basic-cable plant. As such, it’s been able to survive the telecommunications downturn that sent companies to the bankruptcy heap by managing its costs and its overall growth plan.

CHUCK McELROY Cox Business Services

“We’re doing managed growth, slowly and methodically, to get to businesses near the network today,” said Cox Business vice president and general manager Chuck McElroy. “We don’t want to fall into the trap of other [competitive local exchange carriers]. We’re not open on all cylinders.”

That slower-growth approach has served Cox Business well. The division has shown dramatic leaps in both revenue and steady operating cash-flow growth.

The division, which generated $98 million in revenue and $45 million in operating cash flow in 2000, saw those figures rise to $147 million and $49 million, respectively, in 2001.

Although it hasn’t released OCF numbers for 2002, the division expects to generate $235 million in revenue this year.

“The majority of the business growth is greenfield, and winning business from competitors,” McElroy said. “We’re pulling business from the [incumbent local-exchange carriers] and CLECs.”

Cox Business operates in 19 markets and counts more than 40,000 business customers. Most take a combination of voice and data services, McElroy said, although some also take video service.

Cox Business leverages the MSO’s existing hybrid fiber-coaxial cable plant, used to deliver services to residential video, voice and data customers. The same cable-modem termination systems that handle residential traffic also handle the business traffic generated by Cox Business sales.

Cox’s 256-kilobit per second service ranges in price from $59 in Phoenix and Tucson to $139 in Hampton Roads, Va.

McElroy said Cox Business is making inroads selling bundled data and voice offerings, similar to Cox’s success with bundled residential services.

“We are selling more and more packaged voice and data products,” he said. “Subscribers with data want the voice product. They love the package and bundle concept.”

The trick is matching customer needs with what Cox can offer, McElroy said. In some cases, “customers don’t understand speed that much,” he said.

Most smaller business take Cox’s lower-end tiered product, he said, because that’s all the speed they need.

“When you get to high-end users, they want a fiber solution,” McElroy said. “In a small- and medium-sized area, we’ll run coaxial cable, and if it’s high capacity — T1 and above — we’ll bring fiber from the hub to the building,” he said.

From there, Cox Business will use either standard cable modems or an Ethernet connection through a local area network.

Cox Business uses the same modem, CMTS and telephone voice-port technology vendors as Cox’s residential side, in order to maintain standards across the network, he said.

For now, McElroy is concentrating on areas close to where Cox has run cable plant, which amounts to 20 percent of the businesses in Cox’s cable franchise areas.

Although that leaves 80 percent of those regions untapped, getting to those businesses would require substantial capital investment.

“All of our capital is purely incremental to what we need to spend to get to a business customer,” he said.

That means there’s a direct revenue return on any capital expenditures Cox Business requires. The company will build to businesses that aren’t close to the network, if the businesses agree to shoulder the cost.

“Revenue has to cover the hurdle rate for new capital,” he said. “We use spare fibers in that node or build out additional fiber” to reach those businesses.

But even with only 20 percent of Cox’s franchise covered, McElroy says he’s got enough work to do.

“I can sell the services faster than I can absorb them operationally,” he said.

Cox’s clients include a wide range of businesses. For instance, Console, a San Diego Internet multimedia company, uses a 10 megabit fiber-optic connection from Cox Business and several cable modems to handle Internet traffic for the San Diego Padres, San Diego Zoo, NBC Entertainment and Time Warner Cable.

Console is the official live audio and video Webcaster for the Padres. In addition, it handles Web site services for NBC Entertainment and NBC Affiliate Promotions.

Before Console and Cox, NBC would create master versions of radio spots in Burbank, Calif., transfer them to CDs then distribute the spots via overnight mail to 221 affiliates. Now, NBC uploads an MP3 file to Console, which makes the file available on a Web site, connected to Cox’s high-speed network.

NBC saves money and Cox receives Console’s business.

The city of Irvine, Calif., is using Cox’s backbone to link 13 city offices together in a virtual local area network.

“With Cox’s 10 megabits per second ATM virtual-private network, we’re giving employees a lot more speed to be able to get their work done faster, and have a lot more access to information that they may need,” said city information systems control administrator Jan Stinger.

The Langley Air Force Base in Hampton, Va., switched its telephone system to Cox several years ago, and has improved efficiency and saved money.

“With the Cox service, we were able to turn off 14 ISDN lines that were costing us $200 a month each,” said a Langley spokesman.

Cox provides the base with telephone-number prefixes, caller ID, faster switching connections, increased off-base calling capacity and desktop videoconferencing.

Schools are also a key target for Cox Business. Cox’s New Orleans system set up a wide area network for the city’s 146 schools, which serve 72,000 students. The Gigabit Ethernet system carries voice over IP telephony traffic, high-speed Internet and video to all schools and district offices in the city.

The district cut its 3,000-line telephone system by two-thirds, reducing costs, Cox said.