Comcast's Bill Stemper leads journey into the enterprise market

Bill Stemper, President of Comcast Business (Nasdaq: CMCSA), has become adept at building up a cable company's business service unit, and has the track record to prove it.

Bill Stemper, President, Comcast Business Services

Prior to joining Comcast in August 2006, Stemper served as the VP of Cox Business where he doubled the unit's sales in less than three years. This is a feat that's not exactly easy for cable operators, which have traditionally been seen as nothing more than pay TV providers.

That success has continued at Comcast Business where in Q1 2011, the unit's revenue rose 49 percent to $394 million. Those results were coupled with increased spending on not only its SMB (small to medium business) segment, but also to fuel ongoing Metro Ethernet and cellular backhaul buildouts.

Now the former Cox Business executive is helping advance Comcast Business into the hearts and minds of the medium and large business customer.

Moving into the medium-sized business segment has been an ongoing evolution. When Comcast initially launched its Business Class service in 2007, the focus was on providing voice and data services to SMB customers over its traditional DOCSIS-based coax network.

"In 2010, we said okay 'we have a long way to go in small business, but we really have things starting to work well and now it's time to expand to the rest of the market, which are customers anywhere from 20-500 employees," Stemper said. "There's not necessarily an upper limit, but really it's more the businesses that are align with our serving area."

As a cable operator, Comcast's competition will vary from market to market. In some markets, they will be facing regional CLECs (competitive local exchange carriers) like US Signal, while in others they could be facing a nationwide CLEC such as XO Communications (OTC BB: XOHO) or an ILEC (incumbent local exchange carrier) like AT&T (NYSE: T) or Verizon (NYSE: VZ).

"We are an alternative to the traditional telephone company and in recent years the CLECs," Stemper said. "Now that we're in the mid-market space our products, including Metro Ethernet and PRI, are designed to be valued alternatives to what the CLEC or the telephone company is offering."

Rosemary Cochran, Principal for Vertical Systems Group, agreed that what gives Comcast Business a fighting chance in the medium-sized market is that medium-to-large businesses are looking for alternatives like cable operators as they migrate away from legacy private line and frame relay circuits.

Vertical Systems Group points out in a new study just issued this week that 2011 is the tipping point of a rise in new Ethernet connections with bandwidth rates scaling up to 10 Gbps and beyond. The research group forecast that by 2015, Ethernet-based bandwidth will more than double.

"Customers are migrating to other services and that's the point at which they look for alternatives, including a cable company like Comcast and see what they have to offer," Cochran said. "They will either stay with their current incumbent provider or look to some competitive provider or a cable company, which does not have to worry about preserving existing T1 service revenue."

Meeting sophisticated demands

Comcast Business did not reinvent the wheel when it decided to go after larger businesses.

Much like Cox Business, which got its start by selling wholesale services to other traditional carriers, Comcast Business is leveraging the foundation it has in place to serve wholesale services to wireless operators to deliver fiber-based Ethernet to serve larger business customers.

"We started about two years ago with our Ethernet product to serve cell towers for their backhaul needs," Stemper said. "All of the success we had in serving cell backhaul on Ethernet and the carrier-grade SLAs and availability is now the bedrock that we're building from as we take that same product to a sophisticated business."  

With that mission in hand, Comcast Business developed a product strategy that includes fiber Ethernet capabilities for data.

But Ethernet-based data is just one piece of the overall business services vision. The service provider is also building up a growing cadre of voice services, including traditional PRI (primary rate interface). Having a PRI service in place will allow Comcast to integrate with businesses that have existing TDM (time division multiplexing) and next-gen IP-based PBX (private branch exchange) systems in their respective locations. 

"By having bulk PRI in our service portfolio, we can plug into an existing PBX phone system that will serve hundreds of employees inside that building," Stemper said.  

This means that Comcast Business can compete against an incumbent with a product that businesses understand, but are willing to now look at a lower-cost alternative with the same functions and features.

While Stemper could not give specific numbers, he believes the mid-market segment for Comcast represents a $10-12 billion opportunity, while the overall business segment, including SMBs, is about $20-25 billion, respectively.

In targeting the mid-market opportunity, Comcast Business is leveraging a growing sales force of 1,700 sales associates and an agent channel augmented by its purchase of Cimco in 2010.

"We still believe that number is roughly right, and that's the segment we're in and we're in it in full force," he said. "Now we have an expanded product set; we expanded the sales organization to go into the mid-markets; and we have now had an agent channel where we are using that have long and trusted relationships with about a third of mid market businesses."

Being able to leverage and extend Cimco's experience and establishing a group that's focused on the larger business customers' needs will be key to Comcast Business' success. These customers expect always-on connections and representatives that understand their unique needs.

"They have put together an enterprise-focused group with a sales organization that has the expertise to serve those customers," Cochran said. "If you look on the Ethernet side, the cable MSOs that have been successful, they are the ones that have put together those customer facing organizations that are really experienced in understanding what those customers are going to want and hear."

Scaling through M&A

In building out its business unit, Comcast has been making targeted acquisitions that complement its own organic efforts.

Since 2009, the cable MSO made two key acquisitions, including the former Chicago-based Cimco and NGT Telecom.

With Cimco, a Chicago-based CLEC, the privately-held Cimco does come with a number of benefits. For one, it gave Comcast with a 2,300-strong customer base right in Chicago--a market where Comcast enjoys a dominant position as a cable operator.

In addition, Cimco came with business service presence in a number of Midwest states, not to mention long distance capabilities in 40 other states and local voice service business customers in 298 service areas.

"Cimco was very appealing to us because they had 25 years of experience serving very large customers in Chicago-customers that billed thousands and thousands of dollars a month in that mid market area," Stemper said. "What we felt was that by acquiring this company we would acquire an experience, a culture and a very proven set of skills on how to satisfy more sophisticated customer's needs."

Of course, that meant integrating the existing group into the Comcast processes.

One of the moves that Comcast made after completing the Cimco acquisition was to integrate the sales organization. The MSO then took the people in operations and customer care and augmented them with more people and set it up as a center to serve all mid-market customers nationwide.  

This center of excellence, which is led by former Cimco managers, will serve as the hub and service center for all of Comcast Business' medium-sized business customers that subscribe to Ethernet or voice services.

"We'll take that group of people that were tasked with serving Cimco's mid-market customers to oversee our new center of excellence that helped us develop all of our processes and our tools to serve the needs of our mid-market business customers across the country," Stemper said.

But not long after it acquired Cimco, Comcast Business acquired NGT Telecom.

NGT, which Stemper describes as a product move, was significant for Comcast Business as well. By acquiring NGT, Comcast Business can not only tap into the growing IP-based managed voice services, but also traditional PRI trunking services.

"NGT is very skilled with IP PBXs and the Broadsoft platform of services," Stemper said. "In acquiring NGT, they gave us a huge jumpstart in PRIs, hosted PBX and, in general, the knowledge needed to service the voice needs of more sophisticated businesses."

Focus on Ethernet

Following in the footsteps of his former employer, Cox Business, Stemper has put fiber-based Ethernet in its diet. 

Although Comcast has been delivering Ethernet over its existing coax network, the MSO is selling the differentiation of the new Metro Ethernet service on the fact that it's carried over its fiber network.

Set on serving mid-sized businesses that have 20-500 employees, Comcast's Metro Ethernet services are currently available in 20 U.S. markets with plans to expand into additional markets in upcoming months.

The metro Ethernet offering includes four typical flavors: point-to-point Ethernet Private Line (EPL) service; point-to-multipoint Ethernet Virtual Private Line (EVPL); a multipoint-to-multipoint Ethernet Network Service; and Ethernet Dedicated Internet Access (DIA) Service.

Although the service is still relatively new, Stemper said the flexibility of the Ethernet product is resonating well with customers.

"We all know for decades the challenge for businesses are whatever they need in bandwidth just like what I need for space is never ever enough and I continue to outstrip it despite their aggressive planning, but with Ethernet we can serve them with two times the bandwidth without doubling their price," he said. "It really is the first product response that I believe that truly respects and understands the explosion of data utilization and gives a business the right solution that they don't have to go back and retrofit again and again."

Of course, with all of this fiber and Ethernet in the ground, the next logical question to ask is what about wholesale opportunities?

According to a recent Heavy Reading report, "Cable Backhaul: Desperately Seeking Cell Sites," U.S. cable operators such as Comcast, Time Warner Cable (NYSE: TWC), Charter Communications (Nasdaq: CHTR), Cox Communications, and Cablevision Systems (NYSE: CVC) generated about $100 million in cellular backhaul revenue last year. The report said that in addition to trying out various pricing plans and new technologies, cable MSOs are responding to RFPs for wholesale service contracts that will cover hundreds of cell sites in their serving areas.

Comcast itself has been targeting the wireless backhaul with both single-tier and two-tier solutions. In the single-tier approach, Comcast will provide Ethernet to each cell site from the MSC and transport packetized data onto one pipe, while the two-tier solution includes two features: microwave backhaul that aggregates traffic from multiple cell sites, and fiber-based backhaul that provides ring protection between the asggregation/hub site and the MSC.

In 2010, Comcast increased its cell tower footprint by 80 percent.

And while Comcast is not ruling out future backhaul opportunities for Ethernet network has been to focus on the end-users. "The way our network is so fiber and coax rich, we find the best business model is to go right directly to the end-user," Stemper said.

With Ethernet as a foundation it's not hard to imagine Comcast Business thinking of other applications, including data center and cloud, but right now, Stemper said that the focus will remain on its core services.

"The market is so untapped, so we really want to spend the next two years building that business and driving that business," he said. "I don't know how sophisticated we'll go beyond that in terms of applications and other layers, but we're just focusing 99.999 percent on executing on and delivering the metro Ethernet, PRI and SMB solutions for the smallest of customers or the most complex customers."