Going for the dollars: Phil Meeks on Cox Business' $2 billion growth strategy

Phil Meeks, Senior Vice President, Cox Business

Meeks

Providing phone, high-speed Internet and other commercial services to small and mid-sized businesses is one of the biggest areas of growth for Cox Communications. Its Cox Business unit, which was founded in 1993, has seen its annual revenue rocket from $96 million in 2000 to $1.2 billion last year. In an interview with FierceCable, Cox Business Senior VP Phil Meeks details the company's strategy for growing revenue to $2 billion by 2016. Among the sectors the MCI (now Verizon Business) and AT&T (NYSE: T) veteran says Cox is counting on for growth is the healthcare industry and revenue from providing wholesale services such as wireless backhaul.

FC: What differentiates Cox Business from other business services providers?

PM: Our sweet spot in the marketplace is small businesses. Specifically, 85 percent of 280,000 customers are companies that have 19 and fewer employees. Our point of differentiation in the marketplace is we have local resources in local markets that provide sales and sales support, break-fix (services), engineering, design--all those functions that are important to customers, we provide those functions within in the 18 local markets that we do business in around the country.

Essentially the footprint of where we do business is an overlay of where we had the original cable operating franchise agreements. We're in markets as large as Phoenix and San Diego, as small as Gainesville, Fla. But we have a really nice, strong footprint, and a diverse footprint also in terms of hypergrowth markets along the Sunbelt and the west coast, like a Phoenix or Las Vegas or San Diego. We also have a lot of the heartland and mid-America that's been fairly stable through the ups and downs of the economy, such Omaha and Oklahoma City and Tulsa. And then we have operations on the East coast as well, so we're into New England, specifically Rhode Island, Connecticut, Northern Virginia, Southern Virginia, and then a piece of Florida as well.

I think an important point is that we are a network based company. So that's why we do business within those operating areas. We have physical infrastructure that's in some instances shared infrastructure with the residential side of our business.

FC: Who's your biggest competition in the business services space within those markets?

PM: Our primary competition is the big three ILECS: AT&T, Verizon Business (NYSE: VZ) and CenturyLink (NYSE: CTL). Across our footprint it's almost equally divided across those three who we're competing with--there's a little bit of difference, actually; CenturyLink has more overlap of footprint than the other two but it's pretty much a one-third/one-third/one-third type of thing.

One of the key reasons that we take market share in that space is by having local resources in local markets that differentiate us in the marketplace versus our competition. We also have a product set that was specifically built and designed for those small businesses. Our core products(are) Voice Manager, which is a hosted VoIP platform; Cox Business Internet, which is our high-speed internet platform; and Business Video, which is video services we provide to the hospitality industry, bars, restaurants, as well as commercial offices.

So that's our SMB business, that's our core business, it's 85 percent of our customers, 65 percent of our revenues, and it will be a big driver of our growth in the future.

FC: Cox Business has set a target of reaching $2 billion in sales by 2016. What's your strategy to hit this mark?

PM: We're really focused on four key things through the end of year 2016. First thing is what we've already been talking about, which is our core business, that low-end SMB marketplace. Our intent there is to double our existing market share in that space by the end of 2016. That will bring in a significant portion, over half, of the $1 billion in revenues that we're looking for.

The second big thing is an area we haven't talked about, and that's our wholesale business. That's a big part of our business. Out of our $1.2 billion it's about $120 million of our revenue streams currently, as of end of year last year. One of the drivers behind that growth in the revenue stream has been wireless backhaul. That piece of our revenues grew about 25 percent year over year, so that's been a significant growth channel for us. Our strategy there is to double our revenue stream in three years, and then have good solid CAGR in years four and five. Add all that up and that brings in about a quarter of the billion dollars we're looking to bring in by the end of 2016.

A third area of focus on how we get to the next billion is large locals. Those are companies that are very densely geographically concentrated. So think universities, hospitals, local school systems, local governments, those types of companies.

What we're doing in that space is continuing to build on relationships we've already established and credibility we've already gained. What we're focused on doing there is taking our products and services and our infrastructure and repurposing our products to make them become industry aligned services that fill needs within a specific vertical.

One of the big drivers in the healthcare industry is the acceleration of digital medical records. The government has invested $17 billion to accelerate the digitization of medical records. The reason that's important to companies like us is, once those records become digitized, we can provide a very valuable service--and by the way grow revenues--by securely storing and delivering those digital medical records and interconnecting a healthcare ecosystem between patients in their homes, patients in the hospitals, doctors' clinics, doctors' offices, and really leveraging our broadband capacity both on the commercial and residential side to build a healthcare ecosystem that ties the whole healthcare infrastructure in a much more of a broadband way. Again, once everything gets digitized it makes it a lot more straightforward.  

So those three things, add them up and that's how the $1 billion of growth materializes by 2016.

The fourth thing that we're focused on is, how do we make the market opportunity larger? We view the market opportunity just within the pure telecom space within the footprint we have around the country to be a $6.5 to $7 billion opportunity. When we implement those first two or three things of doubling market share, etc., I need to be sure that simultaneously we're taking steps and thinking strategically about how do we invest in the business and really grow that market opportunity? So my aspiration is to grow that $6.5 billion opportunity by a net 10 percent over the next five years.  

FC: That's a pretty good sized chunk of the business services market. What effect will competition have on growing your market share in this space?

PM: That pie (the market opportunity) is shrinking because of technology displacement, competition, price point compression, all the realities of the telecom space. So a couple of areas that we're looking at to really expand that market opportunity for us strategically is, we're looking at the three key verticals I talked about earlier, we're looking at additional emerging technologies in the wholesale space. Things such as picocell technology, DAS technology, WiFi offload--a lot of technology buzzwords but important within the wireless and carrier industry--we're looking at those as product services, technologies and business opportunities for us to make that opportunity larger. And probably the bigger, more shorter term one will be a focus on managed communications services.

FC: You currently have hosted VoIP as part of the current managed services package available in your business services offering. Will you be adding to that?

PM: Our intent is to build on the core competencies we already have in this space and capitalize on the market opportunities in this space to really move that continuum down the road over the next several years toward things such as deeper managed communications services such as managed routers, managed IP PBXs, deployment of a tech solution initiative meaning we would provide help desk type support for commercial customers for IT. As a matter of fact, we launched a trial of that in our New England market, Cox Tech Solutions for Business, fourth quarter last year. We intend to burn that in and launch that through the course of 2012 across all markets.

Then in the future--think 12, 18, 24 months down the road--we're looking at moving toward managed applications services. So think Software as a Service (SaaS), and ultimately cloud computer types of services. So what that means to small companies is that (we) will host those applications that they need to run their business. Those can be general business applications, like CRM (customer relationship management) or employee information or payroll information, general ledger information--all the technology tools that small businesses need to run their businesses successfully. We can host those applications in our cloud and deliver them to the customers' desktops. What it means is they don't have to worry about the fact that they don't have the capital to do that, they don't have the expertise to do it; we'll do it for them as their trusted provider and build on top of the core relationship we have with them that's more telecom-centric now.

FC: How do you plan to implement that larger strategy of SaaS and managed services?

PM: Particularly on the managed communications services, like managed IP PBX and managed routers, there are a lot of partners that we're having conversations with in terms of how we deliver that to customers in the marketplace. Likewise, when we move further down the continuum to managed application services, we're looking at potential partnerships, potential M&As, we're looking at how do we get into those markets correctly and how do we get into those markets quickly.

FC: Other MSOs are also looking at targeting large enterprises with their business services, and perhaps multisite or national enterprises. What disadvantages does this strategy present?

PM: I'll stick to our strategy. Because we're not a nationwide network provider, but we are focused on very large customers, but our sweet spot is those customers that are densely concentrated within our footprints. Not to say that we don't have relationships with large worldwide Fortune 100 type companies, but typically what those companies are looking for is a communications provider who can provide them comprehensive communications services worldwide, or at the very least nationwide. So we do have relationships with some of those companies in terms of being a provider of redundancy, of disaster recovery, of diversity, that type of thing.

But I think the challenge across the MSOs of moving up into that enterprise market is that most enterprise customers are focused on nationwide providers. We have had conversations of, is there a play across the MSOs in partnership to provide seamless infrastructure network support, to support nationwide companies across the physical topology of the collective MSOs? Those kinds of conversations are going on.