ScreenPlays – Let’s begin with your sense of what is driving the business and contributing to the current revenue level. How did you get to what looks like a $2-billion plus revenue stream for 2012, especially in terms of how the new Ethernet services are contributing to the business?
Karen Schmidt – I guess I’d talk about it in two pieces. In the same way that we built a business very much focused on the small business and the product there in terms of voice, data and TV, we’ve really tried to take that same model to the mid-business market without losing sight of how we provide superior services, great savings and reach to the small business.
When we look at the products in the midmarket space, we’ve invested heavily in the Ethernet and really do see that as the technology of choice in the industry. And then as well we’ve recently announced our Voice Edge product which is a very appealing hosted PBX kind of solution that fills out our voice line.
So we see that our success is both sticking with what we’ve done well in the small business space and making sure we don’t lose sight of those core customers while we’ve kind of modeled some of the things about building and organizations from a sales, care and end-to-end perspective to make sure we have resources that understand that midmarket segment and that we’re putting energy into those segments that our competitors aren’t necessarily so focused on.
SP – How are you defining this new midmarket space?
Schmidt – The way we’re approaching midmarket right now, it’s really more of the customers with 50 to 500 employees, and to some degree that’s sort of the lower end of enterprise as some people look at it. And I think we’re very much finding a positive reception in the market where they haven’t necessarily had great alternatives to the big phone companies.
SP – So it’s kind of a continuum with what you’ve been building in the small market space.
Schmidt – It is in trying to both understand they have some different needs and yet making sure as we build products and organization they’re built on addressing the problems the customer is trying to solve and making sure we have organizations to gear up to do that.
SP – When you say this midmarket has not necessarily been a high-level focus of the traditional incumbent providers, the strength of the cable industry in the small market has been kind of the same story – a largely ignored market that didn’t get special treatment. As you’re moving into this midmarket what do you see as the needs that traditional providers haven’t been addressing?
Schmidt – Well to some degree I think those providers are limited by their reliance on old technology, just because it’s so core to their business when you look at traditional T-1s and Frame Relay, although people are certainly moving away from it. But we’re in a position where we can come into a customer and kind of assess what they’re trying to do as their bandwidth needs go up. Ethernet is a great technology that scales. We can look across their sites and understand their bandwidth needs, what they’re trying to solve for without the constraint of having old product to protect. So we’re uniquely positioned to help them make that transition over to Ethernet and to the advanced voice world.
SP – Do you see this as more a matter of competition on being able to meet specific needs or is your strength pretty much anchored in being price competitive?
Schmidt – I think we have the advantage of both. When we look at where we think we fit in the marketplace and the feedback we get from customers, we think we’re really uniquely positioned in that we have the size and scale of a very large company with a big national network, but we also have really deep regional capabilities. And that comes down to both network and people that are locally based in those markets.
At the same time Business Services as a unit in Comcast is very focused. So we have that clarity of purpose that you hear from a CLEC, and yet we have no worry on the part of customers as to whether we might go away tomorrow. It’s our facilities; it’s our network. We combine the best of both worlds for them.
Certainly price is a component. But we really think it’s about more bandwidth for less with a solution that can span both voice and data and help you make that transition.
SP – With the focus on Ethernet, how much of this midmarket are you able to serve over the existing coaxial access network versus having to bring fiber to business premises?
Schmidt – Currently our Ethernet service is almost primarily fiber, but we also have the flexibility to extend it over our HFC plant. Today our Ethernet services in Comcast’s footprint actually enable us to serve 20 of the top 25 U.S. markets. And we are doing buildouts with fiber at this point and then supplementing it in some cases with the HFC plant.
SP – That’s interesting. I didn’t expect that answer, frankly. You’re putting a lot of capital into this with a sense of what the upside is. You’re running fiber to the premises that would support extremely high speeds, and I assume that means you’re in multi-tenant buildings in many places.
Schmidt – Yes it does. It’s interesting that to a great degree we built a lot of fiber as part of our cell backhaul business with the mobile carriers. So we do have that reach as well as just simply the fact that Comcast has a national network which we use to provide our core infrastructure services. So we are doing builds and we are certainly looking at multi-tenant businesses and multi-location businesses to serve.
SP – In terms of that buildout with fiber, is this pretty much customer sales driven, or are you actually going into industrial parks and areas where there’s a significant concentration of these mid-size businesses and putting the fiber in and going in and selling services around what you have in there?
Schmidt – I’d say it’s a combination of both, but certainly we tend to do the builds where we have an anchor tenant or some sense that there are customers who this would be a good product for. So we are doing a combination of those.
SP – As you look at the needs of these customers are you finding a certain type of customer in this size category tends to want these services more than another type or certain categories of industries that are better prospects than others?
Schmidt – I would say it’s pretty broad across the types of businesses that are using it. The ones that seem to benefit the most and where Comcast can really be a strong player for them are the regional businesses where they may have more of a campus environment or multiple locations across town.
The kind of areas where we see Comcast and Ethernet to be a great solution include things like school districts where there may be a desire to have a centrally located video distribution, and they also want to get the school curriculum out to all the schools and the superintendent’s office is across town. They want to be able to exchange information among their various locations and they also want to be able to have really large pipes back whether it’s to a data center or another central location where their more bandwidth-intensive applications are stored.
We very much see local governments, regional banks in this category. Health care is an interesting scenario where maybe a hospital also wants to be connected to the x-ray centers, the doctors’ offices and the clinics. They are a kind of consortium of groups that need to work together and exchange data.
Very much it’s where the apps are driving big bandwidth needs. We’re certainly seeing a move to put more into a data center or otherwise use applications in the cloud where it becomes very important for businesses to have more reliable and more robust bandwidth than they had with old technology.
SP – That brings me to the impact of the cloud and cloud usage and the role that is playing in driving your business. Are you seeing that as a major impact?
Schmidt – We’re definitely seeing the move to the cloud, the move to putting more things in a data center so I don’t have to run the servers myself. We definitely see that as a driving force and a big driver of just bandwidth requirements.
SP – Does that put you in a situation where you begin to work with certain partners, where you begin to develop some specialization around various cloud applications as part of the service you offer, or is it pretty much just the pipe side?
Schmidt – I think at this point we focus on the quality and reliability of getting to the cloud. But you start to see trends where customers want to go to common places. They have common applications they’re trying to access. So I think that’s certainly something we’re considering and trying to understand as to what’s the best role we can play there. But we’re still at an early stage.
SP – I notice looking through all the case studies you’ve posted, and this is the case in some of the white papers as well, you’ve put a lot of emphasis on telemedicine, the health side of things. Do you see this market as really transforming with utilization of things like PACS (Picture Archiving and Communications System) and EMR (Electronic Media Records)?
Schmidt – We definitely see a large amount of interest from the health care industry. Are you asking me about specific drivers in terms of electronic health records?
SP – Yeah. In other words, this has been talked about for a long time, and these capabilities seem to have matured to where institutions can reliably depend on network access to remotely stored x-ray files, photos of patient conditions, MIR files, etc. So I’m just wondering if you’re seeing a surge in market demand for this kind of capability that maybe wasn’t there a few years ago.
Schmidt – Yes. We definitely see health care as one of the big industries that is leveraging this and wanting those capabilities. We’re still fairly new to this space, but if I were to look at the verticals where there are the most applications, health care is clearly one of them.
SP – It’s also interesting the extent to which this could extend into the home services side. Do you see any tie-ins there? Are you starting to explore the possibilities with the consumer side of your business where there might be an opportunity to offer a kind of home health care extension of what you’re doing with these clinics and hospitals?
Schmidt – It’s an interesting idea, and it’s certainly something that’s being talk about a lot. I guess I’d say we try to stay in touch with our residential counterparts. And certainly for a company like us with so much presence in the home already, it’s a natural thing to think about. So I think it will be interesting to watch how that evolves.
SP – As you look at the market opportunities going forward, you mentioned how a strong suit for you is the various customer types that have multiple facilities in a given area you serve, but as you also mentioned you have this great backbone facility extending across the country. Are you beginning to tap into some of the larger enterprises where multiple locations in different areas would be able to use the LAN interconnectivity and that kind of thing?
Schmidt – We actually do business with the larger enterprises a little more on the side where they have multiple branch offices or remote locations and they’re using our small business products – for example our Business Class Internet. We haven’t necessarily done a lot on the national side from an Ethernet point of view.
SP – Would you say you have that capability with regard to how your core fiber backbone is set up? In other words is it provisioned to begin bringing in dedicated customer links?
Schmidt – We absolutely do have the capabilities. To some degree we are really just trying to take a stepped approach and making sure we’re really a great regional player. Technically, yes, but we’re very much trying to build and process for customers more focused on the regional locations rather than a national play.
SP – It’s interesting, though. I mean, looking at the latest Vertical Systems Leaderboard listing of the top seven Ethernet players that have four percent or more of the ports, you guys aren’t among them and some of your cable brethren are. Yet you are outstripping the rest of the cable industry in terms of total business revenues, which points to the way in which you’ve gone about things, starting at the small business level, building a business unit, building expertise, incrementally going up now into the midmarket. But as I look at what you’re creating here, especially as you’re fibering so much of your local markets, you’re really positioning yourselves for an evolutionary play that would take you into the big enterprises.
Schmidt – I think that’s true. We’re very capable of it. We’re just also very focused on how we go about that.
SP – I’d like to turn to the cell backhaul business, which I assume was a triggering point for you as far as getting into Ethernet as a serious enterprise opportunity.
Schmidt – Honestly, it was our entry into Ethernet. We learned and built capabilities and cut our teeth on what we consider really the most challenging customers in terms of their demands and expectations. So that was actually a great proving ground for us.
SP – If you can handle that you can handle just about anything with Ethernet.
Schmidt – When we tell the small and midsize customers about that it does give people an assurance of, okay, I can understand how that might really test you, and that it’s successful says a lot.
SP – Where does that business stand? Is it still growing rapidly or has it leveled off now that you’ve saturated the market with your offerings to potential customers?
Schmidt – The reason I’d say it’s still growing is to a great degree they’re in the same boat as the rest of us with more and more bandwidth demands. The explosion of data in the mobile world is affecting them as well. They continue to have needs for more capabilities, and our network is capable of caring for a lot of that.
SP – Many people may not realize that the play with Ethernet isn’t just a matter of handling a lot of data traffic. It’s also bringing the old T-1 voice lines onto the Ethernet with the T-1 emulation capabilities that are built into the Metropolitan Ethernet Forum’s standards. Have you found those capabilities are living up to what’s expected with voice?
Schmidt – Yes. And we also offer voice trunks over fiber and our HFC plant, which people are very happy with as well as the advanced Business Voice Edge products. So I think it is proving itself.
SP – I wanted to touch on the area of expertise which I know isn’t necessarily your focus but where Comcast has been an industry leader, not just in cable but across telecom, and that is the introduction of IPv6. I’m wondering if that’s becoming part of your marketing message and part of the capabilities that you’re leveraging on the CPE installation and provisioning side as you come into your customers with a message about future possibilities and that kind of thing.
Schmidt – I do think Comcast has taken a leadership role in IPv6, and we are very much mindful and focusing on making sure that we build it into our products and are prepared for it. You’ll hear more from us over time, but it’s certainly part of what we’re doing with both Ethernet and preparing for on our Business Class Internet product.
SP – So it’s more in the range of preparations and strategic development at this point. It’s not something you’re putting in front of your end users as part of your marketing pitch.
Schmidt – It’s not part of our marketing pitch. We do offer it if someone asks and wants to have dual-stack IPv4 and IPv6. In the Ethernet world we can do that for them. But it’s not a big part of our push right now. I certainly expect it to become more so in the coming months and into next year.
SP – To switch gears a little bit, with respect to your role in the Metropolitan Ethernet Forum on whose board you sit, can you give me a sense of some of the forward-looking aspects of what the group is doing. I know so much was done over the first ten years getting these standards in place. Carrier Ethernet is now a worldwide phenomenon. What’s going on now that you see as projects or goals of the group?
Schmidt –I guess at a high level what I’d say about it is that Carrier Ethernet 2.0 is about making sure that if you look at Ethernet as a technology and an industry, it has a going-forward path as we continue to evolve. It’s interesting as you look back and say, okay, it’s been ten years, and yet there’s still clearly a ways to go in terms of adoption and awareness. And I think Carrier Ethernet 2.0 starts spanning the story around interoperability, manageability and some of the key things that will enable this to be globally consistent all around the world, for there to be common standards to interconnect and manage the services. I think we’re excited about having that next step and a future vision for the industry that we’re all moving towards.
SP – With those capabilities coming into play, this comes back to the idea of having a broader vision in the footprint you serve, but also with your cable brethren from the standpoint of being able to coordinate on offerings and use carrier Ethernet in a way that allows you to cooperate more efficiently and to serve some of these larger enterprises across multiple markets.
Schmidt – It’s definitely something we’re looking at and working on. More than anything at this stage of our evolution we’re about making sure can we fulfill more sites that a customer needs. That would still be my key driver.
SP – Just looking at where you’re at without thinking about the bigger long-term picture, as far as the markets you’re in and the goals you’ve set for yourselves in the near term, can we expect to see the kind of growth we’ve seen with the Business Services Group of late going forward? Has this midmarket opened up a vein of market opportunity for you that has great upside potential revenue wise?
Schmidt – Definitely. We look at this as another $10- to $15-billion industry. If you look at small business as one large group, we have a track record of growth over the past five years. As you go back through the annual and quarterly reports from Comcast, you see that increasingly Business Services is part of that story. We certainly intend to continue growing.
SP – Now that $10- to $15-billion figure you cited, that’s for the entire Business Services, not dividing into the midmarket?
Schmidt – When we use that number, to some degree it’s looking at what’s the telecom spend in our service areas. It’s a pretty broad number when you look across small business spend and what do large companies spend across voice, data, all things. So we’re just looking at the market as a whole.
SP – Okay. Let me ask the question another way. Would you say this midmarket becomes a much bigger force in driving toward those kinds of numbers going forward than it has been?
Schmidt – I would say it will become bigger. Clearly small business is where our foundation has been. So that will continue to be an area of focus. Ethernet and midmarket, there’s a piece of that we’d be able to serve. We’re certainly not claiming we can serve all that. But we’re looking at Ethernet alone as being a $3- to $5-billion annual market, and it continues to grow. So I think the answer to your question is we understand that SMB is really where our roots are, and we’ll continue to draw a large amount of revenue from there, and we certainly expect that midmarket – and have certainly seen this – will continue to be a bigger part of our business.
SP – Karen, I really appreciate your taking the time to answer our questions.
Schmidt – Thank you for your interest. We look forward to talking with you again.