NEW YORK –The planned expansion of cablecos into the small and medium-sized business telecommunications market will make it harder for the competitive local exchange carriers (CLECs) to continue to grow revenues and access line numbers, according to a new report, entitled Cable Inroads into Small Business Market – Modest Near-Term Threat to Most CLECs, issued by Moody’s Investors Service.
But Moody’s does not expect an impact on the CLECs’ credit ratings in the near term as it will take the cable companies some time to develop their telephone products and services.
Moody’s predicts cablecos will be the most competitive with small businesses with less than 20 telephone access lines.
Within five or six years, the cable companies could account for up to a 35% market share of establishments with less than four access lines, and up to a 30% market share of establishments with less than 20 lines, estimates the financial research and credit ratings company.
Moody’s predicts telephony gains by cable operators will come at the expense of incumbent telephone operators (ILECs), but the increased competition will have the greatest credit impact on the CLECs, especially those servicing small businesses.
“The CLECs that Moody’s rates have been able to turn around their operations and maintain their competitive positions with prudent balance sheet management and a disciplined approach to capital spending, which has already led to free cash flow generation among a handful of operators,” stated Moody’s vice-president and senior analyst Gerald Granovsky. “However, the CLECs’ cash flow growth depends on their ability to continue building market share, which the entry of the cable operators into the small-to-medium-sized business market could jeopardize.”
Having successfully rolled out Internet Protocol-based telephone service to the residential and home business markets, the cable operators plan now also to serve small-and-medium-sized businesses, defined as companies with up to 500 access lines, stated Moody’s.
Moody’s estimates there are over 7 million small and medium-sized businesses across the United States.
