We attended the Comcast Business analyst event in Philadelphia.  We find the Business Services part of Comcast is interesting, and so do customers, because it is growing rapidly.  It installs a “new Ethernet every four minutes,” and has “40-45K installs per month.”  The company shared with the audience that it is expanding the breadth of its services to grow its potential revenue it can get from each customer, and in many cases is either acquiring or developing this technology itself.  We see these development efforts as moving up the technology stack.
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To understand Comcast Business, you have to know that it has unique approaches to its different customer segments.  The organization addresses customers of different sizes, and it does not use the same terminology as some others do: SMB (<20 employees), Mid-market (20+ employees), Enterprise (Fortune 1000).  We think it is more common that small is considered 100 employees and smaller, which would include SMB and Comcast’s Mid-Market, and that mid would be 101 employees or greater.  Here are the Comcast Business market views:

More details about customer segments.  In addition to attacking three customer size groups with distinct approaches, it also serves two verticals (carriers and government) segments with different strategies and recently acquired Deep Blue (May 2019) that serves WiFi to venues and hospitality verticals.  Each served customer type uses different combinations of third-party developed technology and Comcast in-house developed technology.  The company has 4,000 people developing in-house technology.  As a mix of total systems sold to customers, today, Comcast Business uses a higher mix of in-house developed technology when serving its small and mid-market customers than it does when serving large enterprises.  The group that serves Enterprise Solutions serves large enterprises using mostly using third-party technology from vendors like Cisco, Fortinet, and HPE.
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On the other hand, the company serves smaller-sized customers using fully or partially in-house developed technology.  Comcast Business’s SVP Product Management, Bob Victor, summed up its approach to working with third-party vendors by saying, “We want to totally commoditize hardware.”  We assume he means this is a long-term goal because, during the event, the company told us of new hardware and software relationships announced with new vendors. 
For small and mid businesses, the company has developed several in-house technology systems that compete with vendor-supplied technology.  One such example is its WiFi Pro service, which combines internet connection and WiFi service.  In WiFi Pro, which was introduced a couple of years ago to small businesses and is available at up to four Access Points, the company sources WLAN access points from a non-branded access point.  Based on our discussions at this conference, we would not rule out that at least some of the in-house developed technology may be supplanted by vendor-supplied technology if there is a compelling reason.  However, on multiple occasions, we learned that the direction the Comcast Business is going is to develop in-house technologies and bring these directly to customers, first with smaller customers, and perhaps very long term to large enterprises.

Managed Services.  The company delivers both transport/network services and transport bundled with other services; there is a case to be made that Comcast Business’ bundled services could be called Managed Services.  However, even Comcast says there is some confusion about using the terminology “Managed Services,” because of customer expectations; some customers see it as a very high level of services, where customers do nothing, while others see it as Comcast Business is “working with” the customer to deliver the service.

Playing to Strengths.  On an overall basis, Bill Stemper, who runs Comcast Business, says the company’s strategy is to focus on serving the wireline needs of businesses in the US.  He says, “this is where we invest.  We expect to focus this way for decades.” 

Small Business details.  Stemper said that the company would bring “mobile to small business.”  It will bring mobile to this segment when “all the systems are squared away, and when sales reps are capable of selling this additional service without slowing down customer purchasing decisions on the existing suite of services.”  It is currently offering mobile in selected markets to learn more about selling this new service.  We expect mobile to small business to be offered sometime in 2020.

Growth Avenues in Mid-Market.  The company made it clear that it believes the mid-market is an enormous growth opportunity.  And, starting in 2020 and beyond, the company says, it is putting more investment into it to improve coverage, its focus, and its reach.  Today, the company has 800 reps targeting the in mid-market and plays to strengths in certain verticals such as government, education, and healthcare.  

Large Enterprise Opportunities.  Approaching the Fortune 1000, the company has its most meaningful exposure in finance, healthcare, restaurants, retail, hospitality verticals.  The company is finding customers who, according to Comcast, are replacing MPLS service with broadband and getting a 50% cost reduction and an order of magnitude speed improvement.  Comcast introduced a leader from a large finance company to the audience, and though we cannot name the customer, the company shared that it had moved initially to use Comcast transport, and is currently doing a proof of concept for voice and Comcast’s ActiveCore SD-WAN service.  Comcast reiterated its plans to use Cisco, Fortinet, and HPE at large enterprise (Fortune 1000), though implied it is entering another phase that it internally calls Enterprise 2.0 for its Enterprise Solutions group.  In Enterprise 2.0, the company hinted it might develop more in-house technology and further implied its ActiveCore (SD-WAN is one service it offers in ActiveCore) might find a home in some large enterprises.  Comcast’s customer endorsed the idea of using white box universal CPE loaded with “best of breed services” instead of buying vendor-supplied routers so it will not have to replace 15,000 routers when it comes to upgrading time or transitioning. 

Carrier opportunity.  Bill Stemper, who leads Comcast Business explained that, since 2009, it has served carrier Ethernet to the mobile industry and it will pursue 5G opportunistically.  Elaborating further, Stemper said it would decide whether we can get leverage on new builds to serve 5G simultaneously with other customer types.  So, it sounds like building new plant to serve only 5G backhaul is not in the cards. 

Deep Blue WLAN.  In May 2019, the company acquired a Troy, NY-based WiFi services company.  We understand from the presentations that Deep Blue was growing at least 30%/year for several years before the acquisition and that its revenues may have hit around $40M.  The company designs/installs third-party WLAN and associated systems, then operates the networks for a recurring fee mainly in verticals such hospitality and large venues.  The wholly-owned subsidiary has developed advanced software and services capabilities that could easily be leveraged across the other parts of Comcast Business, but from what we learned, there has been no cross-fertilization as of yet.

Products.  The company is expanding the number of services it can deliver to customers, thereby increasing its possible revenues to each customer.  It began offering SD-WAN services three years ago.  It plans to expand beyond SD-WAN.  In its mid-market customer focus, the company will soon offer security (Advanced Firewall and UTM, for instance), routing, and a bit later on, voice gateway (SBC) and WiFi.  For premises-based VNFs, these are run on a universal CPE (uCPE) that today costs about $1,000 to Comcast and it will be launching a $500 uCPE with similar capabilities soon.  The company is updating the cable plant that serves business users, where 4 M businesses are passed, towards a “mid split” architecture that allows for greater upstream speeds so that initially 50 Mbps up and down will be possible, and then over time 100/100, 300/300 and longer-term 1 Gbps up and down.  The company also uses EPON for more demanding needs and places like multiple dwelling units; it won’t be moving to XG PON (10 Gbps) for the foreseeable future.

The company has a multi-vendor approach with these VNFs.  This week, it announced Fortinet UTM/security.  We expect the company could announce other security, routing and perhaps longer-term, other SD-WAN vendor options.  We think the company will stick with a single WiFi cloud controller for at least the next year or so, but indicated it could introduce at least one more vendor’s technology afterward.  The $500 uCPE device is capable of 1 Gbps SD-WAN throughput, as well as advanced firewall at 1 Gbps and has UTM at 600 Mbps. These are impressive throughput numbers, we think, especially because similar throughput capabilities are available on proprietary boxes from vendors that cost much more.

Additionally, the product called CBR2, a new version of its Comcast business router, will be coming soon.  Both the original CBR and CBR2 have WLAN as a built-in feature.  But, neither the CBR nor the CBR2 has sufficient WLAN coverage capabilities to satisfy a mid-sized business, so Comcast thinks its soon-to-be-launched WLAN plans to mid-sized businesses allow it to serve more customers.  One such new target from these added WLAN capabilities will be the E-Rate program, which is a partial funding mechanism for K-12 schools overseen by the US FCC, is one such target.


Comcast emphasized that it has spent significant time and resources developing software capabilities that allow it to orchestrate VNFs, to remotely administer customer networks, and to allow multiple VNFs from different vendors, or to allow VNFs that are developedin-house by its customers.
 

Earlier this year, Aerohive issued a press release about its A3 software system.  A3 is what we categorize as an Enhanced Network Access Control (ENAC) system; we calculate market share statistics on this market in our Security report series.  The company is now getting ready to bring the product to market and is blitzing the media, so to speak.  We were briefed and learned more about the product. To summarize, it checks the boxes necessary for us to include it in our ENAC report and we like that it has a common user interface to allow customers to perform device profiling, authentication / registration, compliance / remediation, device management, billing integration and network access control.

Our outlook for ENAC is positive and, today, three main vendors consist of the majority of share: Cisco (with ICE), Aruba (with Clearpass) and ForeScout.  We learned that company has more aggressive pricing than these market leaders.  If you look at why a product like A3 is important to Aerohive, recall that back when Aruba introduced Clearpass back in 2012/2013, it used it as a selling tool to get into its competitors' accounts (it also got high margin sales from Clearpass, too).  Aerohive's A3 is positioned similarly - it operates with its competitors' equipment (including those from Cisco, Ruckus, Extreme and others).  So, Aerohive has developed another means of selling to customers, by offering A3 to customers using non-Aerohive equipment.  

Arris held its annual investor day late last week on March 28, 2018.  It was interesting: the company said "Everything is going wireless," which is an interesting admission for a company that, until about a year ago, was essentially a pureplay on wired broadband.  To be sure, the company has diversified into wireless with its acquisition of Ruckus and has benefitted from the inclusion of Wi-Fi capabilities to its broadband CPE.  The company sees this wireless future - and is pivoting towards it.

Arris management highlighted that it expect its future to include the following growth avenues:

• Cloud Wi-Fi
• DELL OEM
• CBRS 3.5 GHz LTE Small Cell
• IoT (Residential and Industrial)
• FTTx (10Gb EPON / NGPON-2)
• Consumer Mesh Wi-Fi
• Campus Ethernet Switching

Additionally, the company discussed its expectations for each division, which using its 2017 mix and various projections, calculates to a 4.7% CAGR from '17 to '21.

Enterprise Networking (Ruckus).  Overall, the company's Enterprise Networking division, also known as Ruckus Networking, includes its Enterprise WLAN business (formerly Ruckus Wireless), the Brocade ICX Ethernet Switch product line (referred to by the company as Campus Switching), and other revenue streams such as CBRS 3.5 Ghz LTE Small Cells, as well as IoT radio modules that plug into the Ruckus Access Points like Bluetooth, LoRa and Zigbee.  The company is targeting 20%+ growth for the Ruckus Networking group, which is far above the industry growth rates we expect for Enterprise plus Outdoor WLAN and Campus switching. This aggressive growth rate either implies share-taking, or growth in other products such as CBRS, Bluetooth, LoRa and Zigbee, or the the non-WLAN parts of what used to be Ruckus Wireless, such as Cloud-managed Wireless LAN services (that, for instance compete with Cisco's Meraki, Aerohive services and Mojo Networks).  The company cited an expected Enterprise WLAN revenue growth projection slightly above our projection for the period '17 to '21, even if cloud-managed WiFi services were included.

​Network and Cloud Segment.  The company said this market is growing 5% annually, and described the market generally as the Cable Modem Infrastructure, optical nodes and cable video networks market.  The company generally expects to take share, compared to this market viewpoint, projecting a 4-7% long-term annual growth expectation for this business segment.  It was interesting that the company said that the "mobile device explosion [is] driving offload demand," because it has been several years since "Wi-Fi offload" was a growth driver, but dissecting the comment a bit more, the company is pointing to cable operators as being "well positioned to handle [the] offload."  We think Arris' strong supplier position with the major Cable MSOs in the US, especially, may indicate that there should be a strong build up of WiFi and cable infrastructure coming in the future.  And, this corroborates with our own research and statements from MSOs such as Comcast.  In fact, the company showed a "future" network diagram that indicates it expects its MSO customers will be delivering 5G radio, Remote OLTs (PON) and Fixed Wireless Access instead the of cable modem (DOCSIS) equipment that was indicated in the "now" chart.  This implied shift from DOCSIS to PON/5G/FWA would be a dramatic shift in the company's product portfolio.  Very interesting, indeed.

Customer Premises Equipment (CPE) Segment.  The company claims a #1 Set Top Box (STB) market share, and #2 Broadband CPE market share, with a mix of 60% video CPE and 40% broadband revenues in 2017.  The company expects to grow broadband CPE to a mix of 50%+ by the year 2021, consistent with the market growth rates it cites - 4% CAGR for broadband and -.8% for video.  Generally, the company is projecting long term sales trend of -5% to +1%, indicating that it lacks the direct to market exposure that would get it to a growth expectation in this segment.  The company confirmed it is using NBASE-T (Multi-Gigabit Ethernet) interfaces on its home networking devices and it is planning to release 802.11ax capabilities on its portfolio, as well.  Arris CPE will also include Extenders / Adapters to, at least partially, address the growth now occurring in the Consumer Mesh market.