Comcast Corp. (CMCSA - Analyst Report), the largest cable MSO (multi Service operator) in the U.S., is significantly expanding its footprint in the metro Ethernet market. According to a recent report by Vertical Systems Group, Comcast is currently the sixth largest metro Ethernet service provider in the U.S., highlighting a rise by two notches. Comcast currently has a Zacks Rank #3 (Hold).
Metro Ethernet service is a part of the cable MSOs’ small and mid-sized (SMB) business service division. The SMB segment has become a major growth driver for the cable TV operators. In the first half of 2014, Comcast generated $1,882 million in revenues from this segment, up 23.1% year over year.
Within this segment, the metro Ethernet market is a rapidly developing as a lot of small and mid-sized business enterprises still depend on traditional T1 or DSL link for network connectivity.
Using its vast network of fiber optic, the metro Ethernet service of Comcast offers faster and cheaper Internet access to business enterprises than the legacy T1 and DSL services offered by the telecom operators.
Comcast has launched four types of metro Ethernet services (1) point-to-point Ethernet Private Line (2) point-to-multipoint Ethernet Virtual Private Line (3) multipoint-to-multipoint Ethernet Network Service and (4) Ethernet Dedicated Internet Access.
In Feb 2014, Comcast reached an agreement with Time Warner Cable Inc. (TWC - Analyst Report) to acquire the latter in an all-stock deal valued at around $45.2 billion. The deal is currently under strict regulatory scrutiny. If Comcast gets approval for this deal, then its position will further improve as Time Warner cable currently holds the fifth position in the metro Ethernet market.
In the meantime, Vertical Systems Group further identified Level 3 Communications Inc. (LVLT) as a potential beneficiary of the growing metro Ethernet market in the U.S. According to the research report, Level 3 Communications currently holds the eighth position.
However, if the company’s proposed merger with tw telecom Inc. matures, it will benefit significantly as tw telecom is currently the third largest metro Ethernet service provider.