These days, as the slowdown in broadband adoption increasingly hampers revenue growth, the consumer broadband business is searching for new ways to boost its bottom line. Some Internet Service Providers are experimenting with tiered pricing, while others are trying to deliver advertising or new content. While it's not yet clear if these efforts will work, on the business broadband side of things, Dave Pistacchio, the new president of Optimum Lightpath, thinks revenue growth can be found delivering value-added services over the network. The real measure of success, however, will be if Optimum Lightpath, a division of Cablevision that provides Metro Ethernet services, can translate those customer wins into higher profits.
Since late April, Optimum Lightpath has launched three new business services that ride over its pipe, including a patient engagement software package designed for hospitals and a high-definition voice telephony that can be used in any industry. Offering such services not only helps win and keep customers, Pistacchio told me, but it keeps the fiber pipe from becoming a mere commodity.
"This way we're not just a telecom service but something that helps the business," Pistacchio said. "You can buy some of the services elsewhere without having a relationship with the pipe provider, but…we can build lots of quality-of-service controls into the pipe that make it optimal for delivering the application. And quite frankly, we own and operate the network, so we can drive the entire price of the package down, so that it is really compelling."
While Pistacchio didn't disclose exactly how such services—or driving down the pricing—affect the company's margins, he insisted that they boost loyalty. "The bundle itself has an effect on the relationship between our clients. It lengthens and strengthens the relationship, and over time that's always worth more." Given that Optimum Lightpath fights Verizon Business for customers, it can't afford to price itself out of the market, so right now it sounds like it's using value-added services to boost sales rather than pad its profits.
For the first quarter 2009, Lightpath reported sales of $64.2 million, up 8% from the previous year. It also swung to a profit, posting income up $1.3 million, vs. a loss of $1.4 million for the same period in 2008. It still contributes just a small portion to Cablevision's overall $1.9 billion in sales, however.
But even as Lightpath seeks to expand its business in New York, New Jersey, and Connecticut, Pistacchio says building out a bigger nationwide network isn't in the cards. He's also skeptical of the opportunity provided by the wireless carriers moving to fourth-generation networks, which require more access to backhaul at the cell tower. "It's an opportunity but it's not a holy grail," Pistacchio says."What they are looking for with backhaul is still fairly minimal with 50 Mbps circuits. The challenge is how to get fiber to those sites and have a good return on that capital investment."
To put that in perspective, he noted how back in 2005, when Optimum Lightpath got into the carrier Ethernet market, 100 Mbps circuit was a rare sale, but now it sells 1 Gbps connections every week and 10 Gbps connections each month. Even as the economy flounders, especially among Optimum's Wall Street customer base, businesses are still paying for speed.