The Last Bell Company

Bell_logo_1969Cincinnati Bell is the only company in the US still using the Bell name. Founded in 1873 as a telegraph company, even before the invention of the telephone, the company has been serving a small 3-state area around Cincinnati since the founding of telephony. The company operated independently from the old Bell system because AT&T only owned a 32.6% share of the company.

The company abandoned the Bell name for a while in the 90s, changing its corporate name to the Broadwing Corporation, but changed its name back to Cincinnati Bell after a few years. The company has ventured outside its small footprint over the years. It bought IXC communications, a nationwide fiber network, and also spread out at one point as a CLEC to many parts of Ohio. The company’s biggest non-traditional offering was its wireless business which it sold to Verizon last year for $194 million. Like all independent wireless operators it was feeling the pinch of competition from the price wars going on in the wireless industry.

The company has seen the same drop-off of its traditional line of business as all telcos. The company’s traditional voice business of selling telephone lines fell from $520 million per year in 2004 to $203 million in 2014 and now represents only 16% of the company’s revenues. As homes and businesses ditched voice, the successful telcos have had to look elsewhere to replace those revenues.

Cincinnati Bell has undertaken a number of new business lines, and its most successful is its Fioptics business of building fiber to homes and businesses. The company reported at the end of 2014 that it had FTTP service in 91,000 homes and businesses, up from 11,000 in 2009. The company has also put a big emphasis on building fiber to businesses districts and has connected 5,800 commercial buildings in the region, compared to roughly 500 by main rival Time Warner.

In 2014 the company’s fiber business generated $310 million and expects those revenues to grow significantly as they expand the fiber network. The company plans on using the cash from the sale of its wireless business to further expand the fiber business, planning to spend $210 million on fiber expansion in 2015. At the end of 2014 the company had covered about 40% of the region with fiber and expects that to nearly double by the end of 2016.

The company has also done well serving the large corporations in their footprint like Proctor&Gamble and General Electric. The company has a full suite of large company products, such as cloud services, which it has now pushed down to smaller businesses. This business line generated $168 million in 2014 and is growing by double digits.

This effort makes Cncinnati Bell one of the largest fiber builders after Verizon FiOS. And like many fiber companies, they now offers a residential gigabit product priced at $89.99 per month for the first year and then going to $99.99. This is in a market where today Time Warner’s fastest product is 50 mbps download priced at a promotional price of $64.99 and reverting to $107.99 at the end of the promotion. Of course, we’ve seen Time Warner get much faster and become price competitive in other fiber markets like Austin.

For a company to reinvent itself is not easy or without risk. Like many companies that ventured into the CLEC business in the late 90s, Cincinnati Bell’s CLEC business came up a big bust. The company racked up $3 billion in debts and the business badly underperformed, threatening bankruptcy in 2003.

But the company made the right calls and changed directions again towards fiber and now seems to be on a solid path. The company has clearly reinvented itself again to be a fiber ISP. Companies who have been able to make that transition seem to be thriving. Offering the fastest data speeds of fiber in a given market seems to be a winning strategy and is letting companies like Cincinnati Bell benefit from the continuing growth of broadband services.

The company’s history is a good object lesson for others in the industry. The company foresaw the eventual death of voice as a viable business and took chances on launching into other areas. It fared poorly as a CLEC, a little better but not spectacularly as a wireless carrier, and seems to have hit a home run with fiber.

No company in this space can ever stop reinventing itself. The fiber business has thrived in part due to the continually growing demand for broadband, which has now achieved around 75% nationwide penetration of all households. But when that growth tops out, and as cable companies offer faster speeds, even fiber companies will need to stay nimble and creative to protect their revenues. Cincinnati Bell seems like a company that is always willing to take a fresh look at itself, and that’s a good lesson for all carriers.

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