Customers of Cbeyond Inc. in the second quarter on average spent less money with the telecommunications provider.
Average monthly revenue per (Core Managed Services) customer location was $641. That is down from $642 in the first quarter and $660 in the year-ago quarter.
Cbeyond isn’t overly concerned because it believes its strategy focusing on “technology dependent" or “2.0" subscribers will result in significant higher revenues per customer. The company thinks these customers provide 30 percent higher ARPU than its traditional telecom subscribers otherwise known as its 1.0 customers.
Of course, Atlanta-based Cbeyond is doing some guesswork. The 2.0 strategy focusing largely on selling cloud services is still in its infancy. The company brought home a mere $8 million in revenues from these 2.0 customers during the first six months of the year. Cbeyond defines 2.0 customers as those who buy network access at speeds exceeding 10 Mbps, subscribers who purchase such cloud-based services as dedicated server and cloud PBX services and customers using its MPLS service.
What will likely make or break Cbeyond’s strategy is its ability to persuade its current base of roughly 62,000 small- and mid-sized business customers to trust a competitive telecom provider with their IT needs. Cbeyond estimates nearly half of its Core Managed Services customers are tech-dependent.
“Our strategic shift is expected to result in little to no net growth in overall customers in the near term," the company admitted in a regulatory filing. “[H]owever we expect that in the longer-term our overall ARPU and customer additions will increase as our customer mix becomes more oriented to those who are technology dependent and are using our services to satisfy their technology needs."
Deutsche Bank Securities analysts are optimistic that Cbeyond can execute on its strategy.
“We believe that CBEY has put in place all of the key elements necessary in order to implement its “2.0" strategy and the company is emerging as one of the more interesting turnaround stories in telecom," Deutsche Bank research analyst Brett Feldman wrote last week.
Still, Feldman cautioned that a “return to growth" at Cbeyond “seems unlikely until next year." The company last week reiterated its 2012 guidance of $485-$490 million in revenues. That would result in flat revenues for the year compared to 2011 ($485.4 million).
To support its new strategy, Cbeyond is planning to connect 1,000 buildings with fiber by the end of next year, analysts said. Cbeyond has 700 buildings under contract for construction of fiber, according to financial analysts with Raymond James & Associates.
"We believe a large number of Cbeyond 1.0 customers and almost all Cbeyond 2.0 customers will ultimately require speeds greater than what Cbeyond has historically been able to offer," Raymond James analysts Frank Louthan and Alexander Sklar wrote in a research report.
