CABLECOS SET SIGHTS ON VoIP

This is a familiar story for anyone who’s been in telecom for at least a year.

At about this time last year, it looked as if the cable companies were ready to invade the turf of the telcos with VoIP. But, as xchange reported in its April 2003 cover story, it became clear last spring that the cablecos weren’t ready to make that move, opting instead to focus less on telephony strategies and contend with more immediate concerns — such as stemming the loss of their video customers to direct broadcast satellite competitors.

Now that the MSOs have met that imperative by introducing new services on the digital and interactive TV fronts; PacketCable products are available; and VoIP technology seems to have matured, it looks as though the cablecos may finally be ready to tackle the VoIP challenge.

“I think cablecos can only do one thing at a time — now it’s VoIP,” says Ken Cavanaugh, director of business development at General Bandwidth, which sells a telephony migration platform called the G6.

The cable companies see voice as a way to reduce churn, increase their average revenue per user and offer a broader bundle to compete with telcos and DBS companies. Cavanaugh adds that voice is also a good long-term bet for service providers because it’s already been proven that subscribers are willing to spend an extra dollar or two for enhanced voice features, in addition to the basic service.

That said, most sources expect limited rollouts of IP telephony from the cablecos this year — as they get comfortable with operational issues and learn how to scale — and broader coverage in 2005.

The Scorecard

Here’s a rundown of some of the key activities on the cableco VoIP front today:

Cablevision Systems Corp. in November launched Optimum Voice, which was first offered on a trial basis earlier last year and officially launched throughout Long Island in late September. Siemens tells xchange it is a key equipment vendor for the service, which is today available across Cablevision’s Long Island, Westchester and New York, N.Y.; New Jersey; and Connecticut service areas.

The service is offered exclusively to new or current Optimum Online high-speed Internet customers, of which there are about 1 million.

Optimum Voice offers unlimited local, regional and long-distance calling across the United States and Canada for a flat rate of $34.95 per month. The service includes caller ID, call waiting, call return (*69), three-way calling and call forwarding. Optimum Voice also provides E911 service.

Charter Communications is offering primary line VoIP service in Wausau, Wisc., to approximately 2,000 residential customers. That’s in addition to the approximately 23,500 TDM customers representing 31,000 lines on a Class 5 switch in metropolitan St Louis.

Charter has tapped ARRIS to provide it with cable modem termination system and network interface unit gear, and Nortel to supply gateways and switches for the Wausau VoIP deployment.

The company’s plan is to expand VoIP to several other Wisconsin communities and launch two additional VoIP markets in 2004, as well as having VoIP in its top eight to 10 markets within the next several years. Suppliers have not yet been named.

The company says its package of VoIP-based local and long-distance services are about 15 percent less expensive than what the ILEC offers.

Charter tells xchange that it currently manages several outsource relationships for some VoIP back office/support services, but would not specify for what or from whom.

Comcast Corp., which early last year put on hold plans to aggressively market local phone services, is testing VoIP in the western suburbs of Philadephia. “That trial ring is everything we’re going to do in 2003,” Sam Chernak, vice president of VoIP for Comcast Cable, told xchange last spring. Comcast, which offers circuit-switched voice services to at least 1.4 million customers, did not respond to xchange’s requests for a VoIP update from the company.

At the time, Chernak said the trial included equipment from Syndeo Corp. and Nuera Communications Inc.

Cox Communications Inc. in December launched VoIP in its first market — Roanoke, Va. It declined to provide vendor names.

The company, which has already been active in offering circuit switch-based voice services, now sells phone service to about 911,700 subscribers in a dozen markets. There are no immediate plans to roll over Cox’s existing Cox Digital Telephone customers to the VoIP network.

Dianna Mogelgaard, director of product development, tells xchange that Cox selected Roanoke as its first VoIP market because it’s a small system with a good technical team and it’s close to another of Cox’s telephony markets (Hampton Roads, Va.). Because Cox has been offering telephone service for seven years, she adds, the company is able to leverage its experience related to filing tariffs, and running telephone support systems that handle E911, local number portability, slamming investigations and the like. “We’re not outsourcing any of that,” she says.

The VoIP service is marketed in the same way as Cox sells its TDM-based phone service. It includes unlimited local service, long distance, voice mail and 15 calling features.

“Cox has keen interest in rolling out VoIP to all our homes passed,” Mogelgaard adds, but she would not provide any specifics on rollouts for IP telephony beyond Roanoke.

Meanwhile, Mogelgaard says that Cox is looking at various messaging applications such as unified messaging and unified communications that will overlay the VoIP architecture. She tells xchange that as of late December, Cox was in one trial with such service and was readying an RFP for a more “comprehensive messaging suite.”

Time Warner Cable, which has been offering TDM-based voice in Rochester, N.Y., for the past five years using a Lucent Technologies Inc. switch, has been testing softswitches in Rochester, N.Y., and Portland, Maine, for about three years.

After going through a laundry list of softswitch vendors that included Clarent Corp., Lucent and Telcordia Technologies Inc., Time Warner Cable relaunched VoIP last May in Portland, this time using Cisco Systems Inc. equipment, Gerald Campbell, Time Warner Cable senior vice president of voice, tells xchange.

The cableco reports it has 9,000 VoIP customers — about 90 percent of which were ported over from Verizon numbers — in that market and plans to add VoIP in Rochester (where it already has 3,000 voice subscribers served by its TDM-based network) this quarter. Time Warner Cable is also offering VoIP service to “friendly customers” and employees in Charlotte, N.C.; Kansas City, Ka., and Mo.; and Raleigh, N.C. And the company just got approvals to offer VoIP in Ohio and Texas, and has filings in for approvals in California and South Carolina.

Campbell says the company, which has cable networks in 31 major markets in 27 states, expects to have VoIP available in most markets by the end of this year.

The service sells for $49.95, which includes state and long-distance calling, if you purchase voice services only from Time Warner Cable. It’s $39.95 for those that also purchase Time Warner Cable’s video and cable modem services.

Unlike Cox, Time Warner Cable is not going it alone with VoIP. Time Warner Cable recently announced multiyear partnerships with MCI and Sprint Corp., which will provide it with interconnection facilities and supporting E911 management, directory assistance and operator services, local number portability, electronic bonding and voice mail, among other services.

Campbell tells xchange that Time Warner Cable had a similar relationship with Pine Tree Networks in Maine early on, and that it worked so nicely, the cableco decided to do it on a nationwide basis with the larger telcos. He adds that some cablecos go through their CLEC businesses for such services, but that Time Warner Telecom (of which Time Warner Cable owns 45 percent) didn’t want to get into residential services.

Several small cable companies now also offer VoIP services through partnerships with Vonage Holdings. That list includes Associated Network Partners Inc., CableAmerica, Mid-Hudson Cablevision and NuVision.

What’s Next

As noted in xchange’s cover story last month, Jon Arnold, voice over packet program leader for Frost & Sullivan, thinks the MSOs will be “the prime movers of competition in their market with VoIP services.”

Independent Research Group LLC believes MSOs will accelerate deployments of nextgeneration cable services, including IP telephony, this year, forecasting cable telephony subscribers will reach 3.1 (12.4 percent of digital subscribers) by the fourth quarter of 2004, up from 2.3 million (or 10.8 percent) today.

A new report from MRG Inc. also suggests that cable companies in North America will begin an aggressive rollout of telephone service in 2004. It forecasts that in 2007, the cable telephony market will reach more than $3.9 billion in service revenue and $386 million in systems revenue.

“The U.S. cable companies have waited patiently for the availability of the voice over IP technology called PacketCable developed by their research organization, CableLabs,” according to Bob Larribeau, senior analyst with MRG. “Now that PacketCable products are here, cable companies are exploiting [their] three major advantages of lower cost, more flexibility in deployment and easier new-feature additions than traditional circuit-switched systems used by the telephone companies.”

But IDC analyst Tom Valovic doesn’t believe the cable companies will be a major factor in VoIP in the year ahead. “I just don’t think cablecos will do much with VoIP in 2004,” he says. “Comcast was making a lot of strong statements about moving into VoIP and cable telephony, but has since moved back somewhat. Cox is really the one to watch currently.” Valovic adds that some equipment vendors have had difficulties in the cable VoIP market, “and often that is good bellwether for what is happening.”

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