Cable Operators See VoIP As Next Big Service
North American MSOs Target Cable IP Telephony Rollouts in 2004
cabledatacomnews.com
JANUARY 01, 2004
By Alan Breznick, Editor, Cable Datacom News
Delivering high-speed data is simply not enough for many MSOs anymore. With cable modems now in more than 17 million North American homes and that number still growing at about 1 million homes per quarter, more operators are actively exploring the next generation of IP-based services to offer over their fat broadband pipes.
As several MSO panelists made clear at various Western Show sessions in Anaheim last month, the next big cable IP service will be Voice-overÐInternet-Protocol (VoIP). Cable operators have been saying this for years, of course. But thanks to players like Vonage, MSOs finally are getting serious about VoIP. Three major cable operators -- Time Warner Cable, Cablevision Systems and Cox Communications -- have now launched VoIP service in their initial markets. At least one other large MSO, Comcast Corp., has begun a major field trial and plans several commercial rollouts in 2004. And others are expected to follow in the coming year.
"We believe VoIP is the future of telephony," said Jay Rolls, vice president of telephone and data engineering for Cox. He said Cox, which just started offering VoIP service in its first market, Roanoke, Virg., in mid-December, could launch commercial service in other mid-sized and smaller markets anytime in 2004, depending upon its early results in Roanoke and further market analysis. "We're peddling pretty fast right now," he said. "I don't know if we can peddle any faster."
Similarly, Arthur Orduna, vice president of strategic initiatives for Advance/Newhouse Communications, said his company could start VoIP service in its Florida markets as soon as this winter, depending upon its research into the technical and operational issues. "We want to make sure we have our business objectives lined up," he said. "We also want to understand where the market is."
Likewise, with its heavy capital expenditures on plant upgrades now completed, Mediacom Communications Chairman/CEO Rocco Commisso said his company will focus on introducing VoIP service to its largely rural base of 1.6 million basic cable customers in 2004. "I view a huge potential for us on the voice side of the business," said Commisso, speaking on a separate panel of MSO chiefs. "We hope to do to the phone companies what DBS has done to us."
Technology vendors on the IP telephony panel with Rolls and Orduna urged cable operators to move aggressively into the VoIP space because all the major technical hurdles have been overcome. They also argued that VoIP equipment costs have dropped and will keep falling further. Mark Dzuban, vice chairman of Cedar Point Communications, said MSOs could offer VoIP service now for a capital expenditure of $200 to $400 per subscriber or possibly less, as opposed to more than $750 per subscriber for traditional circuit-switched phone service. "That's a huge cap ex reduction," he said.
But, perhaps most importantly, panelists contended, cable's telephone rivals can't possibly match the industry's platform strengths just yet. John Vaughan, president and CEO of Syndeo Corp., argued that cable holds the competitive edge in both its potential to integrate landline and wireless phone services and its potential to mesh voice, data and video services in consumer-friendly packages.
"The integration of wireline and wireless -- that's a killer app," Vaughan said. "And the integration of voice, data and video is something that the RBOCs and satellite can't do today." He advised cable operators to "get on with it and take advantage of the innovation that exists today."
Ted Rogers, president and CEO of Rogers Communications in Canada, called bundling of all these services -- voice, video and data -- crucial to cable's success. He noted that the 62% of Rogers customers who subscribe to just one service produce only 31% of the MSO's operating cash flow. In contrast, the 30% of Rogers customers who take two services generate 43% of the company's operating cash flow and the 8% who take all three services produce 26% of the operating cash flow.
"So our Achilles heel is the 62% that take one service," Rogers said. He said company officials hope to boost that 8% of the customer base taking all three services to 30%. If that can be achieved, he predicted, this group could end up producing about three-quarters of Rogers' operating cash flow.
But Rogers warned his fellow MSO executives against simply matching the phone companies' offerings and engaging in costly price wars. He argued that cable should go beyond the phone companies by developing new, innovative services, such as wireless service integrated with VoIP. "If we try and emulate the phone companies, they'll come back and haunt us," he said. "I don't like to compete on price but on innovation."
Rogers also warned that the phone companies will upgrade their facilities over the next five years to compete with cable, including cable's core video service, on an equal footing. "It'll be a different game when they put in a unified network rather than a separate [video] network," he said. "We should prepare for it."
In particular, Rogers sees the phone companies as an emerging threat to wire apartment complexes for cable-like services and steal away cable's video customers. "They're coming now, not to a theater near you but an MDU (multiple-dwelling unit) near you," he said. |
