Cablevision Races To Early Lead In Cable VoIP
MSO Approaches 30,000 VoIP Customers with Full-Scale Rollout in NY Market
APRIL 01, 2004
By Alan Breznick, Editor, Cable Datacom News
Staking claim to the early bragging rights in the fledgling cable IP telephony business, Cablevision Systems signed up nearly 30,000 subscribers for its service in the last four months of 2003 and seized the industry lead from Time Warner Cable.
In its year-end earnings report released early last month, Cablevision said it closed 2003 with 28,650 Optimum Voice customers in the New York market, up from just over 5,000 at the end of September. The MSO said its new PacketCable 1.x-based residential voice-over-Internet-Protocol (VoIP) service picked up 23,600 customers during the fourth quarter, an average of about 1,800 customers per week.
Moreover, Cablevision officials said the VoIP service is gathering momentum over time. They noted that the company averaged a gain of 2,500 customers per week during December and that the growth rate continued to climb in January and February. While a solid start, Cablevision's VoIP customer additions pale in comparison to the MSO's 5,500 weekly cable modem subscriber adds in the fourth quarter.
"We're doing better than our expectations and customers like the product," Tom Rutledge, president of cable and communications for Cablevision, told investors, analysts and reporters on an earnings conference call in early APRIL. "It's a great value and we are executing the business plan successfully."
Well ahead of other MSOs, Cablevision -- which passes 4.4 million homes in the Bronx, Brooklyn, Long Island, Westchester, southwestern Connecticut and northeastern New Jersey and serves more than 2.9 million basic cable subscribers -- is now offering its Optimum Voice product to new and existing high-speed data customers across its massive New York footprint. With slightly over 1 million cable modem subscribers, which gives it an impressive data penetration rate of 24% of homes marketed, Cablevision already has a huge base of prime prospects for the service.
"We're doing a rapid rollout," Rutledge said. "It's easy to sell. People understand what it is... It has good value from a pricing perspective."
Cablevision is charging its subscribers $34.95 a month for the primary-line voice service. The monthly price covers unlimited local, toll and long-distance calls in the U.S. and Canada, plus such features as caller ID, call waiting, call forwarding, call return, three-way calling and E-911 services. Plans call for adding such extra features as number portability, international calling, directory assistance and voice mail in the coming months.
For the PacketCable Network Call Signaling (NCS) IP telephony rollout, Cablevision is relying on Siemens AG's Surpass hiQ soft switch, Surpass hiG trunking gateway and Surpass media server. The MSO is using an embedded multimedia terminal adapter (E-MTA) from Motorola and depending on its Lightpath business telephony unit to interconnect to the public switched telephone network (PSTN).
In the conference call, Rutledge repeated earlier statements that Optimum Voice already generates operating margins of around 40%, which translates into $14 to $15 per customer in monthly cash flow. With the capital cost of deploying the service amounting to less than $150 per new customer, he said, the payback period is slightly less than a year.
Rutledge said he expects the payback period to shrink further as the capital costs associated with VoIP continue to fall. He broke down the total bill into $66 for the average truck roll, just under $50 for switching each line and just under $25 for the extra price of a combined voice-data cable modem.
"It looks like a very attractive future product for us," Rutledge said. Cablevision executives did not say how many VoIP subscribers they aim to sign up this year.
While Cablevision promotes Optimum Voice throughout the New York area, Time Warner Cable is not exactly standing still. Time Warner, which first introduced residential VoIP service in Portland, Maine over a year ago, now has more than 12,000 customers in Portland as it expands its deployment throughout the metro area.
Moving cautiously in each new market, Time Warner has slowly started rolling out IP telephony in Raleigh, N.C. and has begun conducting market trials in Charlotte, N.C. and Kansas City. Despite the initially slow pace, the MSO still has ambitious plans to launch VoIP in six of its divisions by April and all 31 divisions by the end of the year. A Time Warner spokesman said the company, following in Cablevision's footsteps, will start reporting its VoIP customer totals in its first quarter earnings report.
Time Warner has also started hiring local general managers to run its Digital Phone service in each metro area. Already approved by state regulators to offer cable telephony in at least five states, the MSO is now seeking certifications in at least four more.
Like Cablevision, Time Warner is using E-MTAs from Motorola. But, instead of Siemens, it's counting on Cisco Systems for its soft switch and partnering with MCI and Sprint to handle PSTN interconnection.
Small and mid-sized MSOs are moving into the VoIP business too. The list of smaller players includes Advance Communications, Armstrong , Cable America, Liberty Cablevision and Mid-Hudson Cablevision, among others. Several of the smaller operators are deploying IP telephony in tandem with Vonage, an independent VoIP provider that's emerged as the early overall leader in the business with more than 120,000 subscribers.
"I think what's happening is that most of the MSOs are saying now's the time," said Phil Giordano, vice president of cable and major accounts for Vonage. "People are now seeing that there's another alternative to the RBOCs. I think we're going to see more and more deployments."
Vonage cemented its leading position in the VoIP market last month by striking a major retail distribution pact with Circuit City. Under the deal, Circuit City will offer Vonage services in all of the retailer's 600 super stores, as well as on its Web site. The Circuit City agreement will allow broadband customers to sign up for the plan of their choice and buy a Vonage starter kit for $99.99. Circuit City will also give new Vonage customers two months of free service and free activation.
Other retail deals may be on the way. Giordano said Vonage is close to announcing at least two more distribution pacts with national retailers.
Besides Vonage, another independent VoIP player, Skype Technologies, picked up more steam last month. Skype, which enables computer users to make free voice calls over their broadband connections, closed its second round of private financing by raking in $18.8 million in new funds. Skype and Siemens also unveiled what they claim is "the world's first cordless phone" with integrated IP telephony at a trade show in Europe last month.
With all this activity, it's no wonder that public awareness of IP telephony is growing. In a study released by CTAM last month, a promising 37% of consumers said they have heard of telephone services that use the Internet, rather than regular phone links, to connect phone calls. Some 28% of respondents said they have specifically heard of services such as "Voice over IP."
In other survey results, 14% of all adults, and 25% of those who have heard of VoIP, said they're very or somewhat interested in the technology. Cable customers, cell phone users and DBS subscribers all showed notably stronger levels of interest than the general population.
And, not surprisingly, broadband users topped the charts. In fact, one-third of all broadband users, and a healthy 58% of broadband users who have heard of VoIP, expressed interest in the service. |
