MSOs Explore PSTN Interconnection Partnerships
Time Warner's Deals with MCI and Sprint Spur Debate Over How to Roll Out IP Phone Service
MAY 01, 2004
By Alan Breznick, Editor, Cable Datacom News
cabledatacomnews.com
Nearly five months after Time Warner Cable struck landmark deals with MCI and Sprint Corp. to back the MSO's national rollout of voice-over-Internet-Protocol (VoIP) service, no other cable operators have yet followed suit.
Even though most large cable operators are either introducing VoIP service in their first markets or are gearing up to do so soon, no others besides Time Warner have signed up national phone carriers to link their local IP voice traffic to the public switched telephone network (PSTN). Nor have any other MSOs even talked much publicly about how they plan to hand off large volumes of VoIP calls to the PSTN.
But then again, no other cable operator is rolling out VoIP as fast nationally as Time Warner. Sprinting to deploy IP telephony in the U.S. before anybody else, Time Warner inked the twin wholesale pacts with the two long-distance giants in early December. Under the agreements, MCI and Sprint will provide the equipment, connectivity and IP provisioning services for Time Warner to deliver its "Digital Phone" service in all 31 of its divisions by the end of this year.
Specifically, MCI and Sprint will connect Time Warner's local IP voice traffic to the PSTN, support enhanced 911 service, enable local number portability, provide directory assistance services, and carry long-distance and international traffic. "They'll terminate our traffic for us," a Time Warner spokesman said. "We'll keep the voice packets as long as possible."
Time Warner will pay MCI and Sprint a per-line fee for providing the connectivity and carrying its telephony traffic in all 31 divisions in 27 states, including such major markets as New York, Los Angeles, Houston, Austin, Columbus, Honolulu, San Diego, Minneapolis and Kansas City. The two large carriers will cut the MSO's territories nearly in half, with Sprint supplying service in 17 markets and MCI in the remaining 14. The three partners won't disclose the wholesale fee but industry sources estimate that it might be as much as $15 per line.
Phone service strategists at other cable companies say the deals with MCI and Sprint make sense for an MSO like Time Warner that's in a hurry to roll out VoIP. They say the deals also make sense for a cable operator like Time Warner that hasn't been very involved in residential telephony before.
"The reason to do it Time Warner's way is largely speed to market," noted David Pugliese, vice president of product marketing for Cox Communications. "It's extremely difficult to do it all in-house...The telephone business is a very complex business."
Nevertheless, Time Warner's interconnection agreements with MCI and Sprint are spurring some much-needed debate of the subject in MSO circles. Several other cable operators have expressed interest in following Time Warner's lead once they're ready to expand to multiple markets.
Charter Communications, for instance, is now investigating ways to extend its VoIP service beyond its pilot market of Wausau, Wis. Plans call for expanding the MSO's reach from 15,000 homes in the Wausau area at the beginning of the year to 500,000 to 600,000 households in Wisconsin, Missouri and New England by the end of the year.
"We're looking at opportunities to partner," said Mark Barber, vice president of telephony for Charter. "We're exploring options with a variety of carriers."
And the carriers are definitely pursuing the cable market. Indeed, Sprint officials have said they aim to leverage their Time Warner partnership into a booming back-end business with cable operators entering the VoIP trade. They've already met with representatives of most of the major MSOs, pitching their ability to smooth the path to telephony and package VoIP with such other digital goodies as wireless phone service.
"We're really wholesaling our services to them for them to retail," said Mark Chall, director of service deployment for Sprint, which will initially dedicate three of its more than 20 activated Nortel Networks soft switches for Time Warner's voice traffic. "We have a full suite of services we're offering to cable companies, including a portfolio of wireless services."
But not all other large MSOs are eager to go the Time Warner outsourcing route. Instead of looking to cut wholesale deals with Sprint, MCI, AT&T, Level 3 or some other national carrier, these cable operators plan to buy their own media gateways, circuits and other equipment and software to manage the call handoffs in-house and keep all the VoIP revenue for themselves.
That's certainly the strategy at Cox, a big pioneer in the cable telephony market. With its huge investment in circuit-switched technology, its own national back-end network and more than 1 million phone customers in 11 markets, Cox intends to roll out VoIP nationally on its own in a slower, steadier manner than Time Warner.
"We're a full CLEC (competitive local exchange carrier)," Pugliese said. "Our huge advantage as a provider is that we've been in the phone business for six years. We've done all that stuff ourselves... We like having the ability to do it ourselves."
Cox, which launched IP telephony service in Roanoke, Virg. in December, now offers the service to a footprint covering about 86,000 homes passed. Plans call for extending the service to at least three more undisclosed mid-sized markets by the end of the year. "We're just trying to assess how fast we can go," Pugliese said. "I'd like to do a lot more than those three."
Or take Cablevision Systems, a long-time player in cable telephony services for businesses. Cablevision, which signed up nearly 30,000 subscribers for its fledgling VoIP service in the last four months of 2003, also doesn't aim to strike any interconnection deals with national phone carriers.
"We're not like Time Warner," a Cablevision spokesman said. "We've got three states but just one market." Instead, Cablevision is relying on its business telephony unit, Lightpath, to supply its links to the PSTN.
A big unknown in the industry is what Comcast will do. Comcast, the leading cable telephony player with nearly 1.3 million circuit-switched phone customers because of its takeover of AT&T Broadband, will conduct large VoIP field trials in up to four markets -- Coatesville, Penn., Indianapolis, Springfield, Mass. and Hartford, Conn. -- over the next few months. Comcast executives could not be reached for comment last month.
While many MSOs seem gung-ho about handling PSTN interconnection now, it could prove to be a passing fad.
"I see a fair number of MSOs getting in, and then getting out" of handling PSTN interconnection, said Mark Bakies, director of voice systems for Cisco Systems Inc., a supplier of PacketCable product solutions. "For all the same reasons it happened in dial-up ISP aggregation, I don't see why it wouldn't happen in VoIP."
Indeed, in the Internet world, ISPs initially handled all their dial-up aggregation themselves, installing and managing access concentrators at local PSTN interconnection points. Over time, though, the ISPs realized that this was not where they wanted to focus their energies and outsourced dial-up port termination management to players like Qwest, MCI and Level 3.
The cable debate over PSTN interconnection comes as such independent IP telephony providers as Vonage Holdings Corp., still the early U.S. leader in the VoIP business, continue their march across North America. Vonage -- which launched service last month in the Canadian cities of Montreal, Vancouver, Victoria, Calgary and Edmonton -- said it now has more than 135,000 lines in service in the U.S. and Canada and is adding more than 20,000 new lines to its network each month.
The cable interconnection debate also comes as AT&T and the Baby Bells prepare to plunge into the residential VoIP market too. Among the Bells, Qwest Communications introduced VoIP in the Minneapolis area in December, Verizon Communications and BellSouth both plan to roll out service in their first markets this spring, and SBC Communications is gearing up for a consumer launch later this year.
"We're going to be launching both in-region and out-of-region," said John Gonner, VoIP product manager for Qwest. "We're looking to see how aggressive we can be... We'll be in all 14 states and additional cities by the end of the year." |
