MSOs Step Up VoIP Pace, Shrug Off Vonage As Rival
Time Warner, Cablevision, Charter, Cox Spell Out Expansion Moves
JUNE 01, 2004
By Alan Breznick, Editor, Cable Datacom News
cabledatacomnews.com
More gung-ho than ever on VoIP's prospects, major cable operators are briskly moving ahead with plans to introduce IP telephony service in a bevy of new markets this year.
Speaking at CableLabs' annual media briefing for reporters and analysts in New York City last month, senior executives from Time Warner Cable, Charter Communications and Cablevision Systems all stated that they're expanding their VoIP rollouts across the U.S. as the summer approaches. Cable executives also said that they are signing up more VoIP subscribers as they rev up their marketing machines for IP telephony and look to add more advanced voice-related services and features.
"Our business goal is to build that product," said Cablevision COO Tom Rutledge in a keynote address at the May 18 briefing. "We believe the strong consumer acceptance validates our strategy to go first out of the box last fall."
In some cases, cable operators are even starting to dangle VoIP service in front of non-broadband customers. Liliane Zreik, vice president of VoIP engineering and technology for Time Warner, said the MSO has already begun offering IP telephony to some customers who do not purchase high-speed data access and will eventually offer it as a free-standing service. "It gives us the opportunity to upsell," she said.
Cablevision has emerged as the early cable leader in the VoIP business, at least in terms of customers. Cablevision now boasts more than 100,000 IP telephony subscribers in the New York City area, after adding 42,000, or about 3,200 per week, in the first quarter and then another 30,000 since March 31.
Citing the relatively low expenses of VoIP, Rutledge said Cablevision is spending about $133 in capital costs to hook up each VoIP subscriber. With customers paying $34.95 a month for the service and Cablevision earning a profit margin of 40% to 45% on each customer, he said, Cablevision can recoup that investment less than 10 months after signing up a new subscriber.
"The investment in VoIP is really quite level if you have a high-speed access business in place," Rutledge said. "As penetration goes up, the cost goes down." In fact, he said, the costs of terminating IP telephony calls on the public switched telephone network (PSTN) should drop toward zero as more cable VoIP customers make calls to other cable VoIP users.
Despite a slight head start in the IP telephony business, Time Warner now lags well behind Cablevision in the number of VoIP customers, with a total of 20,000-25,000 subscribers so far. But Time Warner has easily widened its lead in the number of markets served.
At the end of the first quarter, Time Warner had launched its "Digital Phone" service in 7 markets: Portland, Maine; Raleigh, N.C.; Kansas City; Charlotte, N.C.; Rochester, N.Y.; Columbus, Ohio; and western Ohio. In Portland, its flagship market, it has now signed up more than 15,000 VoIP subscribers, putting the service in 10% of all homes passed and more than 30% of high-speed data homes. "We're just growing very quickly," Zreik said.
Over the past month, Time Warner has quietly added 9 more markets, including Syracuse, N.Y., Cincinnati and other parts of Ohio. Zreik said the MSO remains on track to roll out VoIP in nearly all of its 31 divisions by the end of the year.
"We have a very aggressive but very staged plan," she said. "It's going very well... It scales."
Indeed, Time Warner passed its first big scaling test in Portland last month when it handled a 25% spike in voice traffic on Mother's Day without a major glitch. "Mother's Day went very well," Zreik said.
Charter is a third early VoIP pioneer. Charter, which first started offering VoIP commercially more than 18 months ago in Wausau, Wis., now has signed up about 3,000 IP telephony subscribers in the greater Wausau area. Thomas Cullen, senior vice president of advanced services and business development for Charter, said the company will extend VoIP to at least two more markets this year and many more next year.
Specifically, Charter's plans call for introducing VoIP in Missouri, New England and a much larger swath of Wisconsin, making the service available to at least 500,000-600,000 homes by the end of the year. "We're preparing our plant for many more market launches in '05," Cullen said. Charter officials have talked about extending VoIP availability to at least another 500,000 to 600,000 homes next year.
The moves by Cablevision, Time Warner and Charter come as other cable operators also plunge into the VoIP market more aggressively. For instance, Cox, a cable pioneer in deploying circuit-switched telephony, formally proclaimed last month that "VoIP is now ready for prime time" after years of lab tests and field trials.
In a new white paper on the technology that was released last month, Cox said it will launch IP telephony in several more markets this year, as well as offer VoIP service to commercial customers. The company, which provides circuit-switched service in 12 markets and boasts more than 1.1 million cable telephony customers, introduced VoIP in its first market, Roanoke, Va., last Dec. and recently declared that launch a success.
"VoIP technology permits efficient geographic expansion of Cox's phone services, allowing the company to launch telephony in markets where the economics didn't justify the cost of a circuit-switched architecture," the company said in the 15-page white paper. Citing VoIP's significant cost savings, Cox estimated that the technology "potentially offers a capex advantage of almost 40 percent per customer compared to an equivalent circuit-switched primary line replacement service."
In the white paper, Cox also contended that the flexibility of its regionally distributed VoIP architecture will allow it to expand voice service in its existing circuit-switched phone markets with either a purely circuit-switched approach or with a complementary VoIP overlay. "VoIP technology enables Cox to introduce phone services to customers the company isn't currently reaching, without stranding the capital it has invested in circuit-switched operations," the MSO said. "The company will not abandon its circuit-switched business. Cox will completely utilize the capacity of existing switches."
Similarly, Comcast unveiled plans late last month to offer VoIP to half of all its homes passed by the end of next year and 95% of its footprint, or 40 million homes, by the close of 2006. Comcast, which is now conducting market trials of VoIP service in Philadelphia, Indianapolis and Springfield, Mass., is the cable industry's leading telephony provider with more than 1.2 million circuit-switched subscribers, just ahead of Cox. But it has been sluggish about entering the VoIP business up until now. It also has left its circuit-switched business drift since taking it over from AT&T Broadband 18 months ago.
The VoIP push also comes as cable operators start exploring new PacketCable-based services for their basic voice offerings. Glenn Russell, director of multimedia applications for the advanced network systems unit of CableLabs, said cable engineers are looking at using the new PacketCable Multimedia specification to develop online video gaming, IP delivery of music and movies, video telephony, Session Initiation Protocol (SIP)-based phone service and VoIP over Wi-Fi for cell phone users, among other things.
At Time Warner, for example, executives are examining such potential new services and features as enhanced voice messaging, caller ID on TV, voice-enabled e-mail, interactive gaming, video telephony and SIP-based phone service, to name just a few. Zreik said the MSO will soon issue an RFP to vendors for some of these capabilities.
"To us, this has never been about the black phone," she said. "It's not about the black box."
Finally, the cable moves come as AT&T and Vonage continue to roll out their rival VoIP services across the U.S. and, in Vonage's case, Canada. Last month AT&T expanded its "CallVantage" VoIP service throughout the western U.S., in addition to its established markets in California, Massachusetts, New Jersey, New York and Texas. AT&T also announced a special introductory rate of $19.99 per month for the first six months if consumers signed up for CallVantage by June 30. AT&T is angling to sign up 1 million residential and business VoIP customers by the end of next year.
At just about the same time, Vonage, still the overall VoIP market leader with 155,000 lines of service, cut the monthly rate of its flagship calling plan. Vonage reduced the price of its "Residential Premium Unlimited Plan" by $5 to $29.99 a month. The VoIP upstart also unveiled its second retail distribution deal with a major national chain, RadioShack, and extended service to more U.S. and Canadian cities.
At the CableLabs briefing, cable executives conceded that the VoIP market is growing more and more competitive. But they shrugged off the price cut by Vonage, insisting that they won't drop the higher prices of their VoIP calling plans in response. "I doubt it," said Time Warner's Zreig, whose company charges anywhere from $39.95 to $49.95 a month for its VoIP service, depending upon how many other non-voice services are taken. "Our competition is the RBOCs."
Cable officials also pointed out that their VoIP services, unlike the offerings from Vonage and AT&T, travel over their own private high-speed networks, not the public Internet. "It's a contained service," said Cablevision's Rutledge. "We have a quality advantage and a marketing advantage."
Plus, cable executives noted that Vonage customers still must buy high-speed access from a broadband provider. So cable operators, as the dominant broadband providers in most North American markets, still stand to benefit from any gains by Vonage.
"Hopefully, we'll have the power to keep our prices," Rutledge said. "But even if we don't, it'll (Vonage will) help us drive our high-speed business." |
