(includes NTOP) VoIP Deployment and Strategy Update: U.S. Cable Operators
VoIP Monitor
7/14/04
Though virtually all cable operators have come to view VoIP as a key component of their competitive growth strategy, the industry is marked by a broad mix of approaches to the details and timing of VoIP deployment. The accompanying table and the company-by-company discussion that follows highlight key elements of these strategies, as well as the current status and future plans for cable operator VoIP deployments.
As the table at the end of the article shows, Cablevision, with systems clustered in the New York City metro area, stands out among the major MSOs in that it has been offering VoIP service across its entire footprint since late last year.
Time Warner Cable (TWC), which passes four times as many homes as Cablevision and operates in more than 30 metro markets, is also among the most aggressive operators, with plans to launch VoIP service in all of its markets by year-end. To help it meet this aggressive launch schedule, TWC is working with MCI and Sprint, which are providing PSTN interconnection and other services.
A handful of small operators have also been quick to introduce VoIP service to their customer bases. In all cases, these smaller players have been able to achieve their rapid rollouts by working with VoIP operators Net2Phone and Vonage.
As discussed in more detail later in this report, Comcast, Cox and Insight are notable in that they are entering the VoIP era with circuit-switched telephone service already available in a significant portion of their cable systems. Comcast plans to continue expanding its three initial VoIP rollouts this year, to be followed by a much broader rollout next year. Following a successful VoIP launch in Roanoke, VA in Q4 03, Cox is planning to introduce the service in roughly four more markets by year-end. In contrast, Insight’s entry into the VoIP market is not expected to occur until 2005.
Having put on hold the circuit-switched telephone business it acquired from AT&T Broadband a few years ago, Comcast’s plan for this year is to put VoIP through its paces in a handful of markets, to be followed by a broader rollout during 2005. On a parallel track it will continue to invest in accelerated upgrades of former AT&T cable systems, many of which lagged well behind historical Comcast systems in terms of their readiness to support VoIP service.
At the company’s annual meeting in May, Comcast executives cited plans to expand VoIP market trials launched earlier this year in the Philadelphia and Indianapolis areas and the Springfield, MA market. Among the elements being tested in these early deployments are marketing, billing, customer-care, provisioning, powering options and inside wiring.
With circuit-switched voice service already offered in 18 markets reaching nearly a quarter of total homes passed by its network, Comcast is examining transition and integration strategies for its VoIP rollout. In Detroit it is operating a hybrid system where IP loop traffic is routed through a gateway to Class-5 telephone switches. It is also looking at ways to feed IP switches from constant bitrate loops, which would help it transition from leased circuit switches to IP softswitches it would own.
At the end of Q1 04, cable modem service was available to 90% of Comcast’s 40 mil. homes passed, up from 79% and (on a pro forma basis) 69% at the end of Q1 03 and Q1 02, respectively. By the end of 2005, the company expects to have upgraded 95% of its network to accommodate voice service.
Since taking over AT&T Broadband’s circuit-switched telephone business, Comcast has focused more on profitable operation than on customer growth. This has been reflected in quarterly subscriber losses that climbed above 50K during Q2 03 and Q3 03 before settling back to 19.9K in Q1 04. At the end of Q1 04, Comcast claimed 1,247K telephone customers, down from a peak of 1,438K at the end of 2002, reflecting a decline in penetration of homes with access to the service from 16.5% to 12.9%. And, in the face of intensifying competition in the residential voice business, it has also seen monthly telephony ARPU decline from a Q2 02 peak of $57.34 to $47.34 in Q1 04.
Cable’s second largest operator, Time Warner Cable (TWC), which has networks passing more than 18.9 mil. homes, has emerged as a leader in deploying VoIP service, having set an ambitious goal of launching its Digital Phone service company-wide by the end of this year.
TWC’s first commercial VoIP launch took place in Portland, ME, in May 2003. As of 6/7/04, when the service became available in Cincinnati, it was offering Digital Phone in 11 markets, roughly a third of the way to its year-end goal. Following an expected Houston launch in July, the company will be offering VoIP service in two markets each in Texas, New York state and North Carolina, four markets in Ohio and one each in Maine and Missouri.
Roughly a year after the Portland launch, approximately one in 10 homes passed was subscribing to TWC’s Digital Phone service, which equates to approximately 30% of its high-speed data customers.
TWC has been charging $39.95/mo. for unlimited local and long distance calling, with an introductory price of $19.95/mo. for three months. But the $39.95/mo. price applies only to customers who already buy both cable-modem and video services. For customers who purchase only cable-modem or only video service, the price rises to $44.95/mo. Though TWC initially offered Digital Phone only to existing customers, it recently began rolling out a $49.95/mo. option for customers who purchase no other services.
Digital Phone comes with call waiting and caller ID, and TWC has begun offering voicemail in new launches, while adding the feature in existing Digital Phone markets. Though the MSO offers 911 service and is marketing Digital Phone as a lifeline option, it has yet to build in back-up power in most of its VoIP markets.
As of early June, TWC was reporting install windows ranging from eight to 14 days, and install-times in the 60-90 minute range. Noting that “you only get one chance with voice,” TWC spokesman Keith Cocozza describes the market launches as “a slow rollout so that we can handle demand and…any operational issues that come up.”
To help meet its ambitious VoIP launch schedule, TWC has looked to MCI and Sprint for a range of services, including interconnection to the PTSN (public switched telephone network), enhanced 911 service, local number portability, and managing network integration and electronic bonding of order entry systems. TWC has said the two IXCs will split its 30+ local markets roughly in half. MCI has described its TWC VoIP deal as a multi-year, multi-million dollar agreement.
With its highly-clustered holdings in the New York City metro area, its industry-leading penetration of cable modem service, and an in-house CLEC unit, Cablevision Systems approached the VoIP market uniquely positioned to undertake a rapid company-wide rollout of the service. Today it stands as the only major cable operator offering VoIP service in its entire footprint.
The test phase of Cablevision’s VoIP deployment began in early 2003, with a trial that offered Optimum Voice to Cablevision’s Optimum Online cable modem customers in western Long Island. This was followed later in the year by a rollout to its remaining systems in Long Island, New Jersey, Connecticut, and Westchester, NY and New York City, making the service available to all of Cablevision’s more than 4.4 mil. homes. The expanded launch was supported by cross-channel spots, direct mail and radio advertising.
Optimum Voice was launched at a flat-rate price of $34.95/mo., which included unlimited local, regional and long distance calling. Initially the service offered standard features such as caller ID, call waiting, call return, three-way calling, call forwarding and enhanced voicemail. In June of this year, Cablevision added a second set of features that included enhanced e-mail, access to directory assistance and a Web portal that allows customers to listen to voicemail messages, manage settings, forward calls and review a detailed calling history.
Looking ahead over the next 18 months, Cablevision plans to introduce new products such as voice-enabled instant messaging and interactive games that allow players to talk to each other while playing an online game.
At the end of Q1 04, Cablevision claimed 70.8K VoIP subscribers, up from 28.6K at year-end and roughly 5,000 at the end of Q3 03. Though installation has initially involved truck rolls, a self-installation program is in the works.
Cablevision’s circuit-switched residential phone business has been available to roughly 4% of its customer base since 2001, when it made a decision to stop marketing the service in anticipation of a shift to VoIP. Since then its circuit-switched residential penetration has slipped from 8.5% to 6.8%. This contrasts sharply with the company’s Optimum Online cable modem service, which is available to Cablevision’s entire footprint and ended Q1 04 with an industry-leading penetration rate of 25.6%.
Though Optimum Voice isn't a powered lifeline service, it does offer E-911 emergency service. Though the lack of power could discourage some customers from using Optimum Voice as their primary line service, it also reduces the company’s costs for deploying the service.
On 6/21, Cablevision took the bold step of offering new customers a $90/mo. bundled package that includes Optimum Voice, Optimum Digital TV and Optimum Online high-speed service. Since this was roughly the same price Cablevision had been charging for digital and high-speed services combined, the company was, in essence, throwing VoIP service into its “Optimum Triple Play” bundle at no charge for new customers. A comparable package of circuit-switched voice, satellite-delivered video and DSL from Verizon, Cablevision’s chief competitor, is priced around $128/mo. Cablevision’s new-customer discount is expected to run for at least one year.
During the past year or so, Verizon and other ILECs have successfully employed increasingly competitive DSL prices and features to capture increased broadband market share, while also forming alliances with satellite-video providers to offer customers their own version of the voice/video/data “triple play.” Cablevision’s aggressive new-customer offer provides one model of a cable counter-strategy that leverages the attractive economics of VoIP as the third component of a cable-delivered triple-play service bundle.
But, so far, Wall Street’s reaction to Cablevision’s aggressive pricing move suggests that investors are concerned it might be too aggressive. On 6/21, when the new-customer offer was announced, the company’s stock price fell $0.78 cents (3.6%) to $21.22. As of market close on 7/9, it had fallen another $2.53 (11.9%) to $18.69.
With circuit-switched telephone service already available in its 12 largest markets—some of them since 1997—Cox’s Q4 03 introduction of VoIP in Roanoke reflects an important new phase in its voice rollout, which it had limited to its largest markets due mainly to the relatively high capital costs involved in circuit-switched deployments. Thanks in part to the Roanoke launch, Cox closed this year’s first quarter with voice service available to slightly more than half of all homes in its footprint.
Pleased with the results in Roanoke, Cox expects to launch VoIP service in about four more markets during the second half of this year.
In Roanoke, Cox is positioning, branding, packaging and pricing its VoIP-based service the same way it has approached its circuit-switched offering: as a high-quality, full-featured primary-line residential telephone service. And while Cox customers subscribing to a full bundle that includes voice and data service are offered extra discounts, VoIP customers are not required to also purchase high-speed data service.
Unlike some other MSOs, Cox’s initial VoIP offering includes back-up powering of the in-home multimedia terminal adapter (MTA) with an internal battery that supplies several hours of back-up service. But, depending on how the market develops, it may decide to augment this offer with an option that does not include the battery back-up.
At the end of Q1 04, Cox, with networks passing nearly 10.5 mil. homes, reported more than a million residential voice customers and more than 2.1 mil. high-speed-data customers. Its business service unit was serving more than 100K customer locations.
Cox is among the industry’s most experienced—and successful—providers of the voice/video/data “triple-play.” At the end of Q1 04, it reported 21% penetration of high-speed-data service, which was available to 98% of its footprint. Trailing only slightly behind was Cox’s 20.3% voice penetration among voice-ready homes, with some markets topping 30% voice penetration.
Cox closed the quarter with 37.8% bundled-service penetration (customers subscribing to two or more services) as a percentage of basic video customers. In markets where phone service is available, 17% of customers were signed up for the full three-product bundle. The company recently reported that customer churn in two-product households is 18% lower than one-product churn, while three-product churn is 48% lower. During Q1 04, monthly telephone churn was 2.9%, down from 3.0% in the year-ago quarter, while high-speed-data churn ticked up slightly from 2.8% to 2.9%.
Though Cox intends to continue offering circuit-switched service in its existing markets, it plans to support future growth in these markets with a complimentary VoIP overlay once existing circuit-switch capacity is exhausted.
Among the relatively unique assets Cox brings to its VoIP service is a highly-integrated back-office platform. It claims to be the only major broadband company that operates 100% of its field locations and all of its video, voice and data services on a single back-office platform.
Cox also has been operating its own nationwide OC-48 IP backbone network since 2001. Today that network transports traffic from the company’s residential and business Internet service, its VoIP traffic and more than 25% of its long distance traffic. By building on existing peering agreements, Cox hopes to increase the share of its long distance traffic carried on its own IP backbone to about half.
Cox’s IP backbone includes 14 regional data centers (RDCs) and three services data centers (SDCs). It expects the SDCs to enhance VoIP’s already-attractive economics by providing centralized facilities for soft-switch technology.
At the end of Q1 04 Charter was offering VoIP service to approximately 120K of the nearly 11.9 mil. homes passed by its networks.
Charter’s first VoIP launch occurred in Wausau, WI, in September 2002. That rollout expanded market-wide roughly a year later and was extended to an adjacent market in February 2004. This was followed in April with the launch of VoIP service in part of Charter’s St. Louis market. With roughly 470K video customers, St. Louis is the company’s largest cable cluster. Since 2002, part of the St. Louis market has had access to a circuit-switched telephone service offered by Charter. At the end of Q1 04 the company reported a total of 26.3K telephone customers, up from 24.9K at year-end.
Charter’s year-end target is to have a VoIP offering in front of a million homes. This is expected to include continued expansion in St. Louis and a service launch in at least one additional market this year. A recent presentation by Charter executives suggests the next launch will take place in Massachusetts, where the MSO serves roughly 50 communities, most of them in and around Worcester County and served by a handful of headends.
Also planned for this year are trials of VoIP services targeted at MDUs and businesses and further exploration of IP-based delivery of “integrated media.” Charter expects business-market deployments to trail residential rollouts by 12 months. The company has chosen to file as a CLEC in anticipation of its VoIP rollouts, a process that was more than half done as of mid-April and that Charter expects to complete by year-end.
Charter’s VoIP offerings in St. Louis include basic local-phone service for $9 a month, local service packaged with several calling features for $17.95/mo. and a package of unlimited local and domestic long-distance service, plus an expanded menu of calling features for $44.95/mo.
In a business model overview presented to analysts on 4/14, Charter assumed a 3-5 year VoIP rollout, a leveling off of VoIP penetration at 30% in year 4, and a mature operating cash flow margin of 50%.
Insight is not expected to introduce VoIP service in its markets until next year. Part of the reason is that it for much of the remainder of this year its voice strategy is likely to be focused on transitioning its existing circuit-switched business to an in-house operation.
At the end of Q1 04, 31% (714.9K) of Insight’s 2.3 mil. homes had access to its circuit-switched voice service, with 8.4% (60.1K) of these homes subscribing to the service. The voice service is offered in portions of Louisville and Lexington, KY; Evansville, IN; and Columbus, OH.
Insight’s circuit-switched business is operated jointly with Comcast, which inherited the arrangement—along with a partnership stake in Insight’s overall cable operations—when it acquired AT&T Broadband’s cable holdings. Under the original joint-operations agreement, AT&T and now Comcast provide switching and transport facilities, while Insight leases capacity on its local network to the larger operator and provides some support services.
On 7/8, Insight announced it had reached a new agreement with Comcast under which Insight would assume full ownership and control of the jointly operated circuit-switch business. It expects the deal to close during the first half of 2005.
Though Insight has not announced any specific plans for VoIP, a recent company presentation indicated that all future market launches will employ a VoIP platform. CEO Michael Willner has also talked about offering “blended service” in existing circuit-switched markets to leverage the power of an IP platform to support new features like video telephony.
Among the other major MSOs, Mediacom, which passes nearly 2.8 mil. homes, has done VoIP technical testing in its Des Moines, IA system and is expected to launch a marketing trial this year.
Cable One, which passes nearly 1.3 mil. homes, most of them in small cities and large towns, doesn’t expect to be mass marketing VoIP until 2006. This would follow a rollout of the technology in 2005 and perhaps some technical testing during Q4 04.
Bright House, an MSO created by Advance/Newhouse Communications when it took ownership of systems serving more than 2.1 mil. basic customers previously owned by a partnership with Time Warner, is also not expected to be an early deployer of VoIP. But the new MSO’s continued close relationship with Time Warner and Road Runner could help it learn valuable lessons from the latter’s aggressive VoIP rollout.
In the near term, Adelphia, which passes an estimated 10.2 mil. homes, is not likely to see significant commitments to VoIP deployments, given that its cable holdings are likely to be sold off to other operators either before or after it emerges from its pending bankruptcy proceeding.
A number of smaller operators have chosen to partner with VoIP providers Net2Phone and Vonage as a means to bring VoIP service to their customers quickly and at relatively modest upfront cost. Generally speaking, Net2Phone’s cable alliances have come from the ranks of mid-sized operators with several hundred thousand passings, while most of Vonage’s cable partners have so far tended to be very small operators with far fewer systems and passings.
Net2Phone Cable Deployments:
In May, after a trial of nearly two years, Liberty Cablevision of Puerto Rico rolled out Net2Phone-enabled VoIP service throughout its 300K-home footprint. Under the terms of the two companies’ six-year agreement, Liberty maintains ownership of the customer, service brand, and Tier I customer and technical support, while Net2Phone supports the back-office platform, switching and transport, ongoing operations and Tier II+ technical support. Net2Phone also tracks and monitors voice quality and network performance metrics and will provide Liberty with a full view into telephone calls routed over its network. Liberty is offering subscribers a choice of five calling plans, with packages starting at $24.95/mo., which includes unlimited local calling and 911 service, discounted long distance calling and 16 premium features at no additional cost.
Cebridge Connections, a relatively new MSO that serves 350K customers mainly in primarily suburban, small-town and rural communities across nine states, also has a preliminary agreement to work with Net2Phone. A November 2003 press release announcing a memorandum of understanding between the two companies cited expectations of Q1 04 launches in Texas and Missouri markets encompassing 150K homes. Cebridge has since decided to remain focused on plant upgrades, pushing the target dates for its first VoIP rollouts out to next year.
On May 3, Northland Cable Television, which passes 315K homes in smaller markets in nine states, announced a deal with Net2Phone. Though at that time Northland announced plans to begin deploying the service by summer, it was not yet being offered on the company’s website as of 7/9. Under the agreement, Northland maintains ownership of its telephony subscribers and brand, and will provide customer service and technical support. Net2Phone will provide provisioning and billing integration to deliver a unified Northland invoice, CLASS 5 switching platform, advanced features, network surveillance tools, local and long distance interconnects, operator services/directory assistance, and service level agreements.
Ten days after the Northland announcement, Bresnan Communications also announced a deal with Net2Phone. Bresnan serves 314K subscribers out of 575K homes passed in Colorado, Montana, Wyoming and Utah. It recently acquired these systems, most of them relatively small, from Comcast, which had inherited them as part of its AT&T Broadband acquisition but viewed them as non-strategic holdings. Bresnan expects its first VoIP launch to occur during Q4 04 in Grand Junction, CO, where it passes roughly 53K homes.
Vonage Cable Deployments:
Vonage’s cable partners include:
1) Mid-Hudson Cablevision, which passes 26K homes and serves 18K basic customers and 4,000 cable-modem subscribers in Greene, Columbia and Albany counties in New York State.
2) CableAmerica, which serves over 65K customers in Arizona, Missouri, California and Michigan;
3) Advanced Cable Communications, a subsidiary of Schurz Communications that operates cable systems in Coral Springs and Weston, FL;
4) The Coldwater Board of Public Utilities, a municipal utility that operates a cable system in Coldwater, MI; and
5) Armstrong Cable, which passes roughly 217K homes in Pennsylvania, Ohio, Maryland, West Virginia and Kentucky. Unlike the other operators listed above, Armstrong was not yet offering voice service on its website as of 7/9.
U. S. Cable Operator VoIP Deployments
Company
Total Company Homes Passed (mil.)
VoIP Deployments
Notes
Comcast
40.0
Philadelphia, PA;
Springfield, MA;
Indianapolis, IN
Expanding 3 trial markets in 2004; broad rollout in 2005
Time Warner Cable
18.9
Portland, ME;
Raleigh-Durham-Fayetteville, NC;
Kansas City, MO;
Rochester, NY;
Syracuse, NY;
Charlotte, NC;
Columbus, OH;
Eastern, Western & Southwestern Ohio;
Austin, TX.
Working with MCI & Sprint to launch company-wide by YE04
Charter 11.9
Wausau, WI;
St. Louis
Plans to reach 1 mil. homes, including one more market launch by YE04
Cox
10.5
Roanoke, VA
Roughly four more markets expected to launch by YE04
Adelphia
10.2
None
VoIP on hold pending bankruptcy/sale
Cablevision
4.4
Available companywide
VoIP available to all homes since late 2003
Mediacom
2.8
Technical tests in Des Moines, IA
Market trial expected this year
Insight 2.3
None
Focused on circuit-switched transition;
VoIP launch expected in 2005.
Bright House
2.1
None
No plans currently announced
Liberty Cablevision
0.3
System-wide in Puerto Rico
Working with Net2Phone
Bresnan Comm.
0.58
4Q04 launch planned in Grand Junction,
Working with Net2Phone
Cebridge Connections
0.35
TX & MO market launches expected in 2005
Working with Net2Phone
Northland Cable 0.32
Planned for small systems in GA, SC, NC, MS, AL, TX, WA, CA, ID
Working with Net2Phone
Mid-Hudson Cablevision
0.03
Companywide; small systems in NY state
Working with Vonage
CableAmerica
0.07
Companywide;
small systems in AZ, MO, CA, MI
Working with Vonage
Advanced Cable Comm.
na
Coral Springs, Weston, FL
Working with Vonage
Coldwater Board of Public Utilities
na
Coldwater, MI
Working with Vonage
Armstrong Cable
0.22
Planned for systems in PA, OH, MD, WV,
Working with Vonage |
