Cablecos Continue Push into VoIP
[Net2Phone: For now, some think the cablecos are the best positioned in the market. “Whoever is going to win the service game has to understand the bundle, the last mile access and the brand,” says Sarah Hoffstetter, senior vice president of corporate communications at Net2Phone, which develops and manages an end-to-end cable telephony solution for MSOs. “Two out of three will get you to the finish line, one will get you nowhere. The ILECs have no true bundle; DIRECTV is a different animal than most people are used to and a hassle for the consumer. AT&T doesn’t have the access, but they do have the brand and the bundle. Vonage doesn’t stand a chance. Cablecos are, however, the best positioned, because they have it all.”]
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Cablecos Continue Push into VoIP
By Tara Seals
Posted 12/01/2004
xchangemag.com
After years of discussion and technical work, MSOs are starting to put their money where their mouths are relative to voice over IP. North American cable companies spent $64 million on VoIP equipment last year, mostly associated with small pilots and trials, but the market is going to take off between now and 2007, according to a new report by Infonetics Research. But the biggest growth spurts are expected in 2005 and 2006 when most MSOs are expected to have commercial offerings for their entire customer bases.
“After ILECs and IXCs, MSOs represent the third largest VoIP equipment market opportunity in North America,” says Infonetics Research analyst Kevin Mitchell. “Cable companies are generally looking at next-gen voice and IP multimedia as a way to enable their triple play offerings and increase average revenue per user, but up until recently they deployed service-enabling infrastructure very cautiously.”
However, Cablevision Systems Corp. launched VoIP to the 4.4 million homes in its footprint late last year. It has so far sold the Optimum Voice VoIP product to more than 115,000 customers, mostly on Long Island.
Charter Communications has 31,000 TDM telephony lines and expects to roll out several VoIP markets in 2004 and 2005.
Comcast Communications, which has 1.2 million circuit-switched phone customers in 18 markets, says it will also begin marketing VoIP in 2005. It is now doing trials of VoIP in Indianapolis, Philadelphia and Springfield, Mass. “We’re focusing on training and the cultural changes in the company to make sure it layers in well with other processes, and on upgrading the plant,” says Tom White, vice president of marketing for voice services at Comcast. “We will have it 95 percent done by the end of next year. We want to deploy this product as a differentiator and to increase value. We are the largest U.S. cableco and the largest broadband provider since the AT&T acquisition, and our focus has been on integrating that over the last two years. We’ll leverage service and the devices in the home in a way that people feel gives them value.”
Cox Communications Inc. expects to have 60 percent phone availability in 10 million homes passed by the end of 2004, says Mike Pacifico, director of marketing. Cox offers voice service to 21 percent of its homes now, and two out of the 14 markets served with telephone service are VoIP: Roanoke, Va. and Tulsa, Okla. Three more will roll out by year-end. “We see VoIP as a cost-efficient option for expanding our phone footprint, as it’s a 40 percent savings over circuit-switched technology,” he says.“We want to get to all markets with phone, and VoIP facilitates a primary-line offer, allows deployment faster with more robust services, and will facilitate the delivery of integrated services down the line.” As for the 12 circuit-switched markets, Cox is taking a cap-and-grow strategy via IP transport.
Mediacom Communications Corp. plans to launch VoIP in 23 states in 2005.
And Time Warner Cable has begun limited deployment of its Digital Phone service in some areas of the metro New York City area, and will roll out to 1.4 million subscribers by next summer. According to Dow Jones, it has already extended VoIP service to 15 markets from its initial deployment in Portland, Maine, where it has taken a 12 percent market share for telephony in a little over a year. It is running tests in other areas and expects VoIP to be available throughout its footprint in the next couple of months.
JupiterResearch forecasts that VoIP telephony services will jump from about 400,000 U.S. households by the end of this year to 12.1 million by 2009, representing about 10 percent of all U.S. households. Seventeen percent of all U.S. broadband households will use a VoIP telephony service in 2009, up from only 1 percent this year.
The Argument for VoIP
Aside from adding $40 or so in incremental revenue per user with a voice offer, telephony represents cablecos with a tool for churn and opex reduction. It also is a strategic imperative as more service providers of all stripes get into VoIP, and as RBOCs move on plans for pushing fiber to — or closer to — the home in an effort to deliver video services.
“We offer bundled discounts, say $10 in value saved, and that varies by system,” says Pacifico of Cox. “But bundling creates a halo effect in customer satisfaction and churn reduction. It’s been shown that bundled customers have a higher belief in our capabilities, say that we’re easy to do business with, offer reliability, and so on.” In the second quarter of this year, 38 percent of Cox customers took a bundle. In markets where it offers telephone service, 47 percent are taking more than video. Churn rates are 3 percent average per month among customers that have video only. That drops to 1.4 percent in three-product customers, Pacifico says.
There are also operational efficiencies, especially in marketing. For instance, advertising two services with one mailer or upselling inbound calls for video by offering them voice services is cheaper than going out and looking for additional revenue with a separate campaign. “There are tremendous efficiencies in the sell-in,” says Pacifico. “There’s one call, one sale, one truck roll, one bill. More than 33 percent of calls in the phone markets end up taking [more than one service]. So it saves the marketing costs because you have less marketing to do, since they take the service at the beginning.” However, competitive pressures are the main impetus for widespread cable voice deployment.
“The cable market is feeling the pressure to move along,” says Bill Rich, CEO at Pingtel Corp., an opensource evangelist for SIP-based communications. “What’s evolved in the last year, you have Vonage show up and they’re offering voice cheaper and easier, with big response. And RBOCs are getting aggressive on FTTH. So the cablecos have to get going.”
VoIP startups with bring-your-own-access offers have chipped away at the consumer market. AT&T Corp.’s CallVantage product, deltathree, 8X8 Inc.’s Packet8 and, of course,Vonage Holding Corp., have captured 70-plus percent of the VoIP market with best-effort services, according to The Yankee Group. The main consumer benefit is the very low cost — $15 per month unlimited usage in some cases. “With Vonage, you go to Best Buy and you’re up and running later that day,” says Amol Joshi, vice president of marketing at BayPackets Inc., which has unveiled a deal with AudioCodes to deliver comprehensive VoIP routing and messaging solutions to the cable MSO and DSL markets. The solutions include find-me/follow-me, integrated visual voice mail, a Personal Communications Manager and advanced toll-free service. “It’s about the out-of-the-box experience. The Vonages of the world have shown that people will sign up for a service and accept a lower reliability in return for ease of use and cost savings.”
Nonetheless, such operators will be challenged more going forward, and most analysts see their market share, with the exception of AT&T, dropping radically next year. “Just like we saw with DSL five years ago, VoIP startups will be extremely important in jump-starting the market, and will motivate established carriers to develop their own VoIP services,” says JupiterResearch senior analyst Joe Laszlo. “However, it is unlikely that startup VoIP providers will become a significant threat to the incumbent phone companies.”
Sizing Up the Competition
Of course, cablecos with VoIP services are a real threat to the RBOCs and other incumbent telcos. Cablecos’ PacketCable-based architectures allow them to deliver a carrier-grade service indistinguishable from the RBOC. “Some providers, like CLECs, have the access piece but no control over provisioning, integrating the back office or OSS in the backbone, gateways or link to the PSTN,” says Comcast’s White. “Others, like Vonage, have no control over the last mile, thus no QoS, and can’t offer product integration. We have a privately managed data backbone that terminates in the PSTN. We don’t touch the public Internet. We market the VoIP as a phone service, not as a technology. Customers are interested in a bundle, so there’s no mention of VoIP. It’s positioned as a primary line, with E911, CALEA, Class 5 features and battery backup.”
Of course, PacketCable, a specification issued by cableco research and development consortium CableLabs, helped cablecos address a lot of the lifeline concerns of VoIP services. PacketCable 1.x, the blueprint for cablecos to offer a local phone replacement with VoIP, defines an end-to-end broadband architecture to support residential voice, including VoIP device provisioning and management, security and quality of service, call signaling, codecs, accounting and PSTN interconnection. PacketCable 1.1 to 1.3 address functionality for CALEA, low bit-rate codecs, realtime fax, interdomain signaling based on SIP and message transfer agent battery backup monitoring.
CableLabs also has come out with a spec called PacketCable MultiMedia (PCMM) which talks about how to support IP voice and rich media offerings. PCMM addresses quality of service considerations of IP communications and discusses the emergence of SIP endpoints, such as Wi-Fi phones, IM clients and softphones.
White adds that “one of the unique opportunities we have as cablecos is in the entertainment and programming.We’re focusing on enhancing service that looks and feels different from basic voice. Web mail, presence, we’ll do cross-product integration. People want to control their personal communications experience. We’ll offer a portal where they can see call logs, click-to-dial, unified messaging, caller ID on the TV, do-not-disturb, virtual phone numbers, video communications. As far as technology, there are some challenges getting there, but consumers are pushing us that way. VoIP isn’t solely about price, but about the entire service.”
Joshi of BayPackets adds that “cablecos have an incredible opportunity to do new services that others can’t. Their biggest money-maker is pay per view. If they could [introduce] services that drive PPV, it could be very profitable. For instance, when a movie that matches a subscriber’s interests (defined on the Web portal) becomes available for pay per view, they send you a voice mail, and you press yes on the phone to order it on demand. Or, a cable company could offer a stored value card that allows people to purchase things off commercials via the phone, and it’s wrapped into the cable bill. That becomes more powerful for advertisers. So we’re thinking about phone services that support the main business line.”
For now, some think the cablecos are the best positioned in the market. “Whoever is going to win the service game has to understand the bundle, the last mile access and the brand,” says Sarah Hoffstetter, senior vice president of corporate communications at Net2Phone, which develops and manages an end-to-end cable telephony solution for MSOs. “Two out of three will get you to the finish line, one will get you nowhere. The ILECs have no true bundle; DIRECTV is a different animal than most people are used to and a hassle for the consumer. AT&T doesn’t have the access, but they do have the brand and the bundle. Vonage doesn’t stand a chance. Cablecos are, however, the best positioned, because they have it all.”
But competing with the ILECs could become more difficult with time, according to some. “The competitive environment is changing,” says Mark Bakies, director of voice systems marketing at Cisco Systems Inc., which offers an end-to-end infrastructure solution for cable VoIP deployment. Cisco has implemented a PacketCable feature set on its softswitch.The company has a deal with Time Warner Cable and is in trials with Comcast. “The RBOCs are focused on changing the broadband model, and they want to move from 1.5 megs to higher speeds in the home, with fiber, ADSL2+ and other technologies. They’ll offer streaming HDTV, VoIP and so on. So the MSOs are going to have to retaliate with an ultra-broadband environment as the bandwidth model changes, which will level the playing field.” |
