"Cable Telephony - Say Hello to your new Phone Company"
telecommagazine.com
Cable Telephony: Say Hello to Your
New Phone Company
Cable companies have to invest hundreds of dollars to deliver phone service to just one customer. But
they payoff could be huge if their subscribers start thinking of them as more than just the local cable TV
provider.
Sam Masud
While telecom industry players focus on getting into--or holding onto--the
local market, the real competitive threat may come from another quarter. Cable
television system operators, such as MediaOne and Cox Communications,
have launched a stealth attack on local phone service. They are emerging as
competitive local exchange carriers (CLECs) and are attempting to woo the
phone companies' residential customers with lower prices and promises of
superior service.
AT&T's proposed acquisition of cable giant Tele-Communications Inc. lends a
certain legitimacy to the cable network as a vehicle for delivering phone
services. Recently, AT&T put its imprimatur on cable telephony as a viable
technology by awarding a potential $900-million equipment contract. The clear
message to phone companies: Don't underestimate cable operators' potential
to cut into the $100-billion business.
Certainly, the deployment of cable telephony ports is small potatoes right now.
The number of phone lines supplied over cable networks hovers between
150,000 and 200,000 worldwide. Providers of telephony equipment for cable
networks, such as Motorola, ADC, Tellabs, and Arris Interactive, have had
more success abroad thus far than in the United States. Motorola, for example,
has installed systems in Australia and Belgium, while Arris Interactive, a joint
venture between Nortel and cable equipment maker Antec, has sold systems in
Japan.
But cable companies have also shown that they can strike quickly into the
territories of the local phone companies. According to a recent article in The
Wall Street Journal, almost 20 percent of Cox Communications' customers in
Orange County, Calif., who had access to Cox's new phone service had
dropped their local phone company in favor of the new service. MediaOne
began offering local phone service to about 35,000 homes in Los Angeles
earlier this year. The multiple system operator (MSO), as these cable
companies are called, has plans to make the service available to more than a
quarter million homes by the end of the year.
Offering telephone service through cable TV lines is possible in part because
cable companies have upgraded their networks to what is known as hybrid
fiber/coax (HFC). “Three or four years ago, the cable system did not have a
two-way capability. But because of the success of the Internet, cable plants
have been upgraded to two way for high-speed data services. So the
infrastructure now is ready to handle two-way services,” said Raja Natarajan,
Motorola Multimedia Group's product marketing director.
A New, Improved Network
Today, many cable operators' networks are more reliable because they use
fiber, and, in many cases, companies have also increased network capacity to
allow them to offer more video channels, typically by increasing downstream
spectrum from about 400 Mhz to 750 Mhz. In the reverse direction, however,
bandwidth is considerably more precious; these networks only support from 5
Mhz to 40 Mhz of spectrum upstream. Still, that's sufficient to support
two-way applications such as voice communications and, on the data side,
applications such as e-mail, Internet access, or pay-per-view. This network,
moreover, is extremely reliable because there is a fiber connection from the
headend office down to the neighborhood distribution node, which might
serve several hundred homes via coax cabling.
The headend, which in the telco world would be the central office, is the
control center of a cable system. Going downstream from the headend, radio
signals are converted to optical signals before leaving the headend. They are
then converted back to radio signals at the distribution node. In the upstream
direction, radio signals from a subscriber's home are converted to optical
signals at the distribution node and converted back to radio signals at the
headend.
Companies that supply telephony equipment for HFC networks provide cable
operators with two key elements:
host digital terminals for the headend that are capable of supporting several
thousand lines; and
network interface devices (NID) (see Figure 1).
A NID is mounted inside or outside a customer's home and serves as the
delivery point for phone, data, and video services. Some of these same
companies also supply the cable modems for high-speed Internet access. At
the low end, these network interface devices may support one to two phone
lines; a high-end unit may support several lines. Tellabs, for instance, plans to
introduce a four-line unit in January that can be upgraded to an eight- or
12-line unit.
A Deal's a Deal
With the ability to provide telephony over HFC, cable companies are emerging
as a new breed of CLEC. At the headend, their telephony equipment connects
to their own digital telephone switches via TI lines, providing customers
traditional services such as call waiting and speed dialing. These features,
combined with lower pricing, make cable companies more than capable of
taking on the phone companies. For instance, MediaOne provides its Los
Angeles customers with a single phone line, Caller ID, call waiting, and speed
dialing for a monthly fee of $39.75. That price is well below local phone
company charges for comparable packages in the area. Cox Communications
signs up customers for its local phone service by pricing the first line at 10
percent less than the local phone company. And it offers an even better
bargain--50 percent below the local phone company prices--on the second line.
“We're signing on customers more successfully than we thought we would,”
said Chuck McElroy, Cox Communications' director of broadband services for
residential markets.
Cable company officials claim that the economics of their networks give them
an advantage over the local phone company. “If you upgrade your network
from whatever it is today to 750 MHz by putting in the switches, all of the new
electronics, and servers for the Internet, that investment comes out to about
$400 to $450 per customer. And this is just to get the broadband capability out
to the side of the house,” said Greg Braden, vice president for digital telephone
services at MediaOne. “Now if customers decide to buy telephone service,
that means we have to put a NID on the side of the house, and that's about
another $400. So now you've got about $800 of capital investment per
subscriber even if all that subscriber does is buy phone service from you. This
compares with roughly $1000 to $1200 of capital expenditure per subscriber
that the RBOCs currently have.” But since cable companies can offer a
combination of voice, Internet access, and video services over the same
network, the investment in upgrading their networks becomes an even more
attractive proposition.
“Now if the customer also buys cable modem service from us--the cable
modem costs about $300 and the set-top box about $150--the original $400 or
$450 investment in the network gets spread across more services and the
capital expenditure per subscriber drops,” said Braden. “We see an evolution
very quickly to a time when we'll sell bundles of services that include a
combination of voice, data, and video services targeted to very discreet market
segments. And we'll package them in ways that are attractive to various
customer groups.”
Officials said they only have to grab a modest slice of the phone company's
business to justify their capital outlay. “I don't think anybody can predict how
much of the business we'll be able to take from the RBOCs, but I can tell you
that the break-even penetration rate is in the high single digits. So if I can
achieve something a little south of 10 percent, I can make money in this
business,” said McElroy. That minimal threshold, he noted, is not hard to
reach. “We've done research over a number of years that shows that roughly
10 percent of the people who buy cable television services from Cox would
switch phone service even if we priced it the same as the local phone
company.” Not only have the cable companies expanded to become
facilities-based CLECs, but they are also signing deals with long-distance
carriers to become resellers for long-distance services. MediaOne, which
currently lets its phone customers select the long-distance service provider of
their choice, is in the process of picking an interexchange carrier so it can
provide long-distance service under its own brand name. “We want one of the
choices available to the customer to be MediaOne long distance,” said Braden.
Customers, officials said, can expect the reliability of the phone service
delivered over an HFC network to be at least equal to if not better than what is
offered by the local phone companies. “We've got more than 60,000 lines for
telephony over HFC, and the data that is coming back from our largest
deployment [in Australia] shows that telephony over HFC has matured to a
point that it is as good as, or better than, the RBOC-provided telephony,” said
Natarajan.
Mark Dzuban, a division manager in AT&T's corporate business development
unit, agreed with his cable industry colleagues. Dzuban pointed out that the
RBOCs typically have been unable to meet the Bellcore benchmark of
99.99-percent network uptime, which translates into 53 minutes or less of
network downtime a year. “The 99.99-percent criterion is based on a purist
view, but according to the actual data reported by the LECs to the FCC, it
varies between 99.96 percent to 99.98 percent,” said Dzuban. “If the LECs are
between 99.96 percent and 99.98 percent, then the real issue is not whether we
should be spending more capital to beat that benchmark, but rather, can we
perform better than the incumbents?”
Cable companies currently are supplying phone services with equipment that
provides traditional circuit-switched telephony over HFC networks. They claim
that one immediate benefit of delivering phone lines over the cable network is
that users can expect better performance from their 56-kbps V.90 analog
modems than if they were to use these dial-up modems to access their Internet
service provider over the PSTN. One reason for this, they said, is that a LEC's
loop may extend anywhere from several hundred feet to 18,000 feet or more.
The greater the distance between the modem and the local phone company's
switch, the higher the likelihood that users will experience slower Internet
connections. Even though in HFC networks the distance between the NID and
the headend may exceed 60 miles in some cases, the only analog portion of the
connection is the very short distance between the customer's modem and NID,
which brings a digital connection to the side of the house.
Already many cable companies' high-speed data modems offer much faster
Internet access to subscribers. Although these cable modems currently are
proprietary devices, the cable industry is moving quickly to rectify the
situation. Cable Television Laboratories (CableLabs), which is to the cable
industry what Bellcore used to be to telcos, will soon be releasing the
much-awaited Data Over Cable Service Interface Specification (DOCSIS) 1.1
standard. DOCSIS 1.1 specifies downstream speeds of 27 Mbps to 38 Mbps
and upstream speeds of 320 kbps to 10 Mbps. It's an initiative of Multimedia
Cable Network System Partners Ltd., a group consisting of cable heavyweights
Cox Communications, TCI, Comcast Cable, and Time Warner Cable working in
partnership with CableLabs, among others. But CableLabs and the cable
companies have even more ambitious projects in mind: They want to use a
portion of the cable system to deliver packetized telephony and video services
using the Internet Protocol, a move that AT&T supports for cable telephony.
“AT&T's strategy is to get to market as quickly as possible using off-the-shelf
[circuit-switched, voice-over-HFC] products,” said Dzuban.
IP Telephony
“Although these products are high in quality, the cost of circuit-switched
voice over HFC is higher than voice over IP. We're willing to absorb those
costs because time to market is what's important here. But we want to move to
an IP solution as quickly as possible because the long-term value will be
delivered by IP. It's the company's intent to have full IP end-to-end in a
managed scenario for telephony and also to provide Internet access using IP
so that you have minimum translation, maximum throughput, and maximum
diversity of applications, all through IP,” said Dzuban.
CableLabs is developing a packet network specification, PacketCable, that
uses IP to deliver voice/video services. CableLabs designers envision
PacketCable letting customers originate/receive calls over an IP network using
their standard telephones or multimedia PCs. Cable-based IP telephony also
would provide telco-type Custom Local Area Signaling Services (CLASS)
features such as call waiting and call forwarding. Both the telephony and
packet video--the latter supports one- and two-way video conferencing as well
as audio--likely would be delivered via cable modems. At the subscriber's end,
connections would be terminated at a multimedia PC, an adapter, or some sort
of an advanced digital set-top box that would interconnect to a TV set, video
camera, and a standard telephone.
In fact, the set-box, which would incorporate a microprocessor as well as a
client that would communicate with a server in the headend, is the third key
project of CableLabs. Conforming to CableLabs' upcoming OpenCable
specification, these set-top boxes would support digital video, data, and
interactive services. OpenCable functionality also would be built into a number
of other devices such as TV sets, VCRs, and DVD players. DOCSIS modems,
too, would become part of a family of products supporting the OpenCable
standard. “You might see PacketCable commercial service in about 18 months.
The actual service might be available sooner although there will be no
[immediate] interoperability between different MSOs,” said David Reed,
CableLabs' vice president for strategic assessment. “The DOCSIS cable
modem project started the earliest and is the furthest along, so in the near
future you should have DOCSIS cable modems for retail.”
As telephony services evolve from circuit-switched to packet-based
technologies, the telco switch will no longer be a part of the cable telephony
network (see Figure 2). Instead, DOCSIS cable modems would connect
subscribers to a cable modem termination system (CMTS) at the headend. On
the network side of the CMTS would be a policy-based router with IP
connections to gatekeeper servers and value-added services servers.
Gatekeeper servers would, among other things, authenticate users, while the
value-added servers could provide standard Class 5 services as well as other
potential new offerings. Gateway servers would form another key component
of this new telephony network by providing connectivity to an IP-based public
or private data network, the Internet, as well as to the legacy PSTN. “You
could have interesting new types of phones now that you have intelligence to
the edge of the house,” noted Dzuban. The move to IP-everything by cable
companies might also attract companies in the data space, such as Cisco
Systems, 3Com, Microsoft, and Sun Microsystems. That would further
sharpen the battle between companies that traditionally are considered
suppliers of circuit-switched equipment and the vendors of data networking
equipment as the infrastructure evolves to an IP network.
If the cable companies succeed in attracting customers to broadband services,
they can become one-stop shops capable of supplying bundled voice, data,
and video services. Already, one phone company in Canada offering
asynchronous digital subscriber line (ADSL) service for Internet access was
forced to cut its prices dramatically when faced with competition from the local
cable provider. Moreover, as cable companies become a factor in the local
telephony market, the consolidation in the telecom industry will continue
apace. Expect telcos and the cable companies to follow the AT&T/TCI lead
and continue to partner or merge.
Sam Masud is senior editor at Telecommunications. |
