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VOIP Keeps Fueling Cable Growth

Light Reading
News Analysis
Light Reading
1/5/2005
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Cable companies are well positioned to race to the head of the pack for triple-play services with the widespread introduction of VOIP services, according to a report released earlier this week by equity research firm Standard & Poor’s.

The report, “Cable TV Operators Call on Internet Phones for Growth” by S&P analyst Eric Geil, notes that cable operators have a “clear technical and economic advantage over phone company competitors” in their ability to offer voice, video, and data to their subscribers. Geil attributes cable’s advantages to the modest incremental capital costs and low operating expenses that offer a hefty profit potential to operators introducing VOIP offerings over their cable infrastructures.

Cable operators already have a “fat pipe” into users' homes, and VOIP traffic shares the same network as high-speed data (Internet) traffic, so Geil reckons the cost of adding a VOIP subscriber is significantly lower for cable companies than adding a circuit-switched customer is for traditional carriers.

In one example, the report notes that Cox Communications Inc. (NYSE: COX) has shown that its upfront cost for adding a VOIP customer is $267, compared to $527 for adding a circuit-switched customer.

Cable companies also have an inherent advantage because they control all aspects of their triple-play offerings, while telcos must cobble together systems to offer video services to their lineups (see SBC Launches Joint Venture With 2Wire). While major telephone operators are making progress with plans to extend fiber optic networks to homes, they currently depend on partnering deals with satellite television providers to provide video services. And when they are eventually able to offer video services, a lack of video experience may hurt them (see Telco Video & VOIP Stakes Rising and Video Profits on Pause?).

VOIP is also a riskier proposition for incumbent telecom carriers, Geil says, because “with VOIP, incumbent phone companies are not competing for a new service, but are at risk of losing their core business.”

Incumbent carriers are stepping up the battle by beginning to offer [ed. note: ready for it?] quadruple play (data, video, wired, and wireless) offerings at discount prices. SBC Communications Inc. (NYSE: SBC) is offering a quadruple-play package, including video from EchoStar Communications Corp. and wireless service from Cingular Wireless for $135 a month in some areas.

Cable operators are also looking into adding wireless services to their menus, negating any advantage the wireline operators may have had (see Time Warner Confirms Sprint Talks).

There are potential roadblocks for cable MSOs. Some regulatory hurdles may pop up regarding VOIP service, but recent rulings make that unlikely (see FCC Shields VOIP From States). In fact, wireline carriers might be under regulatory scrutiny when they introduce video services (see SBC Sees IPTV Interference).

The number of cable VOIP subscribers will grow to 4.5 million customers by the end of the year, a 49 percent growth rate over 2004 numbers, according to UBS Investment Research's 2004 Performance Review report, released on January 4. By 2006 there will be approximately 6 million cable VOIP customers, according to the report.

The UBS analysts estimate that cable operators will offer VOIP to roughly 50 million homes by the end of this year and 75 million homes by the end of 2006. This is substantially higher than the estimated 3.3 million FTTN and FTTP marketable homes by year-end 2005 and 11.1 million homes by year-end 2006 estimated to be ready for telco video through Verizon Communications Inc. (NYSE: VZ) and SBC.

“Thus, we estimate that cable operators will maintain a significant advantage over both satellite and telco competition in offering bundled services over the next several years,” UBS analyst Aryeh B. Bourkoff writes.

The S&P report gives a nod to pure-play VOIP companies like Vonage Holdings Corp.; and Internet-based options like those provided by Skype Technologies SA offer similar services at a lower cost. But, in S&P's opinion, the quality of service may not be as good, since “heavy data traffic could degrade voice quality for the non-cable competitors because they do not control the network between homes and their respective network access points.” — Chris Somerville, Senior Editor, Next-Generation Services

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eltooguru
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eltooguru,
User Rank: Light Beer
12/5/2012 | 3:30:53 AM
re: VOIP Keeps Fueling Cable Growth
This analysis falls down because it misses the details of home networking. The cable companies have an important bandwidth advantage in the last mile, at least until fiber becomes prevelent. But inside the home the cable industry insists on keeping tv/video distribution seperate from data (and VoIP) distribution. Cable modems and advanced set top boxes are not merging.

While telcos struggle building a suitable in-home Ethernet plant, the cable companies insist on two in-home networks. Further, cable technicians have much more to learn about data and voice networking than telco technicians.

It isn't easy for either camp. A glib "Here's the winner" assertion is too simple.
OldPOTS
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OldPOTS,
User Rank: Light Beer
12/5/2012 | 3:30:53 AM
re: VOIP Keeps Fueling Cable Growth
Today in an add for Comcast the price for an IP phone connection was $25. That is more than I pay VZ for a POTS phone, but less than I get billed for. The difference are the Fees that VoIP currently avoids.

As referenced by the 'SBC FTTH interference" article and it's threads, the legal issue of franchise agreements will become a very hot item as it effects margins. Even in my city's budget where they had to lay people off as a result of the loss in revenue from their portion of the fees.

OldPOTS
lastmile
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lastmile,
User Rank: Light Beer
12/5/2012 | 3:30:53 AM
re: VOIP Keeps Fueling Cable Growth
eltooguru:
The analysis just says that VOIP keeps fueling cable growth.
In simple terms it means that if cable can provide a cheaper (inexpensive) replacement for a costly (expensive) POTS line, every sensible consumer will prefer that inexpensive change because voice quality is at par with a regular phone line and a cell phone is readily available as a back up.
The winner at the moment is the Cable Co.
I have been using a VOIP service for the last 2 years and I have no regrets because I am cheap!
alchemy
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alchemy,
User Rank: Light Beer
12/5/2012 | 3:30:52 AM
re: VOIP Keeps Fueling Cable Growth
eltooguru writes:
But inside the home the cable industry insists on keeping tv/video distribution seperate from data (and VoIP) distribution. Cable modems and advanced set top boxes are not merging.

That's not true at all. All the CMTS vendors have recently implemented and conformance tested against the DOCSIS Set-top Gateway spec. This uses DOCSIS rather than proprietary Scientific Atlanta or Motorola/General Instruments protocols for the set-top box control channel. It's a baby step but the convergence is coming since all non-proprietary set-top boxes are going to have DOCSIS in them. This will also be integrated into TV sets.
lighten up!!
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lighten up!!,
User Rank: Light Beer
12/5/2012 | 3:30:51 AM
re: VOIP Keeps Fueling Cable Growth
Trouble delivering DSL in many areas. Cable already has a huge lead and advantage over telcos. By the time Telcos deploy fiber, they would have lost most of the broadband market to Cable Operators. May be WiMax is a more cost-effective solution for them to catch up...
Vuln Guy
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Vuln Guy,
User Rank: Light Beer
12/5/2012 | 3:30:51 AM
re: VOIP Keeps Fueling Cable Growth
Please forgive me as I jumped from carrier space to the security space since the telco implosion. However, I believe VoIP still has jitter & latency concerns. Add'ly, it is my understanding that the MSO's still have a shared infrastructure in the last mile. Therefore, it is my understanding that they will be unable to tag and enforce QoS. Has something changed since I left?
jim_smith
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jim_smith,
User Rank: Light Beer
12/5/2012 | 3:30:50 AM
re: VOIP Keeps Fueling Cable Growth
Further, cable technicians have much more to learn about data and voice networking than telco technicians.

:-)

You don't have a clue, do you? Let me guess, you are a recent grad working for an RBOC vendor.

Here's the key difference: cable techs can learn new things because they are not unionized. Telco techs cannot learn because they are not unionized.

I'll bet my money on cable techs any day!
paolo.franzoi
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paolo.franzoi,
User Rank: Light Sabre
12/5/2012 | 3:30:50 AM
re: VOIP Keeps Fueling Cable Growth

The latest versions of Docsis have QoS capabilites in the last mile. Voice still has relatively low throughput requirements, so bandwidth is generally not an issue.

By the way, the uplink of a DSLAM is a "shared" resource. So, DSL and Cable Modem are both shared mediums for the last mile.

As to WiMax, in urban and suburban areas there is (generally) already both cable and DSL. In rural areas, WiMax has a business problem (try running the math at 1 person/sq mile).

seven
jim_smith
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jim_smith,
User Rank: Light Beer
12/5/2012 | 3:30:49 AM
re: VOIP Keeps Fueling Cable Growth
Telco techs cannot learn because they are not unionized.

My bad. It should read: Telco techs cannot learn because they are unionized.
keelhaul42
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keelhaul42,
User Rank: Light Beer
12/5/2012 | 3:30:49 AM
re: VOIP Keeps Fueling Cable Growth
Further, cable technicians have much more to learn about data and voice networking than telco technicians.
>>>>>>>>>>>
I wonder if the RBOC's are even in this race. Oh, sure, they've announced plans to lay miles of fiber in the ground, plans to provide programming, etc but it will be years before they can deploy services available RIGHT NOW from the cable companies to more than a few subscribers.

The cable companies aren't standing still while the RBOC's have yet to start digging.
Does anyone see this differently? It took Comcast more than a year to get things up around here (San Jose, CA).

On top of that, it's not easy to be favorably impressed with the capabilities of their (RBOC's) service crews in connecting a pair of wires between one's residence and the CO. That won't get easier when they have to install, provision, & maintain new equipment that doesn't respond with a dial tone.
Feel free to blame that on factors of your choice but it's still a reality.

My money's with the cable techs and their companies too.

-kh
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