Cable operators accounted for about 2.5 million voice-service subscribers in 2003 and are likely to reach the 4 million mark by the end of this year, according to a new report released this week by Heavy Reading, Light Reading's paid research arm (see Heavy Reading: Cable Cos Race for VOIP).
The report, "Cable Triple Play: The VOIP Card," by analyst Peter Lambert, points out that one big ally of the cable providers are the interexchange carriers (IXCs), competitive local-exchange carriers (CLECs), and other voice-application service providers (ASPs) that are lining up to partner with multiple system operators (MSOs).
The upshot is that if VOIP services take off in the cable business, it could provide a new source of revenue and partnerships for the ailing voice-carrier world.
The cable guys are craving these partnerships, too, primarily because it gives them a new service to deliver without requiring a significant overhaul of their infrastructure. Lambert reports that ten MSOs have inked deals with telecom network operators to handle their voice services, and several more have outsourcing deals in place with affiliated CLECs.
"Just as incumbent telcos are looking at DBS [digital broadcast satellite] for video content, infrastructure, and expertise, a number of both large and small MSOs are looking to telephony partners to undertake all or parts of tasks, including not only long distance, but also interconnection, call management, signaling, customer support, and/or network management," Lambert writes. "Such outsourcing and revenue sharing is enabling smaller MSOs to enter telephony immediately, and then incrementally build their own telephony infrastructure."
Table 1: Voice-Over-Cable Strategy Snapshots
|Circuit-Switched, Extending Footprint via VOIP||Comcast, Charter, Cox, RCN, Eastlink, Midcontinent, GCI|
|Outsourced VOIP Fast Movers||Time Warner Cable, Adelphia, Cebridge Connections, Bresnan, Eastlink, Northland, Liberty Cablevision, Advanced Cable, CableAmerica, Mid-Hudson Cablevision|
Service providers that have struck deals with MSOs include AT&T Corp. (NYSE: T), Level 3 Communications Inc. (Nasdaq: LVLT), MCI Inc. (Nasdaq: MCIP), Net2Phone Inc. (Nasdaq: NTOP), Sprint Corp. (NYSE: FON), and Vonage Holdings Corp.
Even consumer Internet providers are making a run at the incumbent carrier's voice market share, albeit slowly. Still, those companies, including AOL, are following a familiar pattern of outsourcing the heavy lifting on the voice side (see AOL Ambles Into VOIP).
Meanwhile, RBOCs such as Verizon Communications Inc. (NYSE: VZ) are hoping to fight VOIP with VOIP. Verizon recently advertised it was offering its VoiceWing VOIP subscribers a chance to get a 1.5-Mbit/s DSL connection for $29.95 a month until December 31 (see Verizon Launches VOIP Service).
What gets left behind while all these carriers and MSOs are nailing down their VOIP strategies? Circuit switches, for one thing. Lambert writes that "no MSO plans to purchase any more circuit-switching technology."
Instead, Comcast Corp. (Nasdaq: CMCSA, CMCSK), Cox Communications Inc. (NYSE: COX), and other MSOs with established circuit-switched networks are adding to their networks using VOIP technology.
And that has become just as apparent among wireline carriers, too. Earlier this year, Lucent Technologies Inc. (NYSE: LU) reported its U.S. revenues had dropped 13 percent primarily because of declines in spending by several large carriers on traditional circuit-switching equipment.
To Lucent's credit, it has also pursued a VOIP strategy via acquisition. In August 2004, Lucent acquired Telica, which gave it an IP-based softswitch (see Telica: Lucent's Good Buy). Telica, Lambert reports, is actively targeting cable VOIP outsourcers, including CommPartners LLC and Level 3.
Lambert's report analyzes the voice-services strategies of the 37 largest cable MSOs in North America, with emphasis on each MSO's technology and vendor choices, market success rates, and current plans for voice-service expansion. The report is available here.
— Phil Harvey, News Editor, Light Reading