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MSOs Blitz Business Voice

On the heels of residential VOIP rollouts across North America, cable operators are starting to introduce commercial phone services to complement their high-speed data offerings for business customers.

U.S. and Canadian MSOs are now launching broadband phone products expressly designed for use by small-to-medium-sized businesses (SMBs). Over the past few months, Charter Communications Inc. , Cablevision Systems Corp. (NYSE: CVC), and Vidéotron Telecom Ltd. have all added voice offerings to their commercial services packages, joining such early cable phone players as Cox Communications Inc.

In the New York area, for instance, Cablevision Systems is pitching a new multi-line VOIP product targeted to firms with fewer than 25 employees. The MSO is promoting a four-line package that costs just $29.95 a month for each line in the first year of service. Notably, the commercial service initially costs no more per line than the company's popular VOIP product, Optimum Voice, for consumers.

“We’re trying to break that traditional [price] line between business and consumer” service, says Joseph Varello, VP of digital voice product management for Cablevision. "Customers are buying more than one line.”

Other major MSOs are preparing to follow the lead of these commercial phone pioneers. Comcast, Time Warner Cable, and Bresnan Communications all intend to start hawking phone services for smaller business customers either later this year or sometime next year.

"2007 is a rollout year," says Kurt Fennell, VP of product management for Time Warner Cable. He says Time Warner, which has been testing business voice services in Binghamton and Syracuse for the past six to eight months, plans to begin offering commercial VOIP in "a large majority of our systems" by the end of next year.

Other large cable operators are exploring the commercial voice market, too, even if they have no specific launch plans yet. For instance, Bright House Networks is closely monitoring what Time Warner and its other larger brethren do.

"It's on our roadmap," says Andre Martineau, director of advanced services for Bright House. "We're following the lead of some other MSOs. When they work out the kinks, we'll do it."

One obvious reason why cable operators are pursuing commercial telephony now is the size of the market. In the New York area alone, Cablevision estimates that businesses spend nearly $5.9 billion a year on phone services, with SMBs accounting for $3.5 billion of that total.

Comcast, the MSO with the closest thing to national coverage of the U.S., reckons that businesses spend about $20 billion a year on phone services in its territories. The company aims to start offering commercial VOIP next year, once it nears completion of its ongoing rollout of residential VOIP service.

Cable experts argue that it also makes sense to expand into business telephony because it's a way to hurt the phone companies in one of their prime markets and undercut their ability to subsidize low residential phone rates.

"The telco subsidy swamp can be drained to the extent that SMB spending is diverted to cable, and even more so once telcos respond to competitive pressure by reducing their rates to SMBs and investing more in SMB customer support," writes Peter Shapiro, a principal at PDS Consulting. "Thus cable will benefit twice from the growth of its commercial business: first, by increasing top-line revenue; second, by limiting resources otherwise used by telcos to compete for cable's core residential customers."

Speaking at the Society of Cable Telecommunications Engineers' (SCTE's) Business Services Symposium in Chicago last week, cable strategists said they're targeting smaller companies because these firms are usually located either within the reach of existing cable plant or not very far away. In contrast, big companies are usually located farther away from cable's residentially-oriented plant.

Cable executives said smaller firms also tend to be neglected by the big telcos. Finally, the cable guys believe they can match or beat telco pricing and still make handsome profits.

Alok Gera, systems engineering manager of Cisco Systems, calls the 8-line to 12-line market "the sweet spot" for MSOs. He says cable operators can mainly use a simple "residential feature set" to hook smaller firms.

At an earlier SCTE conference three months ago, Cisco unveiled "a single-box solution" for cable operators plunging into the SMB market. The solution consists of an integrated services router and high-speed WAN interface cards.

But commercial voice is not exactly a slam-dunk for cable. As several panelists admitted at the SCTE conference last week, even smaller firms that rely on cable for high-speed data service don't necessarily trust it for phone service and tend to be more demanding than consumers.

"Data customers won't immediately take your voice product," says Jason Welz, VP of Cox Business Services, who has overseen the launch of commercial VOIP in the MSO's northern Virginia market. "We still have battle scars in our market."

Welz said cable operators must either offer commercial phone service for less than the telcos charge or deliver more features for the same price. In a keynote address, David Pistacchio, executive VP and general manager of Cablevision's Optimum Lightpath division, urged MSOs to "price disruptively" to clear this hurdle.

SCTE conference speakers also advised cable operators to make buddies with service integrators, which often represent smaller firms in telecom deals. Stan Brovont, VP of marketing and business development for Arris, noted that such integrators account for 40 to 60 percent of the services sold to SMBs.

— Alan Breznick, Site Editor, Cable Digital News

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