Smashing the previous quarterly record for VOIP subscriber gains, North American cable operators signed up more than 1 million IP phone customers in the third calendar quarter of 2006, according to the latest figures compiled by Light Reading's Cable Digital News.

Cable Digital News found that U.S. and Canadian MSOs collectively signed up 1.26 million new VOIP customers in the third quarter, beating their second-quarter gains by nearly 200,000 subscribers. With this latest surge, we estimate that the North American cable industry closed out September with just over 6 million IP phone customers, up from about 4.8 million customers at the end of June and slightly more than 2.7 million at the end of last year.

Table 1: Q3 2006 North American Cable VOIP Subscribers by MSO

Overall, we estimate that the cable industry now counts more than 8 million telephony subscribers, including those using older, more traditional circuit-switched technology. With at least 2.1 million circuit-switched phone customers between them, Cox Communications Inc. and Comcast Corp. (Nasdaq: CMCSA, CMCSK) together account for nearly all of the non-VOIP subscribers.

The summer surge in VOIP subscriptions occurred despite slumping customer gains by Time Warner Cable Inc. (NYSE: TWC), the cable industry's leading IP phone provider. Showing signs of hitting the wall, Time Warner signed up significantly fewer phone subscribers for the second straight quarter after two years of breakneck growth.

The VOIP increase also came at the same time that U.S. and Canadian MSOs added about 1.47 million high-speed Internet access subscribers. What this suggests is that most new cable broadband data customers are taking phone service, too, as cable operators increasingly promote triple-play bundles of voice, video, and data.

The third-quarter totals mean that North American cable operators are now turning on an average of almost 14,000 new IP phone customers a day, up from about 11,000 customers per day in the second quarter. Indeed, Comcast is now signing up about 5,300 new subscribers each day just by itself.

In addition, the latest figures mean that U.S. and Canadian MSOs, with 3.3 million new VOIP subscribers already under their belts through the first nine months of the year, are well on their way to signing up at least 4 million phone customers in 2006. A recent Cable Industry Insider report projected that cable operators would rack up a minimum of 3.8 million VOIP subscribers this year and then another 5 million next year, boosting the industry's grand total to 11.5 million by the end of 2007.

As several RBOCs have acknowledged in recent quarterly earnings reports, the cable industry's gains are coming at least partly at the phone companies' expense. The telcos' precise losses to cable have been hard to quantify, though, because the wireless industry's growth is taking its toll on landline connections simultaneously.

Time Warner continues to lead the cable VOIP business, after adding 187,000 IP phone subscribers in the third quarter. North America's second biggest MSO ended September with 1.65 million IP phone customers, which still amounts to more than 25 percent of the industry's entire total.

But Time Warner's growth is definitely slowing down. The company's third-quarter performance broke a string of five straight quarters in which the MSO added more than 200,000 VOIP subscribers.

While Time Warner is slowing down, other large MSOs are enjoying accelerated growth in the VOIP market. In particular, Comcast and Charter Communications are now picking up speed after getting off to relatively late starts.

Comcast snared an industry-record 483,000 VOIP subscribers in the quarter, up nearly 60 percent from 306,000 in the preceding quarter. With the gain, the continent's largest MSO boosted its total IP phone customer count to 1,348,000, putting it in position to scale at least the 1.7 million-customer mark and possibly even catch Time Warner by the end of the year.

Thanks to its recent purchases of Susquehanna Communications and some Adelphia properties, as well as cable systems that it gained from Time Warner in a swap related to the Adelphia deal, Comcast actually added 627,000 new VOIP subscribers over the summer. But it also lost 102,000 older, circuit-switched phone customers as it switched some existing voice subscribers over to the more advanced technology. With the latest loss, the MSO has now shed 300,000 circuit-switched customers over the past year.

Cablevision Systems Corp. (NYSE: CVC) fell to third place in the MSO rankings despite enjoying continuing strong growth and surpassing the 1 million-subscriber mark earlier than Comcast over the summer. Cablevision netted 113,086 VOIP subscribers in the quarter, boosting its Optimum Voice subscriber total to about 1.1 million. The company also boosted its industry-leading VOIP penetration rate to 21.9 percent of homes passed in the New York metro area.

Fourth-place Cox does not break down its phone customer totals by technology. But the now privately owned MSO -- which added an estimated 90,000 IP phone customers in the summer to approach a total of 500,000 -- is expanding its VOIP reach. The company introduced service in the Cleveland area in July and plans to roll out VOIP to its last four markets by early next year.

Cox, which now has about 1.9 million voice subscribers overall, has been the cable industry's biggest phone player for the last couple of years. But now Comcast, which had been the top phone provider before, has reclaimed that title.

— Alan Breznick, Site Editor, Cable Digital News