The Cable VoIP Halo Effect

Those of you who follow MSO subscriber trends undoubtedly noticed that the only publicly-traded U.S. cable operators that managed to post basic video subscriber gains in Q1 -- Cablevision and Time Warner -- are also the only ones that have widely deployed IP telephone services. In a timely research report released yesterday, Sanford Bernstein VP & Senior Analyst Craig Moffet dubbed this 'the halo effect of VoIP' for MSOs. In the report Moffet notes that 'Cable operators offering VoIP on a significant scale grew basic subscribers by 89K (+0.3% growth, or 1.2% annualized), while those not yet offering VoIP lost 61K (0.2% contraction, or 0.8% annualized). Faster subscriber growth is an ancillary benefit of VoIP that we believe is not contemplated in most investors' models for the sector.' Pointing to some good news for the Dolan family, Moffet surmised 'Cablevision has now offered VoIP for seven quarters (since late Q3 2003) É Cablevision has now enjoyed four consecutive quarters of basic subscriber growth -- ending a prior string where they had lost subscriber in eight of nine prior quarters -- and in Q1 moved to an annualized growth rate of 1.5% growth. This represents the fastest basic subscriber growth of any major MSO since 2001.' On a different tangent, a poignant feature in the Wall Street Journal yesterday highlights a different sort of 'halo effect' for cable IP phone providers. (See http://online.wsj.com/article/0,,SB111585619278031205,00.html -- subscription required). The article covered 911 calling problems for subscribers of Vonage and other best-effort VoIP providers. At the top of the list was the tragic death of a Florida infant that occurred after her mother dialed 911 through Vonage for assistance, only to reach a recording. Vonage and other providers say they are working to fix the problems. However, legally, they are trying to stand behind the fine print of their user agreements, claiming the documents explain the limitations of their 911 support. What weasels. Vonage does all it can to downplay this fact in their aggressive 'cheap phone' marketing. It's time for the company to come clean with existing and potential customers to be sure they understand 911 may not work with the service. It is literally a life and death issue. In comparing cable VoIP offerings to Vonage, the WSJ article noted that 'Internet calling from cable companies' is 'extremely reliable.' And that cable IP phone 'generally works the same way as traditional service because the number is linked to a fixed address and agreements are in place for connecting directly to the 911 system.'

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