Time Warner Cable To Launch Internet Phone Service

[DudeAsInCool]

Time Warner to Use Cable Lines to Add Phone to Internet Service

December 9, 2003

By MATT RICHTEL

Time Warner Cable said yesterday that it had signed a deal

with Sprint and MCI to help it send telephone calls over

lines once used only to deliver television programming. The

move escalates the clash between the cable and the

traditional telephone industries, and shows how quickly

cable companies are transforming themselves into

all-purpose telecommunications providers.

Internet technology has made it possible for the cable

companies to use their lines - which reach nearly every

American home - to deliver telephone service, as well as

high-speed Internet connections. Time Warner said it

intended to offer telephone service by the end of next year

in major markets in most, if not all, of the 27 states it

serves.

Several cable companies already offer phone service using

an older technology, though worldwide the number is fewer

than eight million subscribers combined.

The newer technology, known as voice over Internet

protocol, sends phone calls as digital data over the

Internet. Customers using the service would plug regular

phones into modems connected to the cable wire in their

homes. They would be able to keep their existing phone

numbers, and the Internet-based calls could be received on

regular phones. Refinements of this technology over the

last year allow cable companies to offer phone service in

more markets more quickly.

In addition to Time Warner Cable, the cable giants Comcast,

Cox Communications and Cablevision have started deployment

of Internet phone services, with plans to expand those

services in 2004.

Time Warner Cable, the second-largest cable company in the

country, with 11 million subscribers, entered the phone

market last May with service in Portland, Me., signing up

8,000 subscribers, who pay $39.95 to $49.95 for unlimited

local and domestic long-distance calling.

"Our plan, by the end of next year, is to be in most, if

not all, of our markets," said Glenn Britt, chief executive

of Time Warner Cable, a division of Time Warner.

The move comes as Time Warner has sought to shed huge

amounts of debt and mine new sources of revenue. The

development of a telephone service could be particularly

significant because the cable division already is Time

Warner's "biggest profit center," said Dennis Leibowitz, a

general partner at Act II Partners, a media and

telecommunications hedge fund based in New York. "It's the

growth element" of Time Warner, he said.

Mr. Britt said the Internet technology made possible the

rapid roll-out of the service and was less expensive than

the more conventional cable-phone technology, called

circuit switch technology. Industry analysts said those

cost savings could be passed on to consumers in the form of

lower phone bills.

Under the deal announced yesterday, Time Warner Cable will

pay Sprint and MCI to carry the telephone traffic from its

cable network across a larger telephone network, and

deliver the calls to the receiving numbers. The companies

did not disclose terms of the deal.

Earlier efforts by cable companies to deploy telephone

service over cable lines had mixed results. AT&T Cable

Systems, for example, generated interest in cable phone

service in the late 1990's, but the company was acquired

last year by Comcast, the nation's largest cable company.

At that time, Comcast said it would not expand that

business but would focus on making sure it was profitable.

Comcast has said it is taking a cautious approach to the

new technology, noting that despite its promise, Internet

telephony is in its early stages. "We want to work the

kinks out, then take it larger," said Sam Chernak, a vice

president at Comcast.

Cablevision, the sixth-largest cable company, began

offering Internet telephone services in late September, and

by mid-November, it was available to more than four million

homes in Connecticut, New York and parts of New Jersey.

Cablevision offers its service only to its high-speed

Internet customers, charging them an additional $34.95 a

month for unlimited calling in the United States and

Canada. Analysts said they were impressed with the

company's first marketing push.

Mr. Leibowitz said the cable industry's move into phone

service had long been anticipated. "The idea of rebuilding

the cable world was to offer voice, data and telephony -

and telephony has been the missing piece," he said. "For

economic and competitive reasons, they are now ready" to

offer it.

But only recently has Internet technology become refined

enough that the cable companies felt they could offer

reception quality comparable to that offered by traditional

telephone companies. The cable companies say they have

turned the corner, and they intend to prove it in the

coming months.

Cox Digital Telephone, a division of Cox Communications,

plans to begin its first test of Internet-based phone

service in Roanoke, Va., in the next few weeks. That

rollout is viewed as significant because the Atlanta-based

cable company is considered a leader in pushing the

boundaries of the cable business. Cox already sells phone

services to around a million customers using the older

circuit switch technology. What Cox's experience shows is

that a cable provider can successfully take on traditional

telephone companies. In Omaha, 45 percent of Cox's cable

customers now subscribe to its telephone service, and in

Orange County, Calif., that figure is 55 percent.

This summer, the Yankee Group, a market research group,

projected that the number of customers using

voice-over-Internet-protocol telephone service would be

around 220,000 by the end of 2004. But Lindsay Schroth, an

analyst with the group, said that the number could well

double, in light of the aggressive moves by the cable

companies.

"Every year they told us, `next year is the year.' It was

all a pipe dream for a while," she said. "But it has really

shocked me the developments we've had in the last four

months."

The development also comes amid an increasingly chaotic and

competitive landscape for traditional phone companies.

Mobile phone providers are offering consumers an

alternative to land-line phones. Wireless operators and

start-up technology companies are also developing new ways

to transmit data and voice traffic, cutting phone lines out

of the picture.

But phone companies are not sitting idly by as their turf

comes under attack. In fact, they have been more aggressive

in defending their share of the high-speed Internet market,

where the cable companies took an early lead.

And the phone companies say they are prepared to offer

Internet-based phone service, if that is what customers

demand. Eric Rabe, a spokesman for Verizon, said that cable

companies were entering a highly competitive voice market.

"If they want to jump in, they'll be the 840th and 841st

competitors," he said, adding that the cable companies will

be focusing on their existing customer base, "which means,

at this point, it is very small for them."

Mr. Britt of Time Warner also expressed caution about how

quickly the cable companies could challenge phone companies

that have the overwhelming share of the local telephone

market. "They are very large and they are good

competitors," he said. "They're going to be around for a

long time."

But as Mr. Leibowitz of Act II Partners noted, the cable

companies really have no choice but to get into the voice

market, because phone companies are pushing into the data

and video markets.

"They realize they need to do it now, and they need to do

it quickly," he said, and to compete, major

telecommunications competitors "are ultimately going to

have to be in every business, everywhere - including

mobile."

http://www.nytimes.com/2003/12/09/technolo...2c0b218eed8e734

[HolyMoly]

Speaking of VOIP service, I signed up with Vonage.com and am waiting for their "special box" to arrive in the mail. $24.99 per month (plus two unescapable Fed taxes totalling $2.25) for unlimited local calls and 500 anytime minutes a month to anywhere in the U.S./Canada. Will give a full report when the box arrives and I have a chance to try it out.