Jimmy Schaeffler

Dialing Up Digital Phone Lines
November 29, 2006

Did former AT&T CEO Michael Armstrong have it right in 1998 when he risked his career on the idea of melding telephone voice services with the audio and video of cable TV and two-way high-speed Internet services?

Put another way, is modern-day digital phone service really such an awe-inspiring service and development? The answers are yes, yes (and, partly, no).

Voice-over-Internet-protocol (VoIP) technology converts a voice into a digital signal that travels over the Internet. That makes it an easy service for mid- to large-sized cable operators (and large telcos) to deliver to residential and business customers.

Top cable-service provider Cablevision Systems leads the cable VoIP charge, with more than 24% of the homes it passes taking the service.

Interestingly, Comcast (the heir to Armstrong’s AT&T subscriber base) is close on Cablevision’s heels in its support and build-out of VoIP.

Both appear to be using VoIP largely as a sword in their arsenal against the telephone-service providers as they invade the television business.

A recent study by The Carmel Group indicated that 17% of the American Cable Association’s 1,100 members are offering VoIP services today to their nearly 8 million subscribers. And AT&T and Verizon are in on the game, too.

There are some residual issues, such as being able to provide emergency 911 services. Nonetheless, The Carmel Group estimates that there will be nearly 12 million VoIP subscribers for all providers at the end of this year. By 2008, that number will nearly double.

The basic reason VoIP is so important, even vital, to the future success of multichannel providers is because it helps complete the triple play for system operators and it provides a long-awaited and less expensive alternative to switched services for the telcos. The VoIP platform is flexible and dynamic, able to add features rapidly as part of the increasingly digital world of communications. Consumers are being offered low-cost new features, such as caller ID on TV when the phone rings, teleconferencing and call forwarding.

Consumers also appear to benefit significantly. Under assignment from the National Cable & Telecommunications Association, The Microeconomics Consulting & Research Associates firm estimates consumer savings from telco and cable competition in the telephone services marketplace at more than $100 billion by 2011.

Moreover, cable trade groups such as the ACA find savings even for customers who do not become VoIP subscribers. The mere existence of low-cost VoIP services tends to lower prices of pre-existing phone services.

There’s also commercial business. TeleGeography Research shows business-based VoIP services going from 39 million subscribers today to 532 million by 2009. Cable, after years of talk, is joining the ranks of telecom vendors servicing corporate and enterprise America. And, soon, wireless VoIP will see cable operators delivering data and video to mobile users, as well.

Overall, by the end of 2007, The Carmel Group estimates that VoIP will add approximately $10-$15 to net monthly revenue per subscriber for cable operators, helping to generate a stronger revenue stream in advanced services area.

Concludes ACA chief operating officer Rob Shema: “Everyone in the business for the long haul is into or will be in VoIP as part of a triple-play solution. In a competitive market, VoIP is essential. A voice and data business is an essential addition to a video business with limited margins and strong competition across the board.”

Raise a toast to Michael Armstrong, long gone now from AT&T. He was right -- just a few years too early.

Jimmy Schaeffler is chief service officer and senior analyst at The Carmel Group, a Carmel-by-the-Sea, Calif.-based conference organizer, publisher and consultancy. He can be reached at (831) 643 2222 or at jimmy@carmelgroup.com.

Posted by Jimmy Schaeffler on November 29, 2006 | Comments (1)