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5/30/2008 8:00 PM Eastern

As cable operators increasingly try to crack the small to midsize business market, a number of telecommunications providers are trying to help them by managing the rollout of cablers’ voice services in smaller markets.

Companies including IPtimize, Momentum and SinglePipe Communications had their services on display May 18 to 20 at The Cable Show. SinglePipe announced a deal with Texas-based CMA Communications and IPtimize touted Mountain Zone Cable Systems as a new customer.

The idea is to help smaller cable firms add voice-over-Internet protocol service for business and residential customers atop existing cable-modem platforms, offering local and long-distance calling as well as integrating with existing back-office billing systems. The companies also provide 911 compliance and handle other regulatory paperwork.

Momentum, of Birmingham, Ala., says it lets cable companies in smaller markets offer businesses multiple phone lines with services such as auto attendant and music hold, using a customer’s existing switchboard and phones. It cites Yankee Group research that small to medium-size business customers want IP-based cost savings and that 58% of small businesses and 64% of medium businesses indicate that they would “prefer to buy data and voice solutions from the same vendor.”

Momentum and IPtimize, in particular, cite packages targeting cable firms’ business customers, while SinglePipe said it addresses residential customers and business firms.

Ron Pitcock, chairman and CEO of Denver-based IPtimize, previously co-founded a company called High Speed Access Corp. that, in the 1990s, helped cable firms in smaller markets offer cable modems.

Pitcock said smaller-market operators now need to add voice to stay competitive, and are similarly challenged to make the investment required to do it alone.

“There’s need out there at all these small systems for this service,” Pitcock said.

HSAC and others failed partly because of the upfront capital expense borne by the vendors, in exchange for a cut of the revenue. There also was a “built-in exit strategy” in that the cable operator eventually would take the business in-house, Pitcock said.

WHOLESALE MODEL

This time, Pitcock said, companies such as IPtimize are not paying for the home equipment needed to adapt cable-modem service to also accommodate voice. IPtimize is basically selling phone lines on a wholesale basis.

Also, the services provided, such as ongoing support, are not ones small-market cable companies are likely to take in-house, Pitcock said. “This time, the exit’s not there,” he said. “It’ll be longer lasting.”

HSAC sold out to Paul Allen’s Vulcan Ventures for $81.1 million in 2002, becoming a rare dot-com flameout to exit with cash on the books.

Pitcock left before the company was sold but made money from being an early investor in HSAC, which went public in 1999 at about $13 per share and rose as high as $47.

He joined IPtimize about a year ago as a consultant, then reorganized and recapitalized the company under his leadership in February.

Pitcock said the business can be profitable at a small level and build gradually. An initial service rollout to Allen’s TV Cable Service employees and other “friendlies” in Morgan City, La., the week of the Cable Show went off with “not a hitch,” he said.

Allen’s TV president Greg Price said last week the technical test did go well, and his company is getting ready to start marketing a sub-$100 triple-play.

AT&T offers a triple-play in his markets, using DirecTV for video, and Price said he needed to add voice to compete.

PLENTY OF COMPETITION

He said Allen’s could have used other providers — for example, through the National Cable Television Cooperative’s preferred vendor arrangement with Net2Phone, which has long provided VoIP-hosting services to small MSOs. But a switch vendor steered him toward IPtimize.

“We had similar goals and intentions” as Pitcock’s firm in terms of branching out to serve smaller local business and residential customers, he said.

Pitcock said another IPtimize selling point is the ability to sell VoIP service to “off-network” customers, for businesses the cable company’s coax doesn’t reach.

In Prineville, Ore., Crestview Cable Communications launched VoIP using Momentum last September in two small markets with about 6,000 customers served from one headend, company president Roger Harris said.

The VoIP service has penetrated about 5% of 5,500 marketable customers, mostly homes, Harris said.

Crestview introduced cable-modem service using a third-party provider, ISP Channel. When it went out of business in 2001, Crestview got up to speed quickly on data provision, Harris said.

“The phone is a lot different than Internet,” he said, when asked if he foresaw Crestview taking the business in-house. “The switching and other interconnecting elements. I don’t foresee us getting out” of the Momentum relationship, he said.

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