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Sinking VoIP Costs Cheer Op Execs

2/15/2004 7:00 PM Eastern

Cable companies accustomed to large capital outlays are in for a pleasant surprise: the costs of rolling out Internet-protocol telephony service just keep plunging.

Cablevision Systems Corp. president Tom Rutledge last Tuesday said he continues to be amazed at the decline in costs associated with the rollout of voice-over-Internet protocol (VoIP), which could be the next big thing for cable.

“I can't budget my capital costs low enough. I keep being shocked at how quickly the price of modems continues to fall [and] the cost of switching continues to fall,” Rutledge said at a conference here hosted by the telecommunications-analysis firm Precursor.

Cablevision made its $39.95 Optimum Voice service available to 4.4 million homes late last year.

VoIP subscriber totals are expected to be reported for the first time March 2, spokesman Jim Maiella said.

The service already generates 40% operating margins, translating into about $15 per customer in monthly cash flow, Rutledge said.

Margins should improve steadily, because as VoIP penetration increases, Cablevision realizes a steady reduction in charges imposed by the Baby Bells to terminate calls, he said.

The VoIP market leader actually is Vonage Holdings Corp., with about 100,000 customers, all of whom need high-speed Internet connections.

Vonage chief financial officer John Rego told the Precursor forum that about 70% of Vonage customers use a cable modem, while 30% use digital subscriber lines.

Rutledge said he didn't mind Vonage leveraging his network because “every customer that buys our high-speed access service because they want Vonage is really a win for us.”

Cable has pledged not to use network control to squeeze VoIP competitors like Vonage by charging access fees or similar charges.

Last week, FCC chairman Michael Powell warned cable to keep that promise if it wanted to avoid regulation.

Mark Coblitz, Comcast Corp.'s senior vice president of strategic planning, said his company wasn't afraid of third-party VoIP providers running a business on its network.

“Frankly, that's OK. That's the way competition will occur,” Coblitz told the Precursor forum.

“We will have other things that we will do in our services, because we built the infrastructure and we have that,” Coblitz said.

Other free VoIP services, offered by Skype and Free World Dialup, don't connect calls to phones outside their Internet-exclusive systems.

Coblitz said consumers will surprise businesses and regulators by the VoIP choices they make.

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