Phone Is Comcast's 'Next Big Engine'

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The biggest cable company has finally spelled out its plans for the next big thing in cable. Predictably, they call for a big rollout.

Comcast Corp. CEO Brian Roberts said the top U.S. MSO would introduce Internet-based telephone services in 20 markets by the end of the year and across its 40 million-home footprint in 2006.

A late player to cable telephony — it tested voice-over-Internet protocol service in three markets last year — Comcast expects to gain ground fast with an aggressive rollout.

If all goes as scheduled, Comcast's voice product would be in front of 15 million marketable homes this year. Comcast has about 21.5 million U.S. customers.

At the Citigroup Smith Barney Media & Telecommunications conference in Phoenix on Jan. 10, Roberts said he expects the voice service to hit 20% penetration, or 8 million customers, in five years.

If it can maintain a heady $39.95 per month price for unlimited local and long-distance service — $54.95 for customers who don't take at least one other Comcast service — that could mean $1.5 billion of cash flow in the fifth year.

“As we think about Comcast Digital Voice, we really do believe this is the next engine for growth,” Roberts said.

Comcast's bells and whistles will include E911 service, battery backup power, voice mail and call waiting. Future features could include customized ring tones, caller ID on the TV, voice activated dialing and video phone. Comcast executives have long talked about integrating high-speed Internet and Internet phone services over time.

BUNDLED DISCOUNTS

Roberts said customers would not have to buy video or HSI from Comcast to get phone service, but discounts will be offered for the bundle.

Comcast bought about 1.2 million circuit-switched telephone customers along with AT&T Broadband in November 2001, but has de-emphasized that in favor of advanced video services.

Roberts said the circuit-switched business will be maintained for the time being, but the idea is to migrate those customers to VoIP.

If 2004 was the year of video-on-demand — Comcast has deployed VOD across its footprint and said it delivered 58 million streams to customers in October — this will be the year of VoIP.

And a year of head-to-head competition with two of the most aggressive Baby Bell regional phone companies.

Verizon Communications Inc. operates in about 33.8% of Comcast's footprint, while SBC Communications Inc. is in 29.7%, according to UBS Warburg cable debt and equity analyst Aryeh Bourkoff.

Verizon and SBC are just starting to get into the fiber-delivered video game, but both last week downplayed Comcast's aggressive move into their core business.

“Comcast is about the 401st VoIP provider out there,” Verizon spokesman Eric Rabe said. “They're certainly a big one, but there are other big ones.”

Verizon, which already offers VoIP in several markets, plans to build a fiber-to-the-premises network in nine states, to offer VOD, HDTV and digital video recorders.

Rabe said Verizon's FTTP network will reach 3 million homes this year.

SBC, which has about 326,000 video customers via EchoStar Communications Corp.'s Dish Network, has committed $4 billion to a fiber project to bring IP video and VoIP to 18 million homes over the next three years.

Spokeswoman Denise Koenig said SBC also plans a VoIP service via digital subscriber lines in the first quarter of this year.

Other MSOs also have significant exposure to SBC and Verizon. Cox Communications Inc. — with 1.2 million circuit-switched customers — heads the list with 41% and 16% overlap. The bulk of Cablevision Systems Corp.'s footprint is in Verizon territory (78.6%), while Time Warner Cable has 29.2% in SBC areas and 25.4% in Verizon markets.

Roberts said Comcast isn't seeking all-out war with the Bells. “It is not our desire to do this to hurt the phone companies,” he said. “We want to build value in the home. We're just not coming at this to reduce prices or to change the model.”

TIME WARNER'S KEEN

Time Warner Cable rolled out voice service across 31 markets late last year.

At the same conference last week, Time Warner Inc. chief financial officer Wayne Pace said the cable unit has more than 200,000 telephone customers and is adding 11,000 new customers per week.

“This year, we're going to look to execute and aggressively acquire subs as we deepen our footprint,” Pace said. He didn't give any more details.

Pace said Time Warner sees telephony as a generator of $13 billion to $16 billion in revenue in its footprint alone, and the voice service should substantially boost average revenue per unit, currently at around $70 per month.

Cablevision, which began rolling out Optimum Voice in the New York metropolitan area last year, passed the 250,000 voice customer mark in December. Cablevision has said it is adding 1,000 new phone customers per day.

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