Talkin’ Up Telephone


New York— Top executives from the major MSOs descended here last week for a pair of conferences, intent on persuading media investors that cable is still a good place to put their money. And practically to a man, the message was the same: cable has a huge opportunity to capture a large share of the voice telephone market.

Presentations by seven MSOs at both the UBS Warburg Media Week conference and the across-town Credit Suisse First Boston Media & Telecommunications conference were heavily skewed toward opportunities in voice-over-Internet protocol service, with Cablevision Systems Corp leading the pack.

Cablevision, gaining unexpected momentum from a triple-play promotional package that offers digital cable, high-speed Internet service and VoIP telephone service for $90 per month, said it had crossed the 250,000-subscriber mark for its voice service. The speed of customer acceptance for the VoIP offering was not lost on other conference attendees.

“Ask [Cablevision chief operating officer Tom] Rutledge about his voice product,” Adelphia Communications Corp. chairman and CEO Bill Schleyer said during his presentation at the UBS conference. “He is just knocking them dead.”

Time Warner Cable, which plans to make its VoIP service available to all of its 31 divisions by the end of the year — it is currently available in 30 divisions — also said that it expected to end the year with about 200,000 digital-telephone subscribers.

Time Warner Cable chairman and CEO Glenn Britt said at both conferences that weekly telephony additions are approaching 10,000 and ramping up. And that’s without heavily marketing the service.

In Time Warner Cable’s footprint, Britt estimated, the market for local phone service is between $13 billion and $16 billion.

Britt wouldn’t get into specifics as to how high the margins are for voice service, but he said they were substantial.

“The margins on voice and data are huge,” Britt said. “Voice is very profitable at these prices.”

Time Warner charges about $39.95 for voice service as part of a bundle, which includes unlimited local and long-distance calling and features such as call waiting, caller ID, call forwarding and voice mail. Cablevision offers a similar VoIP service (only to high-speed data customers) for about $34.95 per month.

That’s about half the price for local and long-distance offered by regional Bell operating companies in the MSOs’ respective territories.


Cable’s push into phone service comes at a time when investors have become increasingly skittish about the RBOCs’ video plans.

Both Verizon Communications Inc. and SBC Communications Corp. have announced bold plans to build out their fiber networks over 10 years to offer video, as well as voice and data. (See stories, page 51.)

But while not dismissing the RBOCs’ moves, the MSOs at the two conferences didn’t seem overly concerned.

Rutledge noted that Verizon, the MSO’s top competitor, hasn’t won a single franchise agreement in any Cablevision territories for video service. The Bethpage, N.Y.-based MSO has 409 franchise agreements for its systems in the New York metropolitan area, Rutledge noted.

At the CS First Boston conference last week, Rutledge said the decision to launch the promotional triple-play package was not spurred out of fears of what the RBOCs might do with video.

“We did the triple play because we could,” Rutledge said. “The network was ready, we had a product that we knew could work, we learned enough about it that we thought we could operate it [long-term]. So we’re ready today to sell lots of VoIP. And we have the ability to use the offers we have to drive our business.”

And while some criticized Cablevision for pricing the triple-play bundle so low, it has been an effective tool to upsell customers to higher service tiers. Rutledge said that the average new customer coming in through the promotion pays about $110 per month, the result of taking higher-tier digital service.

Rutledge added that Cablevision’s phone success — it’s signing on 1,000 voice customers per day — comes without number portability, or the ability for a phone customer to retain his current phone number when he switches service.

While Rutledge said number portability is being beta-tested in a few areas and should be rolled out sometime next year, it hasn’t been a concern yet, because many new phone customers are recent movers who bought the triple-play package.

“New subscribers are generally moving into an area and getting a new phone number anyway,” Rutledge said. “So the impediments to new subscribers hooking up to voice-over-IP are not nearly as great as that of existing customers.

“We saw an opportunity to take advantage of that and get the growth machine going.”

Rutledge added that number-portability testing could be completed in “a matter of weeks,” and offered to the public soon after.


While Time Warner and Cablevision are the current leaders in voice service, just about every other MSO plans to offer service next year.

At Charter Communications Inc., which has VoIP service available in a few markets, CEO Carl Vogel said the product offers the troubled MSO a high revenue stream with little upfront cost.

“In terms of the telephone business, we think on a macro basis there is an excellent opportunity here — cable’s share is quite low, the product works, costs are coming down and customer acceptance is going up,” Vogel said. “This is our primary revenue engine going forward.”

Charter had VoIP available to about 500,000 homes at the end of the third quarter and plans to increase that footprint to 1 million homes by the end of the year.

Over the past two years, Charter spent an average of $270 in capital expenditures per customer, while its peers (who have rolled out more advanced services) spent much more, Vogel said. He estimated that Time Warner and Comcast spent about $340 in capex per customer and Cablevision and Cox Communications Inc. spent about $450 in capex per customer.

“We have taken an approach to the business that allows us to get in and have a presence with advanced services, but we would obviously like to accelerate that opportunity,” Vogel said. “The VoIP opportunity represents an area we are very keen on.”

As for Comcast Corp., co-chief financial officer John Alchin said the No. 1 U.S. operator will release greater details on its VoIP plans in January. He said half the company is rebuilt for IP telephony today, and the remainder will be ready for VoIP by the end of 2005.

He confirmed previous reports, including in Multichannel News (lead story, Oct. 11), that Comcast has joined a consortium of cable operators looking at wireless, but suggested the Comcast was in the catbird seat.

With its 21 million cable subscribers, he said: “Any independent wireless operator would be keen to do something with us. We can pick and choose our strategic alternatives.”

The MSO last week signed a 20-year, $100 million fiber backbone deal with Level 3 Communications, covering the lease of 19,000 route miles that will reach 95% of Comcast systems. The backbone will provide Comcast with greater efficiencies for VOD transport and capacity for the implementation of digital simulcasting, a first step toward recapturing analog-television bandwidth.


Even the MSOs that don’t have current plans for VoIP pined for the opportunity.

Bill Schleyer, busy with a dual-track sale and/or bankruptcy emergence, said that Adelphia’s platform is ripe for a VoIP product, but that it has other priorities.

“Given our experience at AT&T Broadband, we saw the power of the telephone product and the impact it had on churn,” said Schleyer, who headed up AT&T Broadband before joining Adelphia in 2003. “We’re champing at the bit to get VoIP introduced in our systems, but with the state of our operations, we’re not ready yet.”

Schleyer said that Adelphia could offer a VoIP service in six or seven months, if it emerges from bankruptcy as a new company. If it is sold, any new-product offerings would be up to the new owners.

Bids for Adelphia are expected in January, and Schleyer said that final documentation would come in February. A final decision on whether to sell or remain whole would be made in the first quarter of 2005, he said. If Adelphia is sold, Schleyer estimated the closing process would stretch into the fourth quarter. In contrast, he said Adelphia could emerge from bankruptcy as early as the second half of 2005.

Matt Stump contributed to this report.