VoIP Called a Winner for Cable


Growth in voice-over-Internet protocol telephony subscribers modestly outpaced estimates in the third quarter of what one analyst called the technology’s coming-out year as a consumer product.

And cable providers are leading the way.

Sanford Bernstein & Co. cable and satellite analyst Craig Moffett ran the numbers and estimated VoIP subscribership rose by 2.8 million in 2005, slightly ahead of his estimates.

Cable VoIP outpaced all other purveyors of the technology, adding 1.7 million phone customers to end the year at 2.3 million subscribers.


Moffett predicted that cable phone customer growth will be even stronger in 2006, especially since Comcast Corp. — the nation’s largest cable company, with 21.4 million basic video customers — isn’t expected to ramp up its phone rollout until later this year.

Moffett expects the cable phone subscriber base to climb by 3.5 million customers in 2006, ending the year with 5.9 million subscribers.

By 2010, Moffett expects cable phone to exceed 18% penetration of homes passed and nearly 20 million subscribers, up from a current average penetration rate of about 5.9%.

“Although year-end results for 2005 have not yet been reported, it is already clear that 2005 will be remembered as the year that VoIP finally established itself as a viable consumer technology,” Moffett wrote. “2006 promises to be an even bigger year for VoIP, likely to be remembered as the year VoIP went mainstream as a disruptive technology.”


Cablevision Systems Corp. and Time Warner Cable are expected to remain the pacesetters for the VoIP rollout, Moffett wrote. He estimated the two cable companies will end the fourth quarter with 704,000 VoIP subscribers (up 103,000) and 1.1 million phone customers (up 250,000), respectively.

Moffett was encouraged by strong third-quarter numbers from the cable companies. In total, VoIP subscribers were up 31% in that period.

He estimated that fourth-quarter total subscribers will rise 27% year over year, to 4 million, with cable accounting for most of that growth.

Moffett estimated that of the 4 million subscribers estimated at year-end, 60% were from cable, up from 50% a year ago.

Time Warner Cable leads cable’s VoIP charge, signing up its 1 millionth digital phone customer in December.

Vonage Holdings Corp. still leads all VoIP providers, with 1.3 million customers. But Time Warner Cable reached the 1 million-subscriber mark in 1.5 years — half the time it took Vonage to get there — despite having fewer than 20 million homes to market the service to, compared with the entire U.S. broadband base for Vonage.


Moffett also downplayed arguments that cable’s success in the telephone rollout has largely been due to aggressive pricing.

While Cablevision has priced its triple-play package aggressively — $89.85 per month for digital cable, high-speed Internet and telephone service — Time Warner has adopted a higher price point. At $40 per month for VoIP service, Time Warner is priced $5 per month higher than Cablevision and, in some cases, even higher than the list price for circuit-switched phone service from the local telephone carrier, Verizon Communications Inc., which offers a “Freedom Essentials” unlimited local and long-distance plan for about $35 a month.

Moffett said that the successes of Cablevision and Time Warner could be dwarfed by Comcast. Although the Philadelphia-based MSO has said it will end the year with about 202,000 VoIP customers — the low-end of its earlier guidance of between 200,000 and 250,000 customers — signs point to even stronger growth as the rollout accelerates.

Comcast recently launched VoIP service in major markets such as Atlanta, Denver, Seattle and Minneapolis. At the Citigroup Entertainment & Media conference in Phoenix earlier this month, CEO Brian Roberts said his company was adding 15,000 to 20,000 subscribers per week.

Comcast is expected to complete its IP telephony rollout by the end of 2006. Moffett estimates that at the end of the year, Comcast will have added about 1.2 million VoIP customers. But Moffett said that prediction — representing a 4.4% projected penetration rate — could prove to be conservative.


So where are those phone customers coming from? To Moffett, they appear to be coming directly from the traditional telephone companies like Verizon, BellSouth Corp., AT&T Inc., Sprint Nextel Inc.’s Sprint Local unit and Qwest Communications International Inc.

According to Moffett, the five local telecom carriers’ access-line losses increased to more than 8.6 million in 2005, after stabilizing at 6.5 million to 6.7 million in 2003 and 2004.

The telcos have responded by dropping prices, Moffett wrote.

While phone companies have aggressively priced their digital subscriber line high-speed Internet offerings for years, Moffett said that strategy is migrating to the voice product.

Verizon and AT&T now offer unlimited circuit-switched voice service for $40 per month. (Verizon, in response to Cablevision, has dropped that monthly price to $35 in some geographies.) Both also offer a VoIP product for $30 per month.