You’re a small-to-midsize cable operator, and you know voice over IP service represents the biggest potential revenue stream out there. But the cost of launching these telephony services—in which software packets of voice signals whip down to consumers through high-speed lines—still is prohibitively high, even if it has dropped significantly in the past year. For example, the country’s fourth-largest MSO, Cox, has seen end-to-end equipment costs come down to workable levels in just one year: The per-customer outlay for deployment is $267, compared to $527 per circuit-switched customer. A year earlier, when IP per customer was $564 and switched was $610, the cost saving was almost nil, according to an IP white paper the MSO released last month. Still, these start-up costs are difficult for smaller MSOs to absorb, causing them to debate whether to wait for costs to come down further or bite the bullet and roll out services immediately. For the most part, it seems small-to-midsize MSOs have decided to wait before rolling out VoIP—a strategy that is supported by most sectors of the industry. Increasingly, these smaller MSOs are pursuing an interim model of using alternative network or application providers, such as Vonage and Net2Phone, while they wait for VoIP costs to come down. Essentially, companies such as Vonage and Net2Phone allow operators to market telephony service under their own brands. One of the bigger operators, Time Warner Cable, has adopted part of this strategy, using the infrastructure of telecom companies Sprint and MCI to handle data backhaul outposts in its deployments. Atlantic Broadband president Ed Holleran is one of the MSO executives exploring an alternative partnership while his midsize operation waits for telephony costs to drop. "There are a lot of pros and cons to sieve through, whether about Vonage or Net2Phone or Sprint," he says. "All we know is that it makes sense having others with telephony experience come in and partner up with us." "[Operators] must determine what solutions are right for them, and consider consumer demand for service," says Louis Holder, EVP of product development at Vonage. "The small and midsize people will watch and jump in as the tech evolves. They want better features and functionality." Vonage already counts Armstrong Utilities, Advanced Communications and Mid-Hudson Cablevision among its MSO clients—a list it hopes to grow. It may have difficulty, however, dealing with bigger MSOs, particularly if the operators have rolled out circuit-switched technology. In such cases, Vonage is seen more as a bitter competitor than a willing partner. Still, Holder says he hasn’t seen much backlash yet from MSOs. "We’re pursuing negotiations with a number of operators," he says. Another supporter of the wait-and-see approach among smaller operators is Arun Sobti, CEO of IP Unity, a company supplying both VoIP equipment and ITV adaptations of caller ID and other voice applications. "There will be some leaders and some laggards. Some of those laggards will wait until the leaders make mistakes," Sobti says. "In the end, I don’t think there will be as much space between the leaders and the laggards." Why Wait? Smaller MSOs’ look-before-leaping approach frustrates some IP vendors, who—not so surprisingly—say smaller operators who wait to deploy VoIP services are making a grave mistake. One such vendor is Net2Phone, which is working with Bresnan Communications, Cequel and Northland Communications on their VoIP rollouts. "There’s two reasons why [it’s a mistake to wait]," says Michael Pastor, president of Net2Phone’s cable telephony division. "The first is competition. There’s so much of it about to launch from the telcos and elsewhere, going after cable subs on both voice and high-speed data, that it’s crucial for operators to catch their subs with voice services early on. If they wait 12 or 24 months, they’ll have a lower base of subs available. Second, outsourcers like us can guarantee voice quality, because we’ve had years of managing and scaling both narrowband and broadband IP for voice. We’ve taken the lumps out of the way." 2005: The Tipping Point The high cost of rollouts and the availability of interim solutions are pushing some launches into the middle of next year. Some operators, such as Atlantic Broadband, which assumed control of Charter systems throughout the Eastern U.S. a few weeks ago, have decided it’s best to wait. Atlantic is high on VoIP, but it wants to learn from the bigger MSOs who are rolling out services now. (In other words, don’t expect a rollout from Atlantic until mid-2005.) "We’re doing our homework to understand the deal-making and partnership possibilities, so when we deploy, it’s done at low risk," says Atlantic’s Holleran. "It’s important to watch who’s out there now, like Cox, and how they’re doing." Executives who are calling for patience when it comes to VoIP still believe systems should deploy cable telephony services by next year. Former AT&T Broadband executive Mark Dzuban, now vice chairman of equipment vendor Cedar Point Communications, says bigger MSOs must get comfy with how the product connects with their subscribers first. After that, everyone else will follow. "If you wait, you can mimic what the big guys do," he says. "If you’re in a competitive situation, there’s several flavors to choose from to immediately get into the business." Cox says it won’t be pressured to roll out VoIP services too early because management is working on its own timetable. "Most operators were skittish to roll out circuit-switched telephony while we were going forward in the mid-90s," says Cox product marketing VP David Pugliese. "Our own internal priorities will drive the timetable." Cox is rolling out VoIP services in Roanoke, Va.; it’s also driving a trial of caller ID on the TV in an undisclosed circuit-switched market. Employees have been using the ID feature for a few months, and customers will get a chance this fall. The feature is a curtain raiser for Cox’s new agenda—integration of video, voice and data over various platforms, Pugliese says. "Caller ID is a great example of that integration," he says. "Wouldn’t it be great to see who’s calling you on TV and choose to take the call or not?" The Argument for VoIP…Now! From every angle—buzz, rollout activity, vendor interest and revenue forecasts—VoIP appears to be cable’s next golden goose. The bigger MSOs are practically falling over themselves to roll out telephony. A few of the telecom powers, such as Verizon, are getting their own VoIP rollouts going—which could have an effect on the timing of smaller operators’ IP rollouts. The bigger MSOs have become much more active since last December. Time Warner Cable, which promised then to have protocol-powered service everywhere in its national footprint within a year, has introduced IP "Digital Phone" service in six markets. Most recently it rolled out services in Raleigh, N.C., before Memorial Day to about 7,500 initial customers. Cablevision has more than 71,000 subscribers for its Optimum Voice telephony product, drawing about 3,200 new orders a week. In less than three months, Cablevision doubled the Optimum base it had at the end of 2003. Cox isn’t releasing a sub count for its first VoIP undertaking in Roanoke, but marketing VP Pugliese says the take rate—in just six months of existence—"equals what we’ve done for the same period" in 11 locations where Cox offers Digital Telephone over circuit-switched plant. "And the signal reliability is as good as circuit-switched," he adds. As for the nation’s largest operator, Comcast, it hasn’t opened a public line on any of the places IP service is on trial: Indianapolis, Springfield, Mass., and a few Philadelphia suburbs. But at its annual shareholders meet in Philly last month, Comcast signaled a big bet on VoIP, announcing half of its plant nationwide would be suited to handle IP transmission at the end of the year, and the rest configured that way in 2005. (Company spokespeople refute earlier published accounts of IP telephony available to Comcast’s 22 million basic subs and 40 million homes passed by the end of 2006, declaring that a rollout timetable has not been developed.) A few small and midsize system owners also are jumping into the VoIP pond. Armstrong has a project going in one of its Pennsylvania systems, while Bresnan and Northland anticipate launching VoIP sometime before Labor Day. Liberty Cablevision of Puerto Rico, owned by Liberty Media’s international unit, is completing its first month of IP deployment among its 125,000 basic subs and 320,000 homes passed. An All-IP World Industry forecasters are equally bullish. Kagan Research estimates 400,000 cable telephony customers will be taking local, long-distance, call-forwarding, caller ID, three-way dialing and other services via VoIP by year’s end, bringing MSOs $109 million in revenue. Four years from now, Kagan visualizes a pool of 13.3 million IP phone users, and operators enjoying $5.3 billion in annual revenue from the service. What Kagan and other research authorities can’t predict is how IP technology will transform the entire cable industry. When Dallas Clement, Cox’s strategy/development SVP, declared that IP phone was "absolutely ready for prime time" at a Kagan event on the subject two months ago, he added that "tomorrow, it will provide video telephony." Driven by a multimedia format of CableLabs’ PacketCable venture and other developments, gaming, telemedicine, home security and automation could be among the IP-driven applications available by the end of the decade. By then, operators may be deploying all-IP as well as all-digital video transmission systems, enabling nearly any imaginable type of service to run down a virtual packet pipe. "Within three years, you should see a lot of functionality delivered through packet transmissions," says Michael Khalilian, the former chief tech officer of Time Warner’s telecommunications division and chairman of the International Packet Communications Consortium, a union of companies exploring VoIP relationships. "Of course, what functionalities get to consumers will be determined by how MSOs want to make money. The tech is coming together to do it."

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Cable TV Pioneers Induction Friday

Set your alarm for 9pm ET Friday. That’s when C-SPAN 3 and C-SPAN.org will televise the induction of the 54th annual Cable TV Pioneers Gala.

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