In a race to bundle voice services along with high-speed data and video to its customers, Time Warner Cable is launching Voice over IP services to its customers in Portland, Maine.
The launch is expected to serve as a test market for the number two cable company before it rolls out the service in major metro markets such as New York.
All the major cable companies are working on offering a bundled suite of voice, data and video services. But so far, telephony services have lagged behind high-speed data and video on demand offerings as the cable companies work out technical kinks associated with offering telephony services on their cable networks.
The cable company, a division of AOL Time Warner, has been aggressively upgrading its cable systems to digital, which enables its Road Runner Internet broadband service, video on demand services in over 30 markets so far. In addition, its VoIP services are enabled by its digital cable infrastructure.
Other cable companies such as Comcast and Cablevision recently began offering telephony services in select markets. Comcast's trial is in Philadelphia and it expects to be offering the service commercially in 2004.
Time Warner Cable is calling its new offering "digital phone" service, which costs $40 per month for unlimited local, in-state and domestic long-distance services.
Cable companies are trying to eat into the telephone companies market share, as they try to offer a competitively priced bundle of broadband services. The telephone companies are marketing voice and data packages, but DSL continues to trail cable modem subscriptions by nearly a third of the overall broadband market.
Up until recent improvements in VoIP technology surfaced, the cable companies focused only on offering digital video and cable modem services. But now as some limited voice service offerings reach the market, several cable operators will be watching if subscribers add voice to their existing video and cable modem services.
Voice over IP transforms telephone calls into digital packets, which are then transported over the Internet. By adding voice, the cable companies are deploying a bundling strategy in order to protect against losing broadband customers to DSL providers, and video programming customers to satellite broadcasting providers.
Time Warner Cable is working with Cisco Systems (NASDAQ: CSCO) for what the networking giant calls the "first production deployment of cable voice over IP." Cisco said its "Powered Network infrastructure" helps Time Warner Cable offer digital phone services now, and helps build a foundation for future services such as video telephony and multiplayer on-line gaming.
The service is deploying Cisco's BTS 10200 Softswitch cable modem termination system and MGXR 8850 voice gateway products.
According to Jupiter Research, a division of Jupitermedia and parent of Optically Networked, cable operators are gradually moving toward a voice-over-IP (VoIP) strategy to deliver consumer telephony services, aided by new technology standards. "But equipment costs are still high," analyst Lydia Lozides wrote in a recent report about cable providers' bundling strategy.
"Moreover, a few key operators such as Comcast (through AT&T markets) and Cox Communications are driving the acquisition of VoIP customers specifically, and telephony customers generally."
The report said that at the end of the fourth quarter of 2002, Comcast had approximately 1.4 million telephony subscribers, Cox Communications (NYSE:COX) was listed with about 718,420 (18 percent penetration), and Cablevision had 12,240 telephony customers. Figures for Time Warner Cable were not available.
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