Cable’s VoIP: Killer App, Changes Everything?

By: Jimmy Schaeffler

Cable’s VoIP: Killer App, Changes Everything?

By The Carmel Group’s Jimmy Schaeffler

Did former AT&T CEO Michael Armstrong have it right when he risked his career on the idea of melding telephone voice services with audio-video and 2-way broadband Internet? Put another way, Is modern day VoIP really such an awe-inspiring service and development? The answers are yes, yes (and, partly, no).

Voice over Internet Protocol (VoIP) refers to telephony services delivered over standard broadband Internet lines (as opposed to standard analog lines). In short, VoIP services convert a voice into a digital signal that travels over the Internet. As such, VoIP is something that those delivering standard Internet services, such as mid-to-large sized cable operators and the larger telco operators, are able to deliver (and fairly easily) to their residential and business customers.

Top cable service provider Cablevision Systems leads the cable VoIP charge. Interestingly, Comcast (the heir to Armstrong’s AT&T subscriber base), is close on CVC’s heals in its support and build-out of VoIP. Both appear to be using VoIP largely as a sword in their arsenal against the burgeoning telephone service providers. But expect the telcos themselves – especially AT&T and Verizon—to make VoIP a key card in the hands they show their satellite and cable rivals. Plus, even the smaller- and medium-sized cable operators are embracing VoIP, as a recent study by The Carmel Group indicates, whereby 17% of the ACA’s 1,100 members are offering VoIP services today to their nearly eight million subscribers.     

VoIP = No

Some VoIP limitations include who can employ VoIP services and what hardware is required. According to the FCC’s website, http://www.fcc.gov/voip/, “Some VoIP services allow only calls to other people using the same service, but others allow calls to anyone who has a telephone number - including local, long distance, mobile, and international numbers. Also, while some VoIP services only work over your computer or a special VoIP phone, other services allow you to use a traditional phone connected to a VoIP adapter.”

Further, there are remnants of a problem of consumer access to emergency services within the VoIP ecosystem, but these are believed to be focused currently on non-cable, on smaller cable and on operators that partner with non-cable entities, according to the industry trade group, NCTA. Notes NCTA’s Rob Stoddard, Sr. VP, Communications, “For the core of our members, 9-11 emergency response is not a substantial issue.” Some VoIP systems are said also to lack directory service and service when power lines fail.

Plus, VoIP success has created a few headaches for large cable operators like Comcast’s Brian Roberts and Cablevision’s Tom Rutledge, but these are more along the lines of meeting the quickly increasing consumer service and technology demands.

VoIP = Yes

Yet many more positives appear to be pervading VoIP technologies and deployment. The Carmel Group estimates nearly 12 mil. year-end ’06 VoIP subscribers from all providers. By 2008, that number will nearly double.

The basic reason VoIP is so important, even vital, to the future success of multichannel providers is because it helps complete the triple play for MSOs, and it provides a long-awaited less expensive alternative to switched services for the telcos. The VoIP platform is said to be more flexible and dynamic in a new and dominant digital environment, suggesting that the more broadband is rolled out, the more VoIP will be rolled out, as well. 

Consumers also appear to benefit significantly. Under assignment from the NCTA, The Microeconomics Consulting & Research Associates firm estimates consumer savings from telco and cable competition in the telephone services marketplace at over $100 billion by 2011. Consumers are also being offered low-cost new features via VoIP, such as caller ID on TV when the phone rings, teleconferencing and call forwarding. Moreover, cable trade groups such as the American Cable Assn. (ACA) indicate consumer savings even for customers who do not become VoIP subscribers. As noted above, there is pressure on all other voice service rates from the mere existence of VoIP competition in this marketplace.

Future Benefits

Another recent study by TeleGeography Research shows business-based VoIP services going from 39 mil. subscribers today to 532 mil. by 2009. This supports the oft-cited idea of cable joining the ranks of telecom vendors servicing corporate and enterprise America. 

Additionally, the telcos and cable ops expect VoIP’s continued roll-out to become a stronger competitive play for them in the next 12 months as they compete more fiercely with satellite operators. In fact, by year-end 2007, The Carmel Group estimates VoIP will add approximately $10-$15 to net monthly ARPU for cable operators, helping to generate a stronger revenue stream in their advanced services area.

One of hottest topics this year surrounding VoIP is the “wireless VoIP” technology, where the VoIP network is blended together with cellular and WiFi systems. The result is a truly mobile platform that links people to all facets of communication and entertainment. Imagine a cable operator being able to deliver not only its voice service, but also data and video content over a mobile digital network. Although the future of cable operators moving into this direction is fairly certain, it isn’t likely to create a major shift for at least another 18 months.   

Concludes ACA’s COO Rob Shema, “Everyone in the business for the long haul is into or will be in VOIP as part of a triple play solution. In a competitive market, VoIP is essential. A voice and data business is an essential addition to a video business with limited margins and strong competition across the board.”

Answering the question above, one can’t help but lament Michael Armstrong and his view into the crystal ball…just a few years too early.