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Small MSOs Make Initial Moves Into VoIP Service


Vonage In Print NewsBy Alan Breznick

In a turning point for the cable IP telephony business, three small-to-midsized cable operators have signed carriage deals with turnkey voice-over-Internet-Protocol (VoIP) providers. The deals follow commitments by two major MSOs--Time Warner Cable and Cablevision Systems--to move forward with pilot commercial rollouts this summer.

Advanced Cable Communications, Armstrong Cable and Adams Cable Service all announced Voip agreements at the NCTA show in Chicago last month. Advanced and Armstrong both inked pacts with Vonage Holdings while Adams signed a deal with Gemini Voice Solutions. The three MSO agreements together cover more than 300,000 cable subscribers in smaller and rural markets in New York, Pennsylvania, Ohio, Maryland, West Virginia, Kentucky and Florida.



Under its agreements with Advanced and Armstrong, Vonage will provide private-label digital phone service to the two MSOs' broadband subscribers. In both cases, cable modem customers will be able to get unlimited local and long-distance service for a flat monthly fee of $39.99. Voip subscribers will also receive such standard telephony features as call waiting and caller ID for no extra charge, plus some extra proprietary features.

"We provide the service, they provide the support and customer devices," said Daniel Elwell, a Vonage major account executive. Besides delivering the service, Vonage will also handle customer billing. Terms of the two deals were not disclosed. Both cable operators aim to introduce phone service by the end of the summer.

Elwell predicted that the Voip offerings will help boost broadband subscriptions for the two MSOs. Armstrong, with a total of 212,000 basic cable subscribers in five states, now has 65,000 broadband Internet customers. Advanced, with 75,000 overall basic cable customers, now has 9,000 high-speed data customers in two Florida markets.

"It's a perfect application for anyone," Elwell said. Vonage, which has been heavily courting cable operators, now boasts more than 30,000 Voip subscribers in 77 markets through its earlier distribution pact with EarthLink and its own marketing efforts. Elwell said the company, which is so far getting 60% of its subscribers from cable and 40% from DSL, is shooting for at least 100,000 customers by the end of the year. "The other operators are coming to the table," he said.

Jud Stewart, vice president of marketing for Armstrong, said his company originally planned to enter the IP telephony business on its own. It even started testing a Voip service with its employees. But, feeling too small to tackle the complexities of the business itself right now, it has switched gears and turned to Vonage.

"We're just not big enough to drive that wagon," said Stewart, who still hopes to develop a home-grown Armstrong service down the line. The Vonage deal offers "a really nice first step into telephony," he said. "This is good for at least two years."

Stewart said he's aiming to achieve 2% penetration of Armstrong's customer base in the first six to eight months. Longer term, he's seeking to reach a 10% take rate.

In the show's other Voip deal, Adams Cable, a 24,000-subscriber MSO, said it will use Gemini Voice's "turnkey" platform to offer both local and long-distance phone service to its high-speed data subscribers in Pennsylvania and New York. Under the agreement, Gemini will supply Adams Cable with all call routing, termination, tracking and rating, as well as local direct dial and calling features and billing integration services. Gemini will also provide tier-2 and tier-3 live customer support and its "Gemini Gateway" customer premise equipment.

While Vonage and Gemini Voice announced distribution deals at the convention, other Voip players scrambled to entice curious cable operators too. Cedar Point Communications, Net2Phone and others showcased their equipment and services and promoted their ability to launch smaller MSOs into the telephony business quickly and smoothly.

Net2Phone, for example, showed off a model of its pilot IP telephony deployment in Puerto Rico. In that market, Liberty Cablevision has signed up 200 paying Voip customers in a very limited rollout since the start of the year, after conducting field tests last summer and fall.

"We got Liberty Cablevision up and running in 60 days in Puerto Rico," boasted Richard Gilbert, director of strategic planning for Net2Phone. In an interesting touch, Liberty Cablevision is introducing broadband data and primary-line telephony service at the same time on the island. Gilbert said the cable operator, which has about 300,000 basic cable subscribers, is shooting to have 4,000 telephony customers by the end of the year.

Besides its work for Liberty, Gilbert said, Net2Phone is also running a Voip trial for a second, undisclosed cable operator right now. He's hoping to land at least two to three service trials by the close of the year. "A number of cable operators are just very eager to dip their toe in the water," he said. "They want to try a Voip solution and see how it goes."

This eagerness to get started, Gilbert argued, is why such cable operators as Armstrong and Advanced have already struck deals with Vonage. "It's an easy, quick way to get in; it's shipping out a box," he said. "Our deployment is a little more rigorous. It needs system integration work."

In Canada, Galaxy Telecom is working to offer a turnkey IP telephony solution to cable operators. Vancouver-based Galaxy has started a technology trial with Whistler Cable Television in British Columbia.

The growing number of players seeking to provide outsourced IP telephony solutions are clearly hoping for better luck than the crop of ISPs that emerged in the late 1990s to offer turnkey cable modem solutions to tier 2 and 3 cable operators. Most of those companies, like ISP Channel (a subsidiary of Softnet Systems), HSA Corp. and @Home Solutions, ultimately crashed and burned, as their lopsided revenue-sharing business models proved unsustainable. To its credit, Vonage, by going directly to consumers, is seeking to insulate itself from dependence on broadband affiliates for success.

On the large MSO front, Time Warner and Cablevision executives said at the show that they're pushing ahead with their Voip rollout plans. A Time Warner spokesman said the company has now signed up more than 1,600 IP telephony customers in Portland, Maine since launching its new "Digital Phone" service in April. Available to broadband subscribers, Digital Phone is a primary-line service that offers unlimited local and long-distance calls in the U.S. for $39.95 a month, along with caller ID, call waiting and other standard telephony features.

"The service offering has been well received," the spokesman said. "It works and it's gotten a lot of response from customers and it's ready to go." He said Time Warner hasn't decided yet when it will launch a big marketing push for the product in Portland.

Pleased with the early results in Portland, one of their two test markets, Time Warner officials expect to introduce Voip service commercially in Rochester, N.Y., their other test market, before the year is out. Plans also call for launching Digital Phone in at least one or two other markets, including Raleigh, N.C. and/or Charlotte, N.C. and possibly areas of Ohio and Texas.

Cablevision Systems President Tom Rutledge declared that his company will make Voip available to the MSO's entire footprint--4.4 million homes in the New York area--before the summer is over. Known as "OptimumVoice," the primary-line service offers unlimited local and long-distance dialing to broadband subscribers for $34.95 a month. Customers also get call screening, forwarding and blocking features



 
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†AK and HI residents pay $29.95 shipping. ††Limited time offer. Valid for residents of the United States (&DC), 18 years or older, who open new accounts. Offer good while supplies last and only on new account activations. One kit per account/household. Offer cannot be combined with any other discounts, promotions or plans and is not applicable to past purchases. Good while supplies last. Allow up to 2 weeks for shipping. Other restrictions may apply.

1Unlimited calling and other services for all residential plans are based on normal residential, personal, non-commercial use. A combination of factors is used to determine abnormal use, including but not limited to: the number of unique numbers called, calls forwarded, minutes used and other factors. Subject to our Reasonable Use Policy and Terms of Service.

2Shipping and activation fees waived with 1-year agreement. An Early Termination Fee (with periodic pro-rated reductions) applies if service is terminated before the end of the first 12 months. Additional restrictions may apply. See Terms of Service for details.

HIGH SPEED INTERNET REQUIRED. †VALID FOR NEW LINES ONLY. RATES EXCLUDE INTERNET SERVICE, SURCHARGES, FEES AND TAXES. DEVICE MAY BE REFURBISHED. If you subscribe to plans with monthly minutes allotments, all call minutes placed from both from your home and registered ExtensionsTM phones will count toward your monthly minutes allotment. ExtensionsTM calls made from mobiles use airtime and may incur surcharges, depending on your mobile plan. Alarms, TTY and other systems may not be compatible. Vonage 911 service operates differently than traditional 911. See www.vonage.com/911 for details.

** Certain call types excluded.

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