Time Warner to use cable lines to add phone service
By MATT RICHTEL New York Times
Tuesday, December 9, 2003
Time Warner Cable said on Monday that it had signed a deal with Sprint and MCI to help it send telephone calls over lines once used only to deliver television programming. The move signals the escalating clash between cable and telephone industries, and shows how quickly cable companies are transforming themselves into all- purpose telecommunications providers.
Internet technology has made it possible for the cable companies to use their lines — which reach nearly every American home — to deliver telephone service as well as high-speed Internet connections. Time Warner said it intended to offer telephone service by the end of next year in major markets in most, if not all, of the 27 states it serves. Time Warner is the dominate cable company serving southeastern Wisconsin.
Several cable companies already offer phone service using an older technology, though they have only around 8 million subscribers combined.
The technology, known as voice over Internet protocol, sends phone calls as digital data as Internet traffic. Customers using the service would plug regular phones into modems connected to the cable wire in their homes. They will be able to keep their existing phone numbers, and the Internet-base calls can be received on regular phones. Refinements of this technology over the last year now allow cable companies to offer phone service in more markets more quickly than in the past.
2004 expansion plans
In addition to Time Warner Cable, cable giants Comcast, Cox Communications and Cablevision have started deployment of Internet phone services, with plans to expand those services in 2004.
Time Warner Cable, the second-largest cable company in the country with 11 million subscribers, entered the phone market in May with service in Portland, Maine, signing up 8,000 subscribers who pay $39.95 to $49.95 for unlimited local and domestic long-distance calling.
“Our plan, by the end of next year, is to be in most, if not all, of our markets,” said Glenn Britt, chief executive of Time Warner Cable, a division of Time Warner.
Britt said the Internet technology made possible the rapid rollout of the service and was less expensive than the more conventional cable-phone technology, called circuit switch technology. Industry analysts said those cost savings would be passed on to consumers in the form of lower phone bills.
The move comes as Time Warner, the cable company’s parent, has sought to shed huge amounts of debt and mine new sources of revenue. The development of a telephone service could be particularly significant because the cable division already is Time Warner’s “biggest profit center,” said Dennis Leibowitz, a general partner at Act II Partners, a media and telecommunications hedge fund based in New York. “It’s the growth element” of Time Warner, he said.
Under the deal announced Monday, Time Warner Cable will pay Sprint and MCI to carry the telephone traffic from its cable network across a larger telephone network and deliver the calls to the receiving numbers. The companies did not disclose terms of the deal.
Earlier efforts by cable companies to deploy telephone service over cable lines had mixed results. AT&T Cable Systems, for example, generated interest in cable phone service in the late 1990s, but the company was acquired last year by Comcast, the nation’s largest cable company. At that time, Comcast said it would not expand that business but would focus on making sure it was profitable.
Comcast has said it is taking a cautious approach to the new technology, noting that despite its promise, Internet telephony is in its early stages. “We want to work the kinks out, then take it larger,” said Sam Chernak, a vice president at Comcast.
Cablevision, the sixth-largest cable company, began offering Internet telephone services in late September, and by mid-November, it was available to more than 4 million homes in Connecticut, New York and parts of New Jersey.
Cablevision offers its service only to its high-speed Internet customers, charging them an additional $34.95 a month for unlimited calling in the United States and Canada. Analysts said they were impressed with the company’s first marketing push.
Leibowitz said the cable industry’s move into phone service has long been anticipated. “The idea of rebuilding the cable world was to offer voice, data and telephony — and telephony has been the missing piece,” he said. “For economic and competitive reasons, they are now ready” to offer it.
