Time Warner Cable says it has signed a deal with Sprint and MCI to help send telephone calls over lines once used only to deliver television programming.
The move, announced Monday, signals the escalating clash between the 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.
Several cable companies already offer phone service using an older technology, though they have only around eight million subscribers combined.
The technology, known as voice over Internet protocol, sends phone calls as digital data over the Internet. Customers using the service would plug regular phones into modems connected to the cable wire in their homes. They would be able to keep their existing phone numbers, and the Internet-based calls can be received on regular phones. Refinements of this technology over the past year now allow cable companies to offer phone service in more markets more quickly than in the past.
In addition to Time Warner, 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 United States, 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 had made possible the rapid beginning of the service and was less expensive than more conventional cable-phone technology, called circuit switch technology. And 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 generated interest in cable phone service in the late 1990’s, 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.
Cablevision, the sixth-largest cable company, began offering Internet telephone services in late September, and by mid-November, it was available to more than four 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.
