December 8, 2003 4:32 PM PST

Time Warner Cable reaches VoIP deals

Time Warner Cable and two U.S. telephone service providers announced agreements Monday that may help the cable company's attack on the local and long-distance phone service market.

Sprint Communications and MCI will supply Time Warner Cable (TWC) with the necessary technology bridge so the cable company's Digital Phone subscribers can reach traditional telephone customers in a total of 27 markets, according to a TWC spokesman. The long-distance carriers also plan to provide Digital Phone subscribers with a location-based 911 service and local-number portability.

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What's new:
Sprint Communications and MCI will supply Time Warner Cable with the necessary technology bridge so the cable company's Digital Phone subscribers can reach traditional telephone customers in 27 markets.

Bottom line:
VoIP is generating significant interest, particularly among cable companies that want to challenge traditional long-distance and local phone service providers.

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The deals should help TWC significantly expand where it's offering Digital Phone, which costs Time Warner cable customers $39.95 a month for unlimited local and long-distance service. Those who aren't Time Warner Cable customers pay an additional $10 a month.

"We have a national rollout planned for 2004; it's just a question of where," said a TWC spokesman.

Digital Phone is now only offered in Portland, Maine, and for some "select" customers in North Carolina. The cable company has permission from utility regulators in Maine, New York and North Carolina to offer a telephone service. It has also filed for permission from Kansas, Missouri, Ohio and Texas, and it recently met with California utility regulators.

MCI described the deal with TWC as lasting multiple years and being worth multiple millions of dollars. Representative from all three companies declined to releases additional financial details.

The Time Warner Cable deals are a sign that major cable companies are starting to embrace voice over Internet Protocol ( VoIP), a technology for making phone calls using Internet Protocol, the world's most popular method for sending data from one computer to another.

After years of overpromising and underdelivering, VoIP is generating significant interest, particularly among cable companies that want to challenge traditional long-distance and local phone service providers. Currently, about 10 percent of all voice traffic is classified as VoIP, although less than 1 percent of those calls originate on a VoIP phone.


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Time Warner Cable and Cablevision are both using VoIP technology. "This is one of the main products that drove cable companies to spend $75 billion over five years to upgrade their networks to digital capacity," said David Joyce, a Guzman & Co. analyst.

But major cable providers Cox Communications and Comcast are hesitant to dabble in VoIP. Instead, they are content to sell phone services to a combined 2.1 million people using an earlier generation of telephone switches, which hog more bandwidth and are more expensive to operate than VoIP. Some Cox and Comcast executives believe VoIP as a technology is still not ready for widespread adoption.

That might change. "There's going to be some pressure on select cable operators by what Time Warner Cable is doing," said Mike Paxton, an In-Stat/MDR analyst. "I think pressure is going to be on operators that don't already offer voice services, such as Adelphia and Charter Communications."

Joyce said Time Warner Cable is a bit ahead of most major cable operators in terms of VoIP introduction "mainly because its systems are completely upgraded."

For Sprint Communications, the deal is a significant expansion from just providing bandwidth for Time Warner Cable's Roadrunner high-speed Internet service, said Sprint spokesman David Gunasegaram. It's the first time the long-distance provider has ever had such an agreement, he said. "We are targeting and in discussion with several other carriers," he added, but he did not name them.

 

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