Heavy Reading
EXECUTIVE SUMMARY

Cable Triple Play: The VOIP Card

The North American cable industry's decade-long threat to enter the telephone industry's core turf - the voice services market - is finally coming to fruition in a meaningful way in 2004 and 2005. According to the National Cable Telecommunications Association (NCTA), U.S. MSOs (multiple system operators) claimed some 2.5 million telephony customers by the end of 2003, with some industry projections pegging the total at more than 4 million by the end of 2004.

Given successes like Cox Communications' 30 percent telephone market penetration in markets like Oklahoma City, many operators are confident they can expand their voice-over-cable (a.k.a. VoCable) businesses at a pace comparable to their high-speed data and digital video service track records, both of which represent rapid success stories.

Initial forays into the VoCable market came primarily through old-school circuit-switched services, with Cox being the most aggressive MSO on that front. This time, however, voice service rollouts are coming primarily through packet-switched VOIP - a technology choice that fits very neatly into MSO network architectures.

Cable Triple Play: The VOIP Card presents a detailed analysis of the voice services activities and plans for the top 37 cable operators in the U.S. and Canada. Together, these MSOs account for nearly 90 percent of the 78.8 million cable subscribers in North America (71 million in the U.S. and 7.3 million in Canada).

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The report details and analyzes each MSO's voice strategy to date, focusing on technology and vendor choices, market success rates, and current plans for voice service expansion. It also includes information on the management structure of each MSO – providing important insight into how each cable company makes its technology and equipment choices. In more than a few cases, the profiles also focus on cellular and broadband wireless technologies and services, as many MSOs begin to plan, engineer, and negotiate toward a "quadruple play" that would combine voice, video, data, and mobility.

The report also features an overview of the key cable industry standards that are guiding suppliers in their development of equipment, along with profiles of 33 VoCable equipment providers that have made inroads into MSO telephony trials or commercial rollouts, have achieved CableLabs certification for their products, have built products specifically for cable, and/or are engaged in directly marketing their products to cable operators.

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The vendors profiled are targeting the cable market with the following products: high-speed data equipment, softswitch and VOIP terminal gear, and PacketCable Multimedia (PCMM) application server, policy server, and terminal products.




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Key Findings

Key findings from the report include the following:

After years of delays and false starts, cable operators are emerging as a very real threat to local telco dominance of voice services. Cox Communications, which has long been the most aggressive cable player to enter the voice market, now claims penetration rates as high as 30 percent in many markets. This success is bolstering the cable industry's faith in pent-up consumer frustration with incumbent voice providers and its excitement about a service that involves stealing market share from telco triple play competitors.

The vast majority of cable MSOs already provide some type of voice service or have committed to launch commercial phone service in the next 18 months. As of September 2004, 30 of the top 37 MSOs (81 percent) have committed to voice as a mainstream service offering, and 22 of those operators already offer some voice service. More than a dozen MSOs have already gained significant experience in the voice market, with some offering commercial service for as long as seven years.

VOIP is clearly supplanting circuit-switched service as the technology of choice for cable operators. First-generation successes in the cable telephony market were driven by circuit-switched offerings. However, several MSOs have launched full-blown VOIP services, and a significant number of the top ten MSOs have committed to purchases of VOIP softswitch and other equipment. Notably large VOIP rollouts include offerings by Cablevision Systems in the New York area and VOIP rollouts in multiple midsized markets by Charter Communications, Cox, Time Warner Cable, and others.

Many cable MSOs are striking deals with telecom service providers to outsource their voice services as a way to get into the market quickly. Ten MSOs in North America have inked deals with telecom network operators to handle their voice services, and several more have outsourcing deals in place with affiliated CLECs. By going the outsourcing route, MSOs can complete their own service triple play quickly without getting bogged down in technology deployments to address such critical issues as delivery of primary-line service (including self-powering phones).

Most MSOs that have committed to VOIP have completed softswitch request for proposal (RFP) evaluations or have already deployed softswitches. This includes a combination of MSOs that have already launched commercial VOIP; MSOs that have selected softswitch vendors, including three of Canada's largest operators; and a handful of third-party VOIP outsourcers that are delivering turnkey service in partnership with MSOs.

MSOs are committed to delivering primary-line voice service using standby network power and standby customer premises equipment (CPE) batteries. Some early cable VOIP rollouts, such as Time Warner Cable's Digital Phone service in Portland, Maine, are being marketed as secondary-line service because they do not yet address the self-powering issue. But all MSOs committed to delivering voice service say they will do so with primary-line services that can compete directly with telco offerings.

Cable MSOs clearly see the ability to deliver multiple services as a powerful tool to acquire and retain customers. The majority of MSOs profiled in this report have stated their belief in the multiservice model either publicly or in telephone interviews with Heavy Reading. Invariably, these companies point to rapidly rising numbers of their own customers who are signing up for two or more services.

MSO management structure, including planning and purchasing authority, is highly centralized – making it much easier for technology suppliers to find the right buyers for their products. A flurry of system trading and ownership consolidation in the 1990s led to more geographically consolidated operators, which was then followed by network upgrades and, subsequently, deployment of high-speed data and digital video infrastructure deployments that have largely replaced far-flung mom-and-pop cable companies with more clustered and technologically homogeneous operators.

Report Scope and Structure

This report provides profiles of North America's 37 largest MSOs. The profiles are based on a combination of direct interviews, Securities and Exchange Commission (SEC) filings, press announcements, and news articles.

For each operator, the report presents data on:

Current size and reach
Current state of network infrastructure
Engineering and procurement practices
Current telephone deployments, trials, and commercial operations
Commitments to 2004/2005 telephone service, triple-play service bundling and, in many cases, capital spending plans


Although a number of operators declined to reveal their plans at depth, citing the need for competitive secrecy, trend leaders among the top ten MSOs – including Comcast, Charter, Rogers Cable, and Vidéotron – proved quite forthcoming for our report, as did leading turnkey wholesale providers Net2Phone and Vonage, as well as a number of the smaller but agile operators that in some cases are among the most aggressive triple-play champions.

Section I of the report includes a complete overview and the key findings of the report.

Section II analyzes the business models being used by cable MSOs as they make their move into the VoCable market.

Section III lays out the market factors that are driving MSOs to deliver voice services, as well as the obstacles that operators must still overcome to succeed in the VoCable market.

Section IV includes detailed profiles of the 37 largest cable MSOs in North America, including full information on their VoCable initiatives to date.

Section V profiles telecom service providers that have formed partnerships with cable MSOs to deliver outsourced voice services.

Section VI outlines the key technology standards and specifications that are driving cable industry forays into voice services.

Section VII profiles the equipment vendors that have made the most significant inroads into the cable market in these product categories: high-speed data equipment, softswitch and VOIP terminal gear, and PacketCable Multimedia (PCMM) application server, policy server, and terminal products.

The report is essential reading for a wide range of industry participants, including the following:

Local telecom service providers: Which cable operators pose the greatest threat to your voice services business, and which specific markets are they targeting in VOIP? What is your competition's timetable for rolling out triple-play services that include VOIP? How will the VOIP rollout strategies of cable competitors affect your own plans to deploy new services to compete with multiservice product offerings? Which technologies or partnerships are your cable competitors using, and can you exploit those technologies and partnerships to your advantage?

VOIP wholesalers: Which cable operators are still in the market for a VOIP partner, and which ones are still formulating their VOIP plans? Where are the opportunities to expand partnerships with cable VOIP resellers? What do cable operators plan to do about competition from VOIP providers that deliver service independent of the operator?

Cable companies: How do your voice service plans compare with those of other cable operators? Do wholesalers offer a quick and effective way to deliver voice service, or do the potential drawbacks of that strategy present too great a risk? Which vendors are in the best position to deliver standard and CableLabs-certified VOIP products today?

Equipment suppliers: How are your competitors faring in this market? Which cable operators are making the most aggressive moves into the VOIP sector, and what is the status of their equipment supply contracts? Which regional operators are in the best position to make the move into VOIP services, and how can the key decision-makers in those companies be reached?

Investors: How extensive an impact will cable VOIP competition have on local telecom service providers, and which providers are most at risk from the cable triple play? Which equipment vendors and service wholesalers are in the best position to capitalize on the cable industry's aggressive move into VOIP?


Cable Triple Play: The VOIP Card is published in PDF format. The report is sold as an enterprise license, which means it can be distributed throughout the purchaser's organization.

LENGTH: 108 PAGES
PRICE: $3,495
PETER LAMBERT
Analyst, Heavy Reading
Peter Lambert has covered the telecommunica-tions technology markets as a consultant, analyst, and journalist since 1986. In addition to his work for Heavy Reading, he has produced research reports for the OSS Through Java Initiative, the United States Telecom Association (USTA), and the Association for Local Telecommunication Services (ALTS), as well as a dozen business process software suppliers…
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KEY FINDINGS
Cable operators are finally emerging as a very real threat to local telco voice business
The vast majority of cable operators have committed to offering voice service
VOIP is clearly emerging as the technology of choice for the cable triple play
Most cable companies have started circulating RFPs for VOIP equipment
Many cable MSOs are striking deals with VOIP wholesalers for quick market entry
VOIP deployment plans are based on delivering primary-line service to consumers
COMPANIES ANALYZED AND PROFILED IN THIS REPORT:
The top 37 cable MSOs in North America

11 VOIP service providers that are pursuing resale agreements with cable MSOs for delivering VOIP service over cable networks

33 equipment manufacturers that are specifically targeting the cable sector with a variety of voice-enabling product lines

DELIVERABLES
108 pages of company profiles and strategic analysis

Complete analysis of voice service plans for the 37 largest MSOs in North America

Deployment plans and rollout schedules for cable voice services

Breakouts of equipment and services wins by vendors and VOIP wholesalers

LENGTH: 108 PAGES
PRICE: $3,495
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