New Services Stir Up Telecom Market

The battle to provide consumers with communications services is entering a new phase. Cable TV companies increasingly are offering voice services as part of a package that includes video and data. This trend challenges the dominance of phone companies, which are finding their switch-based voice networks marginalized by Internet technologies such as voice over IP.

The number of cable subscribers using a cable modem to make voice calls will more than triple from around 3.6 million today to about 11.6 million in 2008, according to research firm the Yankee Group. Cable companies are fueling that growth by slashing prices and adding services.

Cablevision Systems Corp. last week cut the cost of its digital cable TV, broadband Internet access, and voice services, in effect giving customers free local and long-distance voice calls. The company, which serves more than 3 million homes in the New York metropolitan area, will charge $90 per month for the package--the same amount it used to charge just for digital cable and Internet access.

The new price competes directly with phone company Verizon Communications, which offers a voice and DSL data plan for $90 a month. Verizon also has a partnership with satellite TV company DirectTV and, in some markets, offers that service for an extra $38.

"The triple play that the cable companies can offer is something that the traditional phone companies can't do," says Yankee Group analyst Zeus Kerravala. It's easier for cable companies to add voice than it is for phone companies to offer video services, he says.

One advantage the phone companies still have is the ability to offer packages that also include mobile phone service, but that's a hole the cable companies want to plug. Last week, cable company Time Warner said it's talking to cell-phone providers about reselling their services. Packaging mobile service in with data, voice, and TV could be a killer combination, Kerravala says.

The major phone companies aren't waiting to be replaced. SBC Communications Inc. last week said it will spend $4 billion to $6 billion over the next five years to deploy more high-speed fiber in its network, replacing slower copper connections. Pending regulatory approval and successful tests, SBC will lay fiber throughout its service areas, terminating at neighborhood-level nodes that could serve either dozens or hundreds of homes. Once the fiber is in place, SBC plans to market new high-bandwidth services, including an IP-based television service being co-developed with Microsoft.

Other phone companies have their own plans to compete with cable. BellSouth Corp. is getting ready to start trials of video services over its network. And Qwest Communications International Inc. last week revealed plans to deploy IP telephone service that will let business customers use one line for data and voice communications. The service will debut in Boise, Idaho; Denver; Minneapolis; and Phoenix next month and will expand to more than 20 additional markets by the end of the year.

New technology could disrupt the market even more. IP telephony software vendor Sylantro Systems Corp. last week released a tool that integrates with Yahoo Messenger, allowing users to send voice calls over the Yahoo Instant Messaging interface. Sylantro developed the tool independently using Yahoo's open interface and is working with service providers to determine how it will deploy and market the application.