Carrier Channel: Wholesalers Put Cablecos in Phone Business

Posted: 4/2003

Wholesalers Put Cablecos in Phone Business

By Khali Henderson

To date, cable telephony deployments have been TDM-based as most would-be cable/telcos have been waiting for an end-to-end VoIP solution, which has been touted as being a less expensive entry strategy than connecting two-way hybrid-fiber coaxial (HFC) to Class 5 switches.

The wait may end soon as required network components -- embedded multimedia terminal adapters, cable modem termination systems and call management servers -- were expected to be certified compliant with the PacketCable IP-based voice-over-cable standard at the end of first quarter. While many cablecos finally will be able to move out of the trial phase and into live deployments of an end-to-end PacketCable architecture in at least some of their markets, analysts at The Yankee Group say large-scale voice deployments are still a year away.

Meanwhile, other MSOs -- small and large -- are turning to partnerships and wholesale agreements as alternative paths to adding TDM and even IP-based voice to their video and data bundles. Insight Communications Company, the ninth largest cable operator, for example, entered an agreement with AT&T Corp. in summer 2000 to co-brand AT&T local telephone service both independently and as part of a voice, voice and data bundle.

AT&T installs and maintains the switching equipment and serves as the local exchange carrier. Insight maintains and provides access to its cable infrastructure. Telephony revenue is attributed to AT&T, which pays Insight a monthly per line access fee for the local loop. AT&T also pays Insight for marketing, installation and billing support for AT&T's local and long-distance service. AT&T and Insight share capital expenditures; Insight is responsible for network investments from the cable headend to the customer premise, including all customer telephony equipment, while AT&T covers the network from the connection at the headend to its telephony switching equipment.

Insight's AT&T Digital Phone service is available in parts of Louisville and Lexington, Ky.; Evansville, Ind.; and Columbus, Ohio. The company reports 30,600 telephone customers as of Dec. 31, 2002.

Ted Griggs, founder and chairman of Syndeo Corp., a softswitch vendor backed by Comcast Interactive Capital and others, says this kind of arrangement between cablecos and service providers is going to become more common, particularly as the cable companies enter commercial markets.

"Right now they are starting to run more and more high-speed data links into small and medium businesses and they'd like to augment them with telephony services like Centrex," he says. "So the MSO has the rights of way into the businesses and another provider will come in and layer the equipment either on the premise or inside the MSO's network to deliver the voice service to the subscribers." Griggs claims to know of three MSOs that are looking at similar models.

While VoIP is less expensive than TDM, Syndeo estimates total cost of ownership for a residential VoIP deployment is about $400 to $500 per household with a return on investment window of about four to seven years.

It's these kinds of numbers that have MSOs, particularly those serving less dense areas, looking at alternatives like Gemini Voice Solutions Inc., which offers private-labeled hosted VoIP services to MSOs, such as top 20 MSOs WideOpenWest LLC and Tele-Media Corp.

"Gemini Voice has been able to provide a completely integrated service solution that has minimized any additional resource allocations from our end," notes Steve Koval, vice president of information technology for Tele-Media in a press statement, concurrent with the company's February rollout of the service in its Virginia systems following a successful four-month trial.

The Gemini Broadband Voice service includes a proprietary softswitch/call management server, VoIP-to-PSTN network termination, the Gemini Gateway customer premise equipment, back-office telephony support systems and billing integration. The same platform was used to provide service to 1.4 million users and processed 60 million per month for Gemini's predecessor PhoneFree, an ad-supported direct-to-consumer PC-to-phone service.

To provide the service, Gemini takes a 50 percent share of the revenue plus upfront fees for integration with the MSO's customer service and billing systems.

Geoff Hatheway, senior vice president of marketing for Gemini, says the model can be attractive to MSOs that don't have huge headends or resources. "Those companies are going to continue to need a hosted solution," he says, noting that larger MSOs might also find the solution to be a good entry strategy with a migration path to a facilities-based model by licensing the Gemini Voice Operating System. "They can start hosted and when they have enough customers, flip it to an 'own and operate' model, replicating our IP telephony infrastructure into one of their headends."

Hatheway says such a license has not been sold, but would run into the millions of dollars.

Currently, the Gemini Voice Service is suitable for second-line voice applications. The Gemini Gateway's PSTN pass-through feature enables an "any-distance" phone service that co-exists with the end-user's LEC service, eliminating the need to have a separate VoIP-only long distance phone. As broadband operator networks are upgraded to achieve 99.999 percent availability and PacketCable standards are in place for the industry, the Gemini Broadband Voice service will be able to deliver full primary line service capabilities, such as support for network powering, emergency 911 and the Communications Assistance for Law Enforcement Act.

Source: In-Stat/MDR, September 2002Source: In-Stat/MDR, September 2002

Cox: VoIP May Reduce Reliance on Wholesale IXCs

By Khali Henderson

By investing in circuit-switched technology instead of waiting for VoIP to be perfected, Cox Communications has been a frontrunner in rolling out cable telephony services and now serves 740,000 local phone customers. It relies on resale agreements with IXCs, such as WorldCom Inc. and WilTel Communications Group Inc., to provide the long-distance portion. That may change once the cableco moves to VoIP.

"With its network, Cox could potentially transport all of the long-distance traffic to it own business locations as well as its customers' long-distance calls, thus minimizing reliance on third-party wholesale long-distance providers," the company wrote in a February 2003 whitepaper detailing its VoIP strategies.

The company reports nearly 20 percent of the outbound calls made by Cox phone customers are to customers in other Cox circuit-switched markets, highlighting the opportunity to transport all those calls on-net. Even in non-Cox markets, such as Chicago, Dallas, Los Angeles and New York, the company envisions having to pay only the local interconnect charges, since its 0C48 IP backbone not only connects all Cox markets, it passes major metro hubs.

The white paper identifies the benefits of such a step, including reduced exposure to the unstable long-distance carrier market beset by recent bankruptcies and business failures, cost savings from leveraging the capital investment in its new IP network, reduction in overall transport costs for long-distance minutes of use and better utilization of the full capabilities of its IP backbone.

The company's network includes 11 regional data centers and three services data centers (SDCs) providing the company with a national presence beyond the local-only networks typical in the cable business. The SDCs could potentially serve as hosting locations for VoIP softswitch technology, enabling nationwide telephony coverage.

Spokesman Bobby Amarishahi tells PHONE+, "We consider great potential in VoIP technology and our national IP network to lessen our reliance on other carriers for transport of our long-distance services, but we don't see ourselves completely disconnecting from such providers to support delivery of [long distance]."