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VoIP Drives Cable Success
[April 28, 2006]

VoIP Drives Cable Success

Associate Editor
Last year brought record growth in the United States for the Voice over IP (VoIP) market, as total subscribers increased by some 2 ½ times to more than 4.5 million by year’s end.
Naturally, such a steep subscriber growth rate must be reflected in service provider revenues, which reportedly increased by some 300% to more than $1 billion.  Much of that growth comes, and will continue to come, at the expense of incumbent telcos, as cable companies and VoIP specialists like Vonage dominate the space.  The difference lies in that cable providers have added voice to their array of services and now can provide a triple play of video, data, and voice.

Cable providers currently account for slightly more than half of the VoIP market, and VoIP specialist tally another 37%.  That leaves a mere 11% for telcos whose traditional lifeline has been voice communications.  Indeed, the top VoIP providers include Vonage, Time Warner Telecom, Cablevision, and Comcast (News - Alert) — AT&T (News - Alert), Verizon (News - Alert), and Qwest (News - Alert) are all notably absent.

In the fourth quarter of last year, Cablevision recorded revenue increases of $6 million for video, $9 million for Internet, and $12 million voice — corresponding to increased subscribers of 6.5%, 5.9%, and 21.6% respectively.  In addition, average revenue per subscriber rose 3.9% for the quarter and 13.7% for the year. 
For Q1 of this year, Comcast, the nation’s largest cable operator, reported a 6% increase in video revenues (14% subscriber increase), along with an 11% increase in customers subscribing to HDTV and/or DVR services.  Internet subscriber revenues were up 22% and digital voice revenues were up 9% ($37 million) — though that was offset by a 12% ($21 million) decline in circuit-switched voice customers.
Monthly revenue per subscriber across all Comcast lines of business was $86.75, 9.8% from last year.  The driving force was voice, which accounted for more than half of that total. 
“Our first quarter results set new records across the board,” said Brian Roberts, Chairman and CEO. “We posted record subscriber additions in digital, high-speed Internet and voice and added more basic subscribers this quarter than any first quarter in the last three years. This terrific performance reflects our success in delivering superior services and in forging broader relationships and stronger connections with our customers.”
More importantly, Comcast showed a threefold increase in profits, largely lifted by the increases in high-speed Internet and digital phone subscriptions.  The company reported earnings of 22 cents per share, some 8 cents more than most expectations.  Not only is the cable provider signing customers, but it doing so without sacrificing profits.
So, having added voice service to their offerings, cable providers present consumers a distinct advantage in that they now have the entire triple play offering, which telcos and ISPs lack.  This, in turn, makes it abundantly convenient for them to provide bundled packages with appealing pricing to attract additional customers and retain existing ones.
A popular marketing strategy is to offer discounted rates on the three components for a limited time.  For instance, Cablevision offers a $30 monthly rate on each service for new customers for the first 12 months.  The result is a hike in subscribers and a smaller increase in revenues, but an additional revenue increase a year later, once the 12-month introductory offer has expired. 
The added benefit of a single bill for all three services provides also should not be discounted — it is an added incentive for many customers who already see too many bills in the mail each month.  Even a decrease in the volume of bills makes consumers feel good.
Fortunately (for telcos, not so much for cable), the truth is that telcos find themselves losing ground not because of poor products or service, but a lack of services.  Namely, IPTV (News - Alert) is still in its infancy, and its programming is limited.  As a result, telcos and ISPs are unable to realize its potential.
But, the increase in digital service subscribers, like DVRs, is a clear indication that consumers want more control over their viewing habits, which is what IPTV will provide once it matures.  Once that evolution takes place — and it will — cable will lose its natural advantage.  Instead, companies like Verizon and AT&T, which have been furiously running fiber lines across their operating areas, will find themselves in a position to wrest back customers they may have lost.  Yes, they will have to market effectively and price intelligently, but the opportunity will again be there.  Add cellular service to the mix, and telcos will then have an appealing four-way offering.
Erik Linask is Associate Editor of INTERNET TELEPHONY. Most recently, he was Managing Editor at Global Custodian, an international securities services publication. To see more of his articles, please visit Erik Linask’s columnist page.

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