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How Cable Operators Market Telephony

By Richard Gilbert, Net2Phone Cable Telephony

 


Today cable operators have a unique opportunity to leverage their last mile access to subscribers homes via coaxial networks and deliver a full suite of digital converged services. Video on demand, digital television recording, high-speed Internet and now, digital telephony using VoIP technologies are all available to operators looking to generate new revenue opportunities and create more value for their customers, also making it more difficult for the subscriber to cancel their service. The opportunities cable operators have today are real, but need to be integrated with the rest of the cable operators offering to fully leverage the power of the triple play. Many cable operators today position their phone service as a traditional phone service, sometimes calling it digital phone; some operators such as Cablevision, Time Warner, and others rarely market the service as Voice over Internet Protocol (VoIP)-based technology.

Competitive Threat Or Opportunity?
Cable operators face as many threats as they have opportunities. With satellite operators and DSL operators presenting viable competitive offers at a discount to cables video and high speed data services, VoIP bypass operators also present a new threat leveraging cables broadband infrastructure. These parasitic telephony startups present a viable challenge as they target early adopters (typically through Web-based marketing) and compete on price drawing from cable subscribers who are most likely to spend on the new services. These providers generate publicity and establish a reputation and a pricing threshold for VoIP-based cable telephony.

Lastly, incumbent telephone companies (Baby Bells, in particular), which are most directly threatened by cable operators and are responding to the cable threat by reducing the price of their DSL broadband service and their traditional all-inclusive voice plans (e.g., SBCs recent reduction of its unlimited calling plan to $40, not including taxes and fees), introducing their own VoIP service and even testing their own video services to be delivered over DSL.

How To Deploy Voice
After determining whether to build their own phone service or outsource the development effort to a service provider such as Net2Phone, operators must determine whether the telephony service will be positioned as a primary replacement service versus an alternative line service similar to the VoIP-based telephony startup. The quality of the overall service and how it is positioned determines how much the cable operator can charge for the service. Primary line replacement services tend to be priced from $35 to $40 for unlimited call plans, while the alternative line services tend to be priced from $20 to $29 for its unlimited calling plans.

Leveraging the PacketCable specification, cable operators are supporting a DOCSIS 1.1 (or better) broadband network and have the ability to offer higher levels of quality of service (QoS) to further differentiate their voice service from the VoIP startups. The specification provides end-to-end QoS by enabling the cable operator to identify voice packets and reserve pre-allocated bandwidth.

Deploying a DOCSIS 1.1 network allows the operator to avoid any contention with other high-speed Internet services and eliminate some of the typical problems with Internet telephony that may lead to degradation of quality including packet loss, latency and jitter. A primary line service can be positioned as a viable replacement to the incumbent phone company and be bundled with cables video and data service.

Other factors impacting the positioning of the service include the installation approach of the new voice subscriber used by the cable operator, whether to offer number portability, and the package pricing of the service vis--vis the other services offered in the bundle.

Installation Approach
While it has become easier to install cable phone service, allowing your customers to install the service themselves not only presents higher degree of risk of churn or cancellation, but also eliminates the opportunity for the cable technician to interact with the subscriber, test the line, finalize the number portability (if applicable), and most importantly, having the opportunity to take over the in-house wiring, enabling subscribers to utilize all the phone jacks in the home. By offering an installation service (free of charge) the operator conveys a sense of quality control that supports the overall message of quality and value, enabling the cable operator to convert the subscriber from the incumbent.

Many operators feel the cost of a truck roll ($75 to $125) is justifiable, especially for new triple-play subscribers (allocating the cost over three services). However, even for a single service such as voice, the operator has the opportunity to touch the subscriber, explain the features and benefits, and possibly even identify and promote cross-sell/up-sell opportunities, making the truck roll an important differentiator. If a port activation is involved, the scheduled install date should be the day of the port (firm order commitment/FOC date) offered by the losing LEC, in order to limit the installation to one visit.




Number Portability
Local number portability allows subscribers to change their phone providers while keeping their phone number. However, offering number portability presents many operational challenges for the cable operator from the submission of the local service request (LSR) to the losing LEC to coordinating the timing of the installation with the availability of the port and the collection of a letter of authorization (LOA). (LOAs are mandated on a state by state basis, principally to alleviate the slamming that occurred between long distance providers in the 80s & 90s. Some states may require third-party authorization (TPA) in lieu of a LOA.)

Pricing
Today, price appears to be the greatest driver for switching service providers and adopting VoIP-based cable telephony service. According to recent Sanford Bernstein research, Verizons unlimited long distance Freedom Plan costs $45 per month and more than $60 when taxes and fees are factored into the total monthly invoice for traditional voice services (including voice mail). VoIP services do not have such fees, allowing cable operators to offer an all-inclusive price that is still 50 percent below the incumbent (Table 1).

It should be made clear, that these taxes and fees do not represent the potential savings offered by cable operators today as Verizons Freedom plan is still five to ten dollars more expensive than Time Warner Cables Digital Phone or Cablevisions Optimum Voice, but still represent additional savings enjoyed by the subscriber.

For most operators pricing the service and communicating the savings is the call to action driving the subscriber to the voice service and appears to be the most challenging when offering telephony. How much of a discount to the incumbent should be offered; how should cable operators value other services such as voice mail, Web-based subscriber account center, and finally, how the service should be priced as part of the bundle are all considerations when determines when determining a price and how to best communicate it.

Ultimately, telephonys greatest measures of success for cable operators are the ability to reduce churn and drive new revenues. In addition to these benefits, one of the most surprising statistics we have seen has been the incremental growth of 10 to 20 percent of new video subscribers. The fact that operators are able to grow their video base introducing a basic service such as phone is significant and is encouraging many other operators to further invest in phone service to expand their base. Much of the success is due to the clear and simple positioning developed by these operators emphasizing price, quality and convenience. IT

Richard Gilbert is vice president, Strategic Planning at Net2Phone Cable Telephony LLC. For more information, please visit www.net2phone.com.

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