CABLE PLAYERS TAP VENDORS FOR VOIP SERVICE ROLLOUTS

Time Warner Cable's recent announcement that it would use Cisco Systems' equipment in its first commercial roll-out of voice-over IP service in Portland, Maine, positions the vendor as a potential early leader in the race for market share.

After several months of playing their cards close to their vests, the cable sector's multiple systems operators (MSOs) are finally starting to reveal their chosen VoIP vendors. However, Cisco — which in April won certification for its softswitch under the PacketCable Call Management Server qualification — would not reveal the extent of the Time Warner contract.

Time Warner's service, marketed as Digital Phone, is being positioned as a primary line replacement and was built on top of the existing IP infrastructure the operator uses to provide high-speed Internet access. The system has been up and running since February, but Time Warner officials decided to wait until mid-May to market the service so that they could iron out any technical kinks, said Mark Bakies, director of marketing for voice technology at Cisco.

“This is not only a customer win for us. It's a production network,” Bakies said.

Indeed, the customer win is probably more significant from a Cisco perspective than for the market overall. Despite press reports to the contrary, the network is not the first commercial deployment in the U.S., said Elaine Smiles, director of cable marketing with Nortel. That distinction, she said, belongs to Charter Communications, which launched commercial service in Wausau, Wis., in December using Nortel's softswitch and related equipment. At about the same time, however, Liberty was launching VoIP service in Puerto Rico by outsourcing almost the entire operation to Net2Phone. Also last month, Cablevision Systems announced it would use Siemens' Surpass platform to provide VoIP service, though it wouldn't provide details on the scope of the deployment.

Comcast, which inherited more than 1 million circuit-switched voice customers from AT&T Broadband and is the largest cable telephony provider, is currently in lab trials with VoIP equipment manufacturer Cedar Point and has moved some gear from its labs to Willow Grove, Pa., for a market test.

Despite quibbling over who was first, VoIP vendors can agree on a marked increase in interest from cable operators over the last several months. Spurred in part by CableLabs' DOCSIS certification wave 25 — which approved nine devices, including call management servers from Cisco and Syndeo and cable modem termination systems from Arris, Cisco, Motorola and Terayon — cable operators have moved the schedule for trials that weren't suppose to begin until the end of 2003 up to the second and third quarters.

“In the last 60 days, we've been asked to get very aggressive on the voice services,” said Paul Bosco, vice president of broadband and cable industry development at Cisco.

Charter, which announced a technical trial in St. Louis more than a year ago, is now experimenting with different price points in its Wisconsin system and has quickly reached 10% penetration in its market area, according to Smiles. “All last year we heard, ‘It's not ready,’” she said. “They can't say that anymore. I think the logjam in some ways was broken by Charter.”

Just as important, Smiles added, was the fact that Cox Communications highlighted the profitability of telephony service in its 2002 financial reports. The MSO's circuit-switched service, which also is based partially on Nortel equipment, has a margin of about 35%.

Using VoIP equipment should push those margins even higher if the goal is to provide primary line service at market rates, which is what most cable operators have indicated they will do. In fact, virtually all of the equipment in CableLabs' DOCSIS certification waves 25 and 26, which are testing VoIP equipment, are geared to lifeline service.

In the Time Warner deployment, Cisco is providing what it's calling BLISS, or Broadband Local Integrated Services Solution, which includes the BTS 10200 softswitch, a uBR7246VXR cable modem termination system and an MGX 8850 voice gateway. At the home, Time Warner is using a cable modem-like device with two RJ-11 jacks that can be used to “IP enable” all in-home copper. Cisco is providing all the requirements for lifeline service including call signaling, 911 support and CALEA support through adjunct servers.

On the surface it appears that the renewed interest in getting cable-based VoIP services to market coincided with a surge in telco video trials and deployments. However, most vendors believe it is more likely an effort to combat cable's major nemesis — satellite service — with something they can't provide on a mass scale. In addition, IP voice fits well with cable's push into ancillary services and incremental revenue.

In the initial Time Warner deployments, Cisco has specified its system to handle up to 200,000 users and 200 simultaneous call attempts per second. As cable operators want to scale up their voice service, the softswitches can be deployed like Class 4 tandems, providing capacity for millions of users, Bosco said. In fact, Charter's Wisconsin deployment is using a softswitch located in St. Louis.

“In the circuit-switched environment, you had to have 30,000 customers before you could justify deploying a switch,” Nortel's Smiles said. “With the geographic reach [of IP], you can target areas virtually anywhere with a centralized switch. If [cable operators] are concerned about scalability, we can point out that same switch that Charter deployed was deployed in Hong Kong Broadband. That scaled very quickly to 80,000 customers.”

Worldwide, there are more than 8 million customers using cable telephony services.