NCTA: Cable VoIP sales surge beyond expectations

SAN FRANCISCO--The biggest smiles at the National Cable & Telecommunications Association show are on the faces of those selling voice at the major cable operators. Sales of voice over IP are exceeding original expectations and, at least in one venue, are beginning to drive video and high-speed data sales.

Time Warner Cable is now adding 10,000 new VoIP subscribers a week to the 220,000 it had at the end of 2004. Cablevision is adding 1000 subscribers a day, and Cox Communications, the industry's voice service veteran, has achieved 40% market penetration in its original voice markets of Omaha, Neb., and Orange County, Calif. In San Antonio, Texas, where Time Warner launched service in 2004, VoIP is now helping drive sales of cable modems and video, according to Sam Howe, senior vice president of marketing, VoIP.

"We wonder what would be the impact for the entire business if we used this as an opportunity to get DSL removed from the picture--to rip the wire from the house," said Howe in an interview following his appearance on a VoIP panel discussion at show. "It was difficult for our people to switch the paradigm. We are comfortable in what we do. But what happened in San Antonio proved you can flip it."

By selling phone service first, Time Warner was actually able to increase its cable and high-speed Internet penetration in the market, said Howe.

"We are encouraging all our 31 divisions to think about phone first," he said. "It establishes a shared wallet. We can say, 'I just gave you $20 back [in savings], now let's talk about how you spend it.'"

Cox has been selling voice since 1997 but is finding that its VoIP take rates are better than the ones it had with traditional voice service, said Jay Rolls, vice president of telephone and data engineering at Cox, during a VoIP breakfast panel sponsored by Level 3 Communications. He admitted that the company initially "would have been thrilled" by 20% voice penetration but is now setting its sights considerably higher.

"If 40% penetration was the corporate average, we'd be happy," he said.

The cable players are universal in targeting incumbent telcos with their service, designing cable VoIP to be a primary line replacement service, not a cheap second line. As Rolls pointed out during the Level 3 panel discussion, AT&T's CallVantage service, riding a $15 million advertising push during last summer's Olympics, now has only 53,000 subscribers.

"We are not competing with the self-install guys--that's not a mass-market service," said Rolls. By contrast, the cable players are, either on their own or through CLEC partners such as Level 3, Sprint Communications and MCI Communications, providing what looks exactly like traditional phone service.

Initially, they are deliberately not adding on a lot of features because, according to Howe, "it's more important right now to build our base."

And that process, judging by the smiles, is going quite well.