Hanging up on cable

Comcast's unsolicited bid to buy AT&T Broadband would put a crimp in what has been a quiet but rapid expansion in circuit-switched cable telephony and likely would leave Cox Communications as the lone U.S. operator deploying the service.

Assuming Comcast is able to pull off the acquisition in some form, the multiple systems operator (MSO) would continue to operate the telephony unit within AT&T Broadband but would not expand that footprint until vendors further develop IP-based voice platforms.

AT&T Broadband currently serves about 700,000 voice customers via circuit-switched platforms from Arris Interactive and Tellabs. However, the company has been slow to test IP-based platforms, partially because it doesn't want to strand investment in circuit-switched technology.

Comcast sits at the other end of the telephony spectrum. It hasn't deployed any circuit-switched services, although it did acquire some telephony customers in Michigan through MediaOne. Comcast was one of the first companies to publicly commit to IP voice, announcing a trial in Union, N.J. with Lucent Technologies and Motorola. That trial was quietly shut down after the MSO determined that Lucent's first-generation PathStar didn't fit with CableLabs' PacketCable initiative, which has become the guiding force behind IP-based voice over cable.

With a possible AT&T Broadband acquisition, Comcast would continue to operate AT&T's existing cable telephony systems but would try to change the economics.

“We believe based on published reports that AT&T is losing on the order of $500 million a year in their telephony business,” Comcast Cable Communications President Stephen Burke told analysts while introducing the takeover bid. “Our goal would be to take that to break-even as fast as we could. We believe that would be doable in the next 12 to 24 months.”

Comcast already has turned around money-losing telephony operations in Michigan, he added.

“We will examine new markets on a go-forward basis, but only if those markets show the potential to be profitable and at the same time have an eye toward rapidly developing IP phone [service].”

Based on vendors' development timetables though, that transition won't be as fast as once anticipated.

“We see a hybrid scenario where you have next-generation [cable modem termination systems] with the Class 5 switch,” said Jeff Schmitz, director of marketing for Tellabs' CableSpan product. “The maturity of the access is much further along than packet cable.”

The move to pure IP voice also will be slowed by Comcast's priorities. “Eight months ago you always heard about voice over IP in the top three list [of priorities]. It's definitely fallen off a little,” said Jay Rolls, vice president of business development for Pacific Broadband Communications.