The VoIP train has left the station, said Phil Giordano, Vonage’s VP of MSO Sales, but the major cable operators are not yet moving. While Rome was burning, Nero was fiddling, he reminded the audience of cable executives. When Vonage was initially launched, the company sought vertical markets for its broadband phone service, said Giordano, but this changed when it became clear that there was no advantage in waiting for others to act. Vonage now sells directly to consumers and is signing cable partnerships as well, mostly with Tier 2 and Tier 3 players so far. Giordano argued that MSOs need to enter the VoIP market now and that an outsourced model makes most strategic sense: zero CAPEX, zero OPEX and the opportunity to offer a hot service while focusing on the strategic marketing and service bundling that will grow their franchise.
The outsourced model is likely to appeal most to smaller cable operators with no experience in offering voice services, said Jay Rolls, VP of Telephone and Data Engineering for Cox Communications. His company already has millions of circuit-switched telephony customers and it operates a CLEC division — giving Cox plenty of experience in voice. Cox has a well-publicized VOIP trial underway in Roanoke, Virginia. Rolls said this model is nearly ready to be deployed commercially in a number of Cox’s cable markets. The company plans to keep its circuit-switched telephony networks because they are working very well and still have headroom for growth on the equipment already installed. When asked about how he feels about Vonage piggybacking on top of Cox cable modems, Rolls admitted that it could be considered competition but it could also be seen as another driver for broadband. He said Cox is focused on providing a lifeline phone service with features and reliability equal to or better than its RBOC competitors.
MSOs should definitely outsource the telephony part of their networks to companies that do voice better, said John Vaughan, CEO of Syndeo. He believes the outsourced model not only provides a faster time to market but offers a better business case. Getting into the voice business presents significant technical and operational challenges. More over, Vaughan calculates that the return on investment for deploying a full-scale, facilities-based PacketCable architecture will take many years to justify and probably doesn’t make sense until subscription levels reach 500,000 or more.
The issue is probably less of a technical challenge than a question of strategic vision, said Arthur Orduna, VP of Strategic Initiatives for Advance/Newhouse. His company is launching its own VoIP telephony networks in Florida. However, as a matter of short term expediency, Orduna said some cable operators might want to get to market quickly by outsourcing the VoIP service to a third party. In the long term, Orduna believes that cable operators will want ownership and control of such a key application. Orduna said Vonage has clearly “raised the bar” for what consumers can expect in residential phone features and with the clear way in which the service is presented and sold. “It’s a good lesson for all of us.”
2004 will be a great year for VOIP and 2005 will be even better, predicted Mark Dzuban, Vice Chairman of Cedar Point Communications. Convergence is finally starting to happen, said Dzuban, noting that the target market for MSOs is to eventually capture 30% to 40% of the local access market share from the incumbents. Customers don’t care what type of network lies underneath, he observed, but they will demand the reliability of POTS but with more features and better pricing. A key question in deciding what type of telephony switching equipment to deploy, he said, is “how many folks does it take to carry in, how many to turn it on, and how many people are required to manage it.” Cedar Point is advocating a “simpler is better” strategy for facilities-based deployments.
