Comcast Corp. said Wednesday that it plans to offer Internet-based telephone service to about 40 million households by 2006, heating up the competition between cable and telephone companies that are moving into each other's markets.
Comcast isn't the first cable company to enter the market for voice over Internet protocol, but its size--it's the largest cable-TV provider in the country--is certain to speed up the pace in which competitors roll out services to grab market share.
Comcast expects to offer phone service to half of the households its cable operation reaches by the end of 2005 and reach the remaining half in 2006.
Comcast's plans continue a trend that has seen cable and telephone companies moving into each other's markets. Cablevision Systems Corp. and Time Warner Inc.'s cable division have started offering voice-over-IP service, while SBC Communications Inc. is offering satellite-TV service under an agreement with EchoStar Communications. Verizon Communications has disclosed plans to roll out a high-speed fiber network that's expected to eventually carry television programming.
Among the driving forces behind the trend is the potential expansion of the companies' businesses. Telephone companies have little growth potential in traditional long-distance and regional phone services. For Comcast, the move is particularly important, given its decision in April to drop its takeover bid for Walt Disney Co., which would have brought it cable networks, film libraries and other programming.
Also attractive to both industries is the ability to sell larger bundles of services to subscribers, making them less likely to jump to competitors. Both cable and phone companies offer packages in which the services are less than if they were bought separately.
"The bundling trend is more of a forced trend than anything else," said Brian Washburn, a telecommunications analyst at Current Analysis. "You'd have to be crazy to give up the price differential that cable and telephone companies are offering with bundles."
Also helping to push Comcast and other cable operators into the telephone market is the emergence of Internet phone companies such as Vonage that offer their service over cable company's high-speed networks. "What Comcast is doing is very necessary," Washburn said. "If they don't, then the Vonages of the world are going to do it for them. They're going to ride on Comcast's networks and grab the money."
Nevertheless, it's still unclear whether consumers will be willing to move from their reliable telephone companies to cheaper but less dependable voice over IP service from cable operators. Voice over IP service doesn't operate during power outages, and 911 emergency services aren't always available at the same level as traditional phone services.
"Cable companies don't have the experience and the infrastructure of the telephone companies for providing reliable phone service," Washburn said. "The telephone world has a strong tradition of reliability that's up to the five 9's (99.999%)."
Cable operator Cox Communications Inc. could be an exception. The company is beginning to launch a voice-over-IP service over its traditional circuit-switch system. This blend of new and older technologies could provide increased reliability, Washburn said.
On the flip side, telephone companies will find it difficult to match cable operators' bundle of television, Internet and phone services.
Whether consumers chose cable operators or phone carriers, most experts believe the gradual adoption of voice over IP over traditional technologies is inevitable, given its flexibility and potential for delivering unique offerings that include video-phones and integrated phone messages and E-mail.