Large Firms Form Cable Phone Team – Time Warner, WorldCom, Sprint to Offer Service

Time Warner Cable Inc. announced yesterday that it has turned to Sprint Corp. and WorldCom Inc. to jump-start a new telephone service that it plans to roll out to millions of cable television subscribers across the country in the coming year.

By Christopher Stern
Washington Post Staff Writer

The new service comes as cable companies are rushing to take advantage of technology that allows them to move calls over the Internet. The deal creates a powerful industry alliance that would allow the cable and long-distance companies to bypass the vast local telephone networks controlled by dominant players such as Verizon Communications Inc. and BellSouth Corp. In theory, a call could travel over Time Warner’s wires and connect directly to a long-distance company’s network without ever touching the local telephone network.

Time Warner’s announcement also raises the ante in the competition to offer consumers an all-in-one telecommunications package. In Portland, Maine, the first market where Time Warner introduced its Internet telephone service, customers can get local and long-distance telephone service, high-speed Internet access and hundreds of cable channels for about $140 a month.

Such a package presents a new threat to local telephone companies that still do not have the ability to provide television service of their own. Over the years, phone companies have repeatedly attempted to develop their own television services, but so far they have not come up with a competitive alternative to cable.

In recent months other cable companies such as Cablevision Systems Inc. have announced plans to offer Internet telephone service. Officials of Cox Communications Inc. said yesterday that they would launch an Internet phone network in Roanoke. Comcast Corp., the nation’s largest cable company, said earlier this year that it would roll out Internet telephone service in 2005.

Internet telephone technologies have been around for more than a decade, but the cable industry had until only recently been concerned about the reliability of the technology. In the past, people who made calls over the Internet have complained about poor sound quality and intermittent hiccups in transmission. After several market trials in Maine and North Carolina, Time Warner said it is now prepared to launch the service nationwide.

Time Warner Cable chief executive Glenn Britt said the deals with Sprint and WorldCom will allow the company to quickly make the technology available to all of its 11 million subscribers. Sprint and WorldCom will also help with technical matters such as routing 911 emergency calls and providing operator assistance and voice-mail services. The long-distance providers will also oversee new requirements that allow customers to keep their old telephone numbers when they switch carriers.

"We could certainly do all of these things ourselves over time, but we don’t necessarily know how to do them now. This allows us to get into this business quickly," Britt said.

The deal opens a large new wholesale market for long-distance companies. WorldCom and Sprint each have millions of local telephone customers of their own, but must pay local telephone companies for access to their networks. Now, they have another way to reach those accounts, without the government fees associated with traditional phone service.

"I think this [agreement] basically says there are alternative paths to the customers’ homes," said Jonathan Crane, WorldCom’s chief strategy officer.

Crane noted that long-distance companies are paying close attention to cable companies as they rush to offer local telephone service over the Internet. According to the latest estimates, more than 72 million homes subscribe to cable television. "Now you get excited, that is an enormous potential," Crane said.

Internet telephone service is only available to homes and businesses that have high-speed, or broadband, Internet access. Providing broadband has become a growth engine for the cable industry. Adding telephone service to the mix of cable company offerings could provide more incentive to sign up for the service, industry executives say. As of Sept. 30, Time Warner had just over 3 million high-speed Internet customers, a 41 percent increase compared with the same period last year.

Verizon and other local telephone companies argue that the rise of Internet telephone providers should lead to the deregulation of traditional networks, which are currently subjected to a host of arcane rules and government fees.

"Now that you see these new entrants such as cable companies that aren’t regulated and we believe the restraints should be lifted on us as well," said Verizon spokeswoman Bobbi Henson.

Verizon has plans to offer its own Internet telephone service "in the second quarter of next year," Henson said. "This technology is creating an explosion of competition."

The Federal Communications Commission is working on a proposal to regulate telephone calls that travel over the Internet. FCC Chairman Michael K. Powell has indicated that he is reluctant to place heavy regulatory burdens on the new technology. However, the agency is not expected to issue a final rule for at least a year.

http://www.washingtonpost.com/wp-dyn/articles/A47326-2003Dec8.html