Although it’s far from ubiquitous, traditional telcos continue to see more competition for their core local phone business from cable companies and VoIP startups alike.
Cox Communications Inc. continues to aggressively market phone, Internet and cable TV services to millions of consumers. The cable company ended the third quarter with 900,000 phone customers and 2 million bundled customers. Cox says its share of the phone market has grown to 19.3 percent among homes where it offers the service.
At the end of the year, Cox is scheduled to launch its 12th phone market in Roanoke, Va. That will be the company’s first VoIP-based phone service launch, as all other markets rely on circuit-based telephony technology.
Comcast Corp., which ended the second quarter with 1.34 million phone customers, may launch local and long-distance phone service over an IP network in 2005 following marketing trials in several markets including Coatesville, Penn.; Hartford, Conn.; Indianapolis; and Springfield, Mass. For now, however, the company is not aggressively invading the Bells’ turf. Comcast currently does not offer a bundled package of phone service, Internet access and cable TV across the country. And the cable giant, which purchased AT&T Broadband in 2002, has hardly marketed phone service this year.
Meanwhile, phone companies routing traffic over the Internet are significantly undercutting larger competitors on the prices of phone packages.
Vonage Holdings Corp., of Edison, N.J., offers consumers with broadband connections unlimited local and long-distance calling for $34.99 a month throughout Canada and the United States. That price is $15 to $25 cheaper than Verizon’s comparable Freedom bundle, which ranges in price from $49.95 to $59.95 depending on the state.
“Longer-term, the growth of VoIP [via cable providers and through independent carriers such as Vonage], represents the largest threat to Bell company fundamentals, in our view,” says Roger Sachs, CFA of Cathay Financial.
Merrill Lynch analyst Adam Quinton says he doesn’t expect meaningful changes to telco or cable operator cash flows during the next one or two years as a result. “But with a growing number of trials and service deployments,” he says, “We believe that investors will begin to focus increasingly on these developments.”
Some industry pundits say the threat VoIP providers pose to traditional telcos may be overblown, given the technological challenges and particularly the regulatory uncertainty these newcomers face. The FCC has not released rules concerning whether, or how, to regulate new VoIP companies.
“I think there is a lot of hype surrounding those companies,” says Will Stofega, a senior analyst with IDC. “They have a tiny, tiny percentage in terms of market share,” and “their reliability is up for grabs.”
