Cable Operators

Ops Are Getting in Tone

5/01/2005 8:00 PM Eastern

New York — At a Kagan Research conference last week about cable's voice-over-Internet protocol phone activity, Level 3 Communications CEO James Crowe read a statistic that made at least a couple of people sit up and take notice.

It was about ring-tone downloads — something that seems about as nascent and small a current business as I could imagine. Crowe said it's already a $3 billion enterprise.

And the part that impressed a man from a disk-drive vendor who sat next to me was when Crowe said that's 10 times the current market for music downloads.

No wonder cable guys are hungry to get into phone, and at least talking up how serious they are about getting into mobile phone, where all those walking talkers are paying to download their own special ring — and crank it up loud, dude.

Cable's biggest names have already been in the mobile phones, and sold out of it. Comcast had a cellular operation, which left an impact in the form of people like operations executive David Watson. Comcast Corp., Cox Communications Inc. and Tele-Communications Inc. owned 60% of start-up Sprint PCS. They determined the businesses were good, but they weren't theirs, and cashed in.

Cox, of course, surged ahead with landline phone service using circuit switches and demonstrated how that could help retain high-margin customers.

Now, cable guys talk a lot about the need to offer mobility, and really want a piece of lucrative “transactional” businesses like text messaging and phone downloads.

They also talk a lot about how Web searching and TiVo-ing have demonstrated that “personalizing” service is the way to go, more lucrative and more “sticky.” Crowe used another phrase, saying voice now is simply another form of digital media.

For now, the focus is on landline VoIP, with promises of mobile service to follow, once cable gets the right partners willing to yield as much control over the business as possible.

Going to conferences like Kagan's last week, and reading the current CTO roundtable in our sister magazine, CED, you really get a sense of how busy cable companies are these days. Doing crucial infrastructure upgrades, like digital simulcasts, while rapidly introducing a whole new business line (VoIP); trying to make something out of video-on-demand; trying to keep up with the satellite guys; and introducing lots of other things consumers aren't even really thinking about from cable, like interactive games or network DVR.

And then you hear folks like Comcast's Rian Wren say confidently that phone service won't even have to be offered at a cut rate, and you see that cable's at a point when capex can lead quickly to high-margin returns.

Maybe not as high a margin as those ring-tone sellers get. But the cable guys figure there's time for that later.

September