Voice-Over-Net Calling Out to Cable Sector

Cable TV operators may wring some money from telephone service this year, but don't overestimate how easy it's going to be.

That's what one analyst advises, saying that investors' expectations may be getting out of hand for new telephony-over-cable offerings based on technology known as "voice-over-Internet protocol."

"People are assuming a bit too much from the cable operators in the voice-over-IP rollout," says Alan Bezoza, cable and broadband analyst for Friedman Billings Ramsey. "I think the jury is still out."

Cable operators have been offering phone service over their networks for years -- notably Cox (COX - Cramer's Take - Stockpickr) and the AT&T Broadband systems acquired in late 2002 by Comcast (CMCSA - Cramer's Take - Stockpickr).

Increasingly, however, these and other cable operators are talking about using a new technology behind the telephony -- making the transition from what's called "circuit-switched" technology to VoIP, which piggybacks onto the broadband data infrastructure of cable operators' upgraded networks.

VoIP enables cable companies to offer telephone service over their networks with minimal expense. That translates, they say, into additional advanced services revenue. In addition, they say, telephone service alongside video and data service fosters increasing loyalty among customers, since the more products a household signs up for the less likely it is to drop service, or churn.

In recent months, both large and small publicly traded cable operators have talked about rollouts of VoIP. Citing poor economics, Comcast -- the nation's largest operator of cable TV systems -- is making no effort to expand the circuit-switched service it inherited from AT&T. But the company says it will test VoIP in four states this year, and is hopeful it will expand it in 2005. Mediacom (MCCC - Cramer's Take - Stockpickr), saying VoIP has "huge potential," plans to launch it in the second half of the year. Cablevision (CVC - Cramer's Take - Stockpickr) has already launched its VoIP.