VoIP Spells Bundle of Issues for Cable Giants

Or, you could cut corners by offering low-budget unlimited calling plans as reliable as your Net connection and as clear-sounding as a cell phone. VoIP upstarts such as closely held Vonage of Edison, N.J., offer $29.99 calling plans using cable modem and digital subscriber lines, or DSL, connections. Even Ma Bell AT&T (T) says it is entering the Net calling market with a $39 monthly plan. And, of course, each of the Bells has outlined plans to offer VoIP in certain markets.

But some cable companies are starting to favor a compromise of sorts. Time Warner Cable, for example, has embraced resale of telco service. Lacking phone expertise but looking for a quick entry into the business, Time Warner was among the first big cable companies to announce plans to sell phone service using the using the networks of MCI and Sprint.

Time Warner will essentially feed its customers' VoIP traffic over to MCI and Sprint's phone lines. MCI has a couple similar deals in the works with other cable companies, say people familiar with the plans.

'Borrowed Time'

This bond among crosstown rivals, the cable and long-distance companies, is similar to the Bells' agreements with satellite broadcasters that allow phone companies to offer TV programming as part of a bundle of services. And in both cases each arrangement serves to buy time as cable hones its own voice services and as the Bells find a way to beef up the networks to carry a host of advanced digital services.

Companies like VoIP specialist Vonage "are living on borrowed time," says ABI Research analyst Vamsi Sistla.

But for now, says Sistla, the market is likely to be divided into two camps: Consumers who feel they must have so-called lifeline services like the 911 service and always-available dial tone they get with conventional phone companies, and those people who are looking for bargains.

Sistla says cable companies will likely have greater success selling VoIP service in areas where people use a lot of cell phones.

Consumers who don't demand high quality and dependability will be attracted to VoIP as a cheaper alternative, says Sistla. Especially, says Sistla, since "the cell phone is becoming our primary line, and our home line is acting more and more like a backup line."

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