VoIP Spells Bundle of Issues for Cable Giants

The cable industry's Bell-ringing days are a ways off yet.

Eager to offer consumers the full range of television, Internet and phone service, outfits such as Comcast (CMCSA), Cox (COX) and Time Warner (TWX) are very publicly eyeing plans to offer Internet calling.

The cable giants' phone ambitions would seem to set up a clash of the titans over dominance of the nation's telecom turf. Local phone giants Verizon (VZ), SBC (SBC) and BellSouth (BLS) already are struggling to stem the erosion of local access lines. Now, some investors see cable's voice-over-Internet-protocol, or VoIP, challenge as a likely replay of the wireless tide that swept away customers by the boatload.

But the battle of the communications bundle is forging some odd pairings. Some cable companies aren't ready to go it alone in the calling business and have enlisted telcos such as MCI, Sprint (FON) and Level 3 (LVLT) to provide big pieces of the phone service puzzle. Other companies must yet decide exactly how they'll provide the cable voice service that consumers supposedly are so ardently demanding.

To date, cable's VoIP battlegrounds have been confined more to press releases and test markets than to homes and office towers. Full deployment appears years, not months, away. In the meantime, the cable giants continue to weigh two vexing options: Trying to replicate costly but high-quality phone company service, or substituting cheap Net calling technology -- while using telcos to connect the calls.

Fork in the Road

To date, Cox and Comcast (via AT&T Broadband) have tried conventional circuit-switched phone service -- the kind with clear calls and an independent power supply in case of outages. But now, after trying the expensive high road, the big cable players are seeing advantages to the lower road, as VoIP, with all its shortcomings, starts to gain acceptance.

There are perils to both approaches, say analysts. You could spend a lot to rival the Bells in sound quality and also provide features such as 911, federally mandated call-tracing and eavesdropping along with uninterrupted power. But after all the cost and effort, the companies could well end up in the same position as the Bells, watching hefty investments fester as customers flee to cheaper services.