Nontrivial Problems Ahead for 'PhoneRunner'

Before the AT&T-Time Warner venture can succeed, it has to resolve four major issues.
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As enthusiastic as I am about the AT&T (T) - Get Report -Time Warner (TWX) joint venture announced Monday morning -- and as much as I think it is a defining moment in the evolution of broadband -- there are still real problems involved in delivering voice over cable-TV lines.

These problems are certainly not beyond solution, but the T-TWX joint venture is going to have to address and resolve them quickly, as it tries to become the poster child for fat-pipe services to the home.

Problem 1: Quality and Reliability

The biggest and most intractable problem is human, not technical: the antipathy that many, maybe most, cable subscribers feel toward their cable companies. As it happens, I live in an area with reliable cable service -- thanks, probably, to a complete rewiring with buried fiber-optics cables about three years ago. My cable service goes down about twice a year; service is typically restored quickly, usually in an hour or less. And service calls -- rare for us -- have been handled equally well.

But I feel the heat of many cable customers' rage. After I

wrote about fast cable-based Net access last month, via

@Home's

(ATHM) - Get Report

partnership with

Tele-Communications Inc.

(TCOMA)

and Time Warner's RoadRunner service, I was buried under emails recounting readers' horror stories with their cable companies. Clearly, my good experience isn't typical.

The common thread through many of those messages was something like this: "Trust them with my phones? After how they've treated me with cable-TV service?

Are you kidding?

"

It's a fair question. And not one being asked only by

TSC

subscribers. The

Federal Communications Commission

, for example, has pressed hard on what it calls "lifeline service" -- the importance of high-reliability, high-uptime service from any vendor trying to offer primary-line residential connections, since we rely on that link for emergency calls (ambulance, fire, police). Phone service that continues to work properly throughout power outages is mandated by the FCC. The T-TWX joint venture -- and AT&T's voice-over-cable offerings through TCI as well -- will have to meet the FCC's standards.

The T-TWX joint venture -- let's call it PhoneRunner 'til its proprietors come up with something official -- has to quell some very deeply held fears about the reliability of anything delivered over a cable pipe. But I think it can. In fact, I think PhoneRunner has the potential to become the biggest consumer-confidence-building force we'll see in broadband-over-cable services to the home.

But first, it has to fix the technical problems (keep reading).

Second, it has to lean hard on TWX and TCOMA (which will become part of AT&T in another couple of weeks), demanding higher technical standards for their cable operations.

And third, it has to deliver reliability.

You tell me: What would be the biggest reassurance

you

could get that PhoneRunner is going to be reliable enough ... as reliable as that familiar POTS ("plain old telephone service") copper wire running into your house? What would make you comfortable switching to cable-based phone service?

I think the answer is obvious: the AT&T brand name. T has a chance here to exploit its reputation for high-quality service -- a rep rebuilt since before the spinoff of the regional Bell operating companies, or RBOCs, years ago, when "the telephone company" was not exactly seen as a benign force. In fact, the risk for cable telephony in general is substantial: A highly visible failure by AT&T, the controlling partner in this joint venture, to reassure PhoneRunner customers about quality and reliability issues, would be a disaster.

The reaction, if this joint venture fails, is going to be: "If AT&T can't make it work, who can?"

But buried inside every business risk is opportunity: If PhoneRunner can quickly roll out service nationally -- AT&T execs Monday estimated $4 billion in annual sales no later than three years after the service begins full operation -- and can satisfy our expectations for quality and reliability, PhoneRunner's business could simply explode.

I should note another tough issue for AT&T here: the need, if they're going to slap "brand AT&T" on this service to reassure us, to make this seem like one big, integrated, same-quality-everywhere service ... even though they'll be delivering it through TCI in some areas and through

Time Warner Cable

in others. That's going to be tough. Letters from readers were especially bitter about TCI, which has had some notable stumbles.

Problem 2: Powering the System

Ever notice that when your AC power goes down, your phone system stays up? (Of course. How else could you call your electric utility to scream at them?) That's because the U.S. phone system carries its own electrical current.

That low-level amperage is what powers your phones and allows them to ring. (Not exceeding the available power in your phone line was the ostensible reason for the nutty "Ringer Equivalence" regs a few years ago, when you were supposed to report to your phone company the R.E. rating of every phone you bought and added to your home.) These days we also have lots of fancy electronic features and displays in phones, from glowing LEDs to LCD displays for outgoing numbers, Caller ID and more. Their current draw is low, but it's there, too.

But you can't get that current in a cable telephony system, which uses a different approach. To keep a cable-telephone system working -- to keep your phones working -- through power outages, the provider has to supply what computer people call an "uninterruptible power supply," or UPS, which is geek-speak for "a big, expensive box of batteries," on your premises. On the premises of

each and every

cable-telephony customer in its system, please note.

Current industry estimates of the cost of this put-a-UPS-in-every-garage requirement are on the order of $400. That cost is directly related to the running time that the battery backup unit provides: You can, for example, buy a UPS for your PC that will give you only 10 to 15 minutes of running time for just $99 or so. Since home-telephone devices have a low current draw, longer-lasting cable-telephony UPSes could prove to be much less expensive than the industry's $400-per-home guess, especially when the cable-telephony business achieves big volumes.

But where's the threshold of pain? How much battery backup time will we demand?

Problem 3: How to Connect

Linking your home phones to the cable system requires some kind of interface box. If you presently use a set-top device to receive and decode premium cable channels, for example, you can add a separate broadband telecom interface (BTI) next to it. Your phones plug into the BTI, which in turn connects to the cable system through that set-top box.

AT&T signed deals with

General Instrument

(GIC)

and

Cisco

(CSCO) - Get Report

in January to provide these BTI devices under various technical approaches. Other technology providers, such as

Scientific-Atlanta

(SFA)

and

Broadcom

, will be involved, too.

But who pays for the BTI box? Look to your cable system's policy on set-top boxes as a guide. TCI often requires that its customers buy the boxes (rather than folding them into monthly cable bills in a kind of de facto rental). We'll probably see that approach extended to AT&T's TCI-based cable-telephony systems. With the T-TWX joint venture? Who knows?

In any case, that need for an on-premises BTI, with or without (for those not subscribing to premium cable services) an accompanying set-top box, will significantly increase the cost of adding customers, but if charged directly to customers, it may be an obstacle to widespread adoption.

Problem 4: Echo, Latency and DOCSIS

You're used to clean, crisp voice quality on your present phone system. You don't perceive any delays in the exchanges between you and those with whom you speak over our present, fabulously inefficient but clean-switched system. (There

are

delays of about 30 milliseconds, but they fall beneath our threshold of perception.)

But the present state of the art in cable telephony introduces delays of as much as 100 to 200 milliseconds, since we're dealing with a packet system, where digitized packets have to be assembled, transported, unassembled, joined and validated. I guarantee that you'll notice that much latency, and you'll notice occasional echo problems -- both much like the same problems you find on international calls bounced off a satellite.

A residential phone system with 200-millisecond latency is not going to be acceptable to consumers.

The cable-telephony industry has been dealing with these and other voice-over-IP technology issues through

CableLabs, its privately funded research center in Louisville, Colo. The industry has struggled mightily towards approval of CableLabs' Data Over Cable Service Interface Specification (DOCSIS) version 1.0, but DOCSIS 1.0 doesn't address nearly all the cable-telephony problems. DOCSIS 1.1, now in the drafting stage, will.

Progress on DOCSIS 1.1 will be a good sign, as the cable industry writes the rules, so to speak, for technologies such as prioritizing voice packets over data packets (which don't reveal their latency and echo problems). But the bloody march toward approving version 1.0 does not suggest 1.1 will enjoy a speedy ratification.

None of these problems is beyond solving. They're a mess, though, and any company that wants to become a nationwide cable-telephony-service provider will have to develop answers both technically and economically appropriate -- and also palatable to consumers.

The AT&T-Time Warner deals looks great -- but as always, God is in the details, and here those details are distinctly nontrivial.

Talk Broadband Internet Access with Jim Seymour

Cable, DSL and satellite are all trying to elbow in on providing high-speed access into your home. How will this game play out for the Internet user and the investor? Join Jim Seymour for an informative chat about broadband Internet access on Yahoo! on Tuesday, Feb. 9 at 5 p.m. EST. Register for Yahoo! Chat at

http://chat.yahoo.com/. It's FREE!

Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. At the time of publication, neither Seymour nor Seymour Group held positions in the companies discussed in this column, though positions can change at any time. While Seymour cannot provide investment advice or recommendations, he invites your feedback.