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Comcast pushes VoIP to prime time

The leading U.S. cable company introduces Digital Voice in three markets, with the rest of the nation to come within 18 months.

Comcast, the nation's largest cable company, on Monday began selling its version of Internet phone service in three markets, kicking off one of the most significant challenges traditional local phone companies have ever faced.

Initially launching its Digital Voice service in three cities--Indianapolis, Philadelphia and Springfield, Mass.--Comcast plans to reach 20 markets by year's end. The Philadelphia-based company says it intends to make the service available to all its 21 million customers six months after that.

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Aside from an aggressive rollout schedule, Comcast has a lofty goal for the number of subscribers the service will attract: 8 million customers in five years, or eight times the number of Internet phone subscribers currently in the United States, according to Rian Wren, Comcast's senior vice president of voice services.

Comcast is the latest, and perhaps most important, addition to the roster of companies selling unlimited domestic dialing to any phone number using voice over Internet Protocol (VoIP), which sends calls over the Internet or private network. The technology is cheaper for consumers because it avoids the heavily taxed and regulated traditional local phone networks built and controlled by the Baby Bells--the four regional operating companies formed after the breakup of AT&T. While other cable companies and a host of upstarts such as Vonage Holdings have been selling VoIP since 2002, Comcast is considered the most daunting for the Bells because of its size, financial backing and political muscle.

Wren acknowledged that Comcast is introducing its product months, if not years, behind the rest of its cable competitors, as well as VoIP start-ups such as Vonage and copycats such as AT&T, with its CallVantage service. But the wait was worth it, he says.

"What we've been trying to do is come out with equivalent or better service than traditional phone competition," he said Monday. "You only get one shot at this, when it comes to quality of service."

Comcast's long-anticipated push into VoIP illustrates the cutthroat competitiveness between cable and the local phone providers. Both sides are trying to become the primary pipelines for delivering an array of entertainment and communications services into households, including broadband Internet access, multichannel television, high-definition programming and voice calling.

After investing an estimated $75 billion upgrading their networks during the 1990s, cable companies are reaping the rewards for selling their "triple play" of voice, data and video into homes. The local phone companies, realizing their disadvantage, have realigned their attention to target cable's success and plan to invest billions of dollars to upgrade their decaying copper network with speedier fiber-optic lines.

Later this year, regional phone providers such as SBC Communications and Verizon Communications plan to introduce their own video service in hopes of stealing customers from cable. But with Monday's announcement, Comcast hopes its VoIP service, cheaper than unlimited calling plans offered by the local providers, will keep customers from defecting.

At $40 a month when purchased with Comcast's cable and broadband service, $54 a month on its own, Digital Voice is more expensive than what competitors such as Vonage or AT&T offer. Unlimited domestic dialing plans from other VoIP providers often costs as little as $25 a month.

While it remains to be seen whether the price will be lowered, Wren said "we're not trying to focus on niche or cheap priced phone service."

It's that lower cost--as little as 50 percent of traditional landline rates--that has made VoIP a threat to the traditional phone companies. Already the Bells have seen their customer bases erode as some customers drop their home lines to use only cell phones. Until Comcast's entry, the VoIP market has been dominated mainly by Vonage, which at 400,000 subscribers has helped change the face of the telephone market. But Wren pointed out that Vonage's calls travel over the public Internet, with service quality at the whim of factors Vonage can't control. All of Comcast's VoIP calls will travel over its own network.

Representatives from several of the nation's major local phone companies did not immediately return calls seeking comment.

In an interview in December, Vonage Chief Executive Jeffrey Citron scoffed at claims that his company will ultimately be crushed by larger competition like Comcast. He noted that his company has been more than holding its own against another major cable provider's VoIP offering.

"Cablevision has been doing this as long as Vonage has, and they are, I admit, doing well," but not as well as Vonage, he said. "In the third quarter, they added what I estimate to be 74,000 subscribers. Vonage added 80,000. They'll probably have around 275,000 for the year. Vonage will be a lot higher."

The size of the market and the variety of opportunities, Citron said, will leave plenty of room for Vonage and other dedicated VoIP sellers. "No, we're not going to get swept under," he said. "There are 112 million residential phone lines in the United States that we can all look forward to going after."

Until it began offering VoIP, Comcast had been selling telephone service using traditional circuit-switched means, a much more cumbersome and expensive method that uses the same traditional, circuit-switched technology as is used by the local providers. Comcast will continue serving its 1.4 million phone customers, but the new VoIP service will be its primary focus going forward.

CNET's Jim Hu contributed to this report.