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Study: Cable telephony takes off

The use of cable lines to make phone calls is growing much faster than expected, according to a report from research firm Allied Business Intelligence.

    Cable telephony--the use of cable lines to make phone calls--is growing much faster than analysts had expected, according to a study to be released Tuesday.

    There were around 2.93 million cable telephony subscribers in 2001, more than the 2.5 million most analysts were predicting, according to a study by Allied Business Intelligence, an Oyster Bay, New York-based research firm.

    That number will almost double by the end of 2002, reaching 5.2 million subscribers, the study predicts. Allied Business Intelligence attributes the unexpected growth to the promise of cost savings for cable companies as well as the convenience of converging television with high-speed Internet and telephone services. The report is based on discussions with more than 30 cable operators and equipment makers.

    "Whereas most technologies haven't met expectations over the past year, cable telephony has," said John Chang, analyst with Allied Business Intelligence.

    A separate survey from market research firm Probe Research also predicted strong growth of voice-over-cable lines during the next three years, particularly in the Asia-Pacific region where the new technology doesn't have to compete with pre-existing traditional phone lines.

    Cable telephony is based on the same technology as Internet telephony, which has long promised to revolutionize telephone calling by delivering cheap long-distance calls and services like voice-mail access to e-mail. Internet telephony involves replacing traditional circuit-switched phone lines with Internet Protocol (IP) technology, which sends voice over Internet lines in "packets" of data. But Internet telephony, or Voice over IP (VoIP), has progressed more slowly than expected because of concerns about quality. The practice of making telephone calls over cable lines also has technical issues to overcome, Chang said. "Quality of service is an issue," Chang said. "Cable service providers want to offer this as a primary line, but they still have to meet regulatory requirements," he added, noting that lost packets and latency were the major issues.

    But the promise of cost savings from converged networks far outweighs any quality of service issues, Chang said. By bundling television, high-speed Internet access and phone services over the same lines, cable operators can save money, and also pass some of those savings on to consumers. Cable companies have also found that customer departures decline when they get all their services on one bill.

    "Customers may be discouraged with their cable service, but they're not going to go out and change it when their phone and Internet service is on the same bill," Chang said.

    Cable operators will generate revenue of around $2.11 billion from cable telephony in 2002, according to the study, which lists AT&T Comcast, Optus, Cox Communications, UnitedGlobalCom, and Jupiter Communications as companies that lead in number of subscribers.

    The surprising growth of voice-over-cable is in direct contrast to voice-over-DSL (digital subscriber line) services, which have failed to meet industry predictions, according to a separate report from Allied Business Intelligence. Market delays and competition have set those services back, though there is room for growth in the small business market, according to the research firm.