Time Warner Inc.'s phone service shows cable's growing clout
Industries offering similar products
By Peter Grant
The Wall Street Journal
Glenn Britt, chief executive officer of Time Warner Inc.'s cable TV
unit, surprised investors and analysts in late 2003 when he announced
that his operation planned to roll out phone service using Internet
technology in all 31 of its markets by the end of 2004.
Earlier moves by cable companies into phone service using traditional
"circuit-switched" technology -- the type used by most phone companies
-- have taken far longer. Cox Communications Inc., for example,
launched phone service in 1997 over its cable lines yet today offers
it in just 17 of its 26 markets.
"There was a certain skepticism," Britt said.
But Time Warner Cable, the country's second-largest cable operator,
hit its target. While the rollout has involved a fair share of growing
pains, the company now offers phone service in parts of 27 states from
Hawaii to Maine. Time Warner has signed up more than 220,000 phone
customers and is adding more than 11,000 each week.
The speed with which Time Warner moved with the new Internet
technology underscores why traditional phone companies are rushing
these days to add services such as TV -- and to bulk up by
merging. That's because local-phone providers such as Verizon
Communications Inc., which plans to buy MCI Inc., and SBC
Communications Inc., which has a deal to buy AT&T Corp., are starting
to face their most serious competitors yet for local service.
"Time Warner shows the severity of the threat that cable companies can
pose to incumbent telephone providers," says Kate Griffin, a senior
analyst with Yankee Group, a technology consulting firm in Boston. She
says cable providers were more cautious in rolling out older
circuit-switched phone systems in part because of their cost. "But the
margins are there for [Internet phone technology.] Once they decide to
enter, they're going to come at it with full guns."
That's why other cable companies also are moving quickly. Comcast
Corp., the country's largest cable operator, announced last month that
it plans to roll out Internet phone service and expects to offer it to
all 40 million households its system reaches by the end of next
year. (Comcast has offered circuit-switched phone service in some
markets for several years.) Cox has begun to use the Internet
technology as well when it introduces phone service in new
regions. Nationwide, more than 80 percent of households should be able
to get phone service from a cable company by the end of 2007, Yankee
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