Cable provider Cox Communications launched on Monday its first VoIP-based telephone service, part of an effort focused on smaller markets, where it wouldn't be cost-effective for the company to offer its more traditional phone service.
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Cox is selling the voice-over-Internet Protocol service in Roanoke, Va., the 12th market in which the company has begun selling cable TV, broadband and its Cox Digital Telephone service. In its 11 other telephone markets, the Cox Digital service relies on traditional telephone networking equipment called circuit switches, more reliable but more expensive to operate than VoIP. VoIP systems use the Net to carry their signals.
All cable providers have been launching their own phone services--the first major challenge to the dominant local and long-distance phone companies. Cox competitors Time Warner Cable and Cablevision made big commitments to VoIP this year, mainly because Net-phoning systems are estimated to cost 10 percent to 30 percent less to build and operate than setups using traditional switches.
Cox and its competitor Comcast have the luxury of time to make the technology jump, according to Janco Partners cable analyst Matthew Harrigan. Unlike their competitors, Cox and Comcast have sold telephone services for a half decade, and combined have 2.2 million telephone subscribers. That's nearly every cable telephone subscriber in the United States.
"Cox has a profitable phone business at a 40 percent margin," Harrigan said. "I don't think there's any anxiety where their voice business is going."
The pace of Cox's VoIP releases could pick up. Smaller markets such as Roanoke represent 19 of the 21 other markets into which Cox wants to expand its voice service. VoIP is an ideal candidate--these areas might not generate the profits necessary to validate the outlay involved with a more traditional system, Cox Spokesman Bobby Amirshahi said.
"In smaller markets, it becomes a major question of whether you can justify the cost of circuit switched," Amirshahi said.
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