cable telephony & voip

www.itexpo.com

October 10-13, 2006• San Diego Convention Center, San Diego California

Cable Telephony & VoIPAlan TaylorMindspeed Technologies, Inc.


Agenda

• PacketCable networks and migration to SIP• The VoIP marketplace• The competition• Who will win?


Current PacketCable VoIP Network


Problems with Cable Telephony

• Very slow in defining and implementing standards– Cablelabs started work in 1997– PacketCable 1.0 issued in 2000– PacketCable 1.5 issued in 2005

• Many MSOs initially offered Voice service via a tandem circuit switched network creating legacy infrastructure

• Network equipment needs to go through a lengthy certification process to ensure inter-operability

• Service requires additional ATA equipment at the customer premise


MSO Advantages

• Bundled services– Single bill for voice, data and video– Discounts for bundled service selection– Bundled services proven to improve customer retention

• Quality of service guarantees– Cable companies deploy their VoIP over a managed

network providing PSTN quality and reliability• Reduced cost

– VoIP cable telephony is approximately half the cost of circuit switched phone service

• Deployed infrastructure– MSOs already have incurred the capital expense of

deploying an all fiber network– Adding VoIP requires minimal incremental investment


Why PacketCable 2.0?

• Moves to a complete SIP implementation– Replaces MGCP with SIP to distribute intelligence to

the end-points– Allows integration of wireless and wireline phone

service– Enables service mobility/integration– Support for video telephony/conferencing

• PacketCable 2.0 specifications expected to be released in Q1’07

• PacketCable SIP aligns with the IMS architecture defined in 3GPP Release 6

PacketCable networks will slowly migrate to an all SIP network,

while providing support for previously deployed architectures


Next Generation PacketCable Network


Managing the Transition?

• Existing cable telephony customers attracted by the PSTN voice-quality, low cost and bundled services

– Need to provide customers a smooth, transparent transition path to a new IMS based network while continuing to support legacy equipment

• Control of CPE and media gateway typically co-located in the PacketCable softswitch today

• Two paths to network migration– Separate the functions of CPE control and media

gateway control• Move CPE control to IMS application layer• Avoids any database conversion for legacy customers


Managing the Transition…cont.

– Leave existing softswitch architecture in place• Add new application layer service that supports SIP

based end-points• New application server provides protocol conversion

layer between SIP and MGCP based softswitches

• Final migration step – Move remaining softswitch functionality to IMS

– Perform database migration

Each MSO may choose a different paths based on their existing network

deployments


Fixed Mobile Convergence (FMC)

• FMC will allow cable operators to complete their quad-play service offering

• The MSO’s key strengths in FMC are:– Last mile ownership– Existing subscribers relationship– Service bundling

• Mobile Operators are willing to enter into partnerships (MVNO)

• Dual Mode hand-sets are now coming into the market• 36% of personal cell phone calls made from home

With 15% worldwide market penetration FMC revenue potential is $15

Billion


Fixed Mobile Convergence Strategy

• MSO need to offer wireless service to complete their offering of bundled services ‘quad play’

• MSO lack both wireless network access and expertise

• Clear strategy is to partner with wireless service providers

• Recent announcement of Sprint/Comcast/Cox/Time Warner joint venture

– allows cable MSOs to offer co-branded mobile service– Mobile service providers can offer cable content– Single bill for all bundled services– Additional MSOs looking to join partnership– Partnership covers 67% of North American cable

subscribers


Fixed Mobile Convergence Strategy…Cont.

• Partnership goes beyond bundled services, it is the ability to offer users true mobility so that they have anywhere, anytime access to everything

– Programming of DVR from cell-phone

– ‘Roam to home’ capability

– Unified messaging

– Cable content access from mobile handset

Joint venture needs to create new high-end services rather than

gaining pricing leverage through increased economies of scale


MSOs Offering VoIP

MSO Subscribers 2004,Q3 Adds

Time Warner 854,000 240,000

Cablevision 601,208 122,851

Cox 130,000 40,000

Videotron 96,000 54,200

Charter 89,900 22,100

Comcast 83,000 46,000

Shaw 68,000 36,000

Rogers 18,100 18,100

Other 40,000 10,000

TOTAL 1,980,208 589,251

Source: Kinetic Strategies Estimates, Company Reports


How Big is the VoIP Service Market

• Between 2005 and 2009, VoIP service revenue will grow from:

– $2.6 billion to $13.3 billion in North America– $2.3 billion to $12.7 billion in Europe– $4.2 billion to $12.9 billion in Asia Pacific

• Percent of VoIP service revenue coming from residential vs. business customers:

– 51% in North America– 72% in Europe– 83% in Asia Pacific

Source: Infonetics Estimates


VoIP Service Market…Cont.

• Worldwide VoIP subscribers expected to be 47 million in 2006

– Vonage leads in North American residential/SOHO VoIP subscriber market share, but is down from 34% in 2004 to 27% in 2005, resulting from fierce competition from cable MSOs, traditional telcos, and low-cost new entrants

– Cable companies continue pushing to increase VoIP subscriber share: Cablevision and Time Warner Cable each have double-digit share and combined have 39% of all North American residential VoIP subscribers

– AT&T, Comcast, and Cox are the only other providers with North American VoIP subscriber share greater than 3%


Market Growth

• PSTN voice revenues expected to decline to $500 billion by 2011, representing a decrease of 16.7% from the total revenues at the end of 2005.

• VoIP telephony revenues expected to grow to more than $50 billion by 2011 (~20% per year)

• Worldwide mobile handsets sales continue to grow at greater than 20% per year (over 800 million units sold in 2005)


Who are the Competition?

• Verizon– Revenue 22.7B in Q2’06, 35M retail wireline RGUs, 55M retail

wireless RGUs, secured over 100 local video franchises

• AT&T/Cingular– Cingular - Revenue 8B in Q2’06, 57M RGUs– AT&T - Revenue 15B in Q2[06, 33M RGUs

• Skype (eBay)– Ebay - Revenue 1.4B in Q2’06– Skype - 113M registered users

• Vonage– Revenue 143M in Q2’06, 1.8M RGUs

Compared to Time Warner with revenue of 10.7B (4.7B from

communications)and 23M RGUs (AOL) 11M RGUs (TWC)


Voice over Broadband a threat?

• Currently Vonage has 1.6 million subscribers, mainly in North America

• Vonage lost $72m on revenue on revenue of $120m in Q1’06

• For 2005, on revenue of $269.2m, Vonage lost of US$261.3 m

• Vonage unlikely to be able to compete with Skype and other P2P providers over the long run due to their inherent cost advantages and potential for improved quality


The Regulation Factor

• Regulation, has demonstrated the ability to distort and affect the market dynamics in favor of certain service providers

• Telecommunications has typically been a highly regulated industry in the U.S.

– The Telecommunications Act of 1994• Forced telephone companies to share lines with their

competitors• The stated intention of the Act was promotion of

competition, but it is now widely regarded as a failure.


The Regulation Factor…Cont.

– HR 5252 (The COPE Act of 2006• The house rejected this act which was designed to protect

net-neutrality, allow municipal broadband and ensure E911 service for VoIP customers

• Would have prevented Cable and Telephone companies from deploying discriminatory practices and cherry-pick markets

– Universal Fund• Subsidizes phone service in rural and low-income areas• Currently only PSTN, DSL and Wireless providers required to

contribute to fund• FCC in favor of requiring VoIP providers to also contribute

The evolution of regulation in the new area of VoIP

has the ability to dramatically affect who succeeds in this market


Who will Win?

• VoIP as a stand-alone business is transitional– Eventually voice will just become another form of data

transported over the internet

– P2P providers will need to offer additional services that customers are willing to pay for

• The winners will be the service providers that can offer a suite of integrated, synergistic services over their own access network

– Telcos have the majority of the revenue stream today, but lack service bundling

– MSOs have the service bundling, but lack the revenue stream

MSOs will need to role out PacketCable 2.0 and deploy quad-play services quickly to

capture market share before market window closes

cable telephony & voip

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