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Comcast to offer Net phone service

Cable TV giant Comcast plans aggressive rollout of Internet phone service to about 40 million households by the end of 2006.
/ Source: Reuters

Comcast Corp. said Wednesday it will offer Internet-based telephone service to more than 40 million households by 2006, as it follows a host of other cable operators challenging local telephone companies.

Comcast, the nation’s largest cable television company, said it would begin an aggressive roll-out of telephone service with a technology known as VOIP, or Voice-over-Internet protocol, which allows phone calls to be transmitted using a cable modem over high-speed data lines.

Comcast also said that non-Executive Chairman C. Michael Armstrong has stepped down and will be replaced by Chief Executive Brian Roberts.

Armstrong had been chairman and CEO of AT&T Corp. and joined Comcast after its acquisition of AT&T Broadband in 2002.

Comcast follows rivals Time Warner Cable, Cablevision Systems Corp. and Cox Communications Inc. in making hefty investments to offer phone service over high-speed cable lines.

By combining phone service with video and Internet service, cable companies are betting they can steal business from the traditional phone companies, while giving consumers an incentive not to switch to satellite TV.

But with 21.5 million subscribers, Comcast is far larger than its cable competitors and analysts say it offers the biggest long-term threat to telecom carriers in the areas it serves.

“Comcast will likely become one of the biggest phone companies over the next decade,” said UBS analyst John Hodulik.

Comcast’s footprint encompasses large chunks of the markets of larger carriers, including 30 percent of SBC Communications Inc.-, 27 percent of Verizon Communications-, 23 percent of BellSouth Corp. and 28 percent of Qwest Communications International Inc.-.

“We expect these carriers to see accelerating pressure on residential access lines in 2005 as these deployments occur and sales efforts gain traction,” Hodulik said.

Comcast already has a traditional copper wire phone business with 1.2 million customers using copper it inherited when it acquired AT&T Broadband in 2002. But the company has been scaling back that business as it focuses on VOIP technology over the next year.

The decision to roll out telephone service comes on the heels of trials the company conducted of VOIP technology in Indianapolis, Philadelphia and Springfield, Massachusetts.

Because it inherited an outdated network from the AT&T Broadband merger, Comcast has lagged other cable operators that introduced phone service as it worked to get its systems upgraded.

Comcast chairman and CEO Brian Roberts said the company will have upgraded 95 percent of its network to accommodate voice calls by the end of 2005.

“We have used this time since the merger to roll out the next generation of telephony that will include video, integrated messaging and all the things a computer can do,” Roberts said Wednesday in an address to shareholders.

The move validates the strategy of Armstrong, who sought to convert AT&T Corp. into a so-called triple threat buy buying up cable systems and bundling of voice, video and Internet services.

But as the telecommunications business fell off, the company was unable to generate enough cash to support the cable business and AT&T ultimately sold it to Comcast. Ironically, it is Comcast and the other cable companies that have realized Armstrong’s ambitions.

“His vision was ahead of his time,” said David Joyce, analyst at Guzman & Company. “He had the idea right ... When you have a big technology shift and visionary ideas, it takes the general market longer to have it make sense.”