Friday, June 03, 2005

Om Malik's Broadband Blog " Comcast says VoIP will grow us."

I have not written about my families cable TV holdings often. There are two reasons. The stocks have been going sideways for a couple of years, thus being relatively uninteresting subjects and I feel it necessary to not discuss all holdings or strategies on a free blog. If I am not careful, a number of novice investors will try to follow my moves and get themselves in trouble. It is easy to make 10 to 12% in the stock market over long periods of time. Anyone who tries to beat the market adds risk to their financial future. In other words, those who try to make more than 10 to 12% sometimes get hammered.

Comcast is making news again. Brian Roberts, CEO, has told shareholders that Comcast is ready to make a big splash in VoIP. His goal is 8 million subscribers in 5 years.

SBC responded by lowering broadband rates to $14.95. It is now cheaper to have a high speed internet connection than to use a single phone line and AOL dial up! When the announcement was made (two days ago), United (includes the old Juno service) dial-up dropped $2 per share in the blink of an eye. Anyone still on dial-up service is over-paying for poor service.

SBC and other phone companies still have much work to do. Cable broadband offers the fastest and most reliable internet service. Furthermore, total costs are not really that much greater than phone service.

To get the $14.95 deal, you have to sign on for a "full service" land line. Right now, most people already have land line phone service so the deal looks cheap. However, VoIP service includes unlimited long-distance and no nickel and dime billing for advanced features such as voice mail, call forwarding, three way calling, etc. Few people who switch from dial-up to broadband ever return to dial-up service and few who try VoIP ever go back to land-line service.

As more and more folks convert to VoIP, the more folks there are that do not need the SBC package. Brian Roberts and the Roberts family are where they are (atop the heap of Cable TV) because they are smart, careful and deliberate. The company does not leap before it looks. The VoIP service they offer will be excellent service. I believe they are making plans to offer wVoIP. I believe they will make a deal with FON to provide "combo phone service".

Many consumers who have tried to only have one phone in the past have run into high monthly bills and spotty service. I am sure there are millions of consumers who have the "Miller experience". We get very good cell phone reception almost everywhere we go except at our home. If I get a cell phone call, I need to take the phone out on our upstairs sun-porch or deck or the call breaks-up. If wVoIP service were available to me, I would sign-up in a heart beat. My Mom is a great example of today's market. She did not get a cell phone or VoIP service until after she was 81 years old. Now if I want to talk to her, I call her cell phone first. If she had wVoIP, she would always be available at the cell phone number--actually one of the things she likes is the ability to screen calls.

FON has made a number of deals to provide virtual cell phone networks. For example, ESPN is offering cell telephone service. ESPN markets the service, bills the customer and collect the revenues. FON provides the service and gets paid at wholesale rates. FON is preparing to offer wVoIP service plans.

Soon, Comcast will offer a package deal. The deal will include Cable TV service, unlimited VoIP telephone service and cell phone service on the same number. Consumers love one bill, unlimited long-distance and a fixed price for total phone service. The very powerful part is that it cost almost nothing for a VoIP call to be made and each call routed through the internet in effect increases the capacity of the cell tower network.

Folks often wonder how cell phone companies can give away cell phones. On a two year, $35 per month contract, cell phone companies generate $840 worth of revenue. The marginal cost of offering the monthly service is virtually zero. The major cost is in collecting payments and now-a-days many folks have their payments drafted. What we have is a service handled by computers. Consumers may speak to a sales rep. when they buy the phone but afterwards they punch buttons that activate computer "switches". Of course, equipment must be amortized and advertising is necessary.

The good news is that the consumer is about to be the big winner. The drop by SBC to $14.95 is just the shot across the bow. SBC, VZ and BLS in particular are working hard and fast to offer IPTV. The competition will begin in earnest when consumers have the option of getting combo TV and wVoIP phone service from a choice of vendors.

One of the business winners is likely to be FON. It is not likely that cable companies will do wVoIP deals with competitors SBC, VZ or BLS. However, FON is positioned perfectly to become a partner with the cable companies.