1.0 Residential Telephony - ILEC's Versus MSO's
The residential telephone market battle between incumbent local exchange carriers (ILECs) and the cable television multiple system operators (MSOs) has accelerated in the last year, entering a highly competitive phase. Cable-based telephone service is being deployed on a much broader basis than ever before due to network and equipment upgrades which support telephony.

Providing telephone services, especially a voice over the Internet (VoIP) capability, has become the next logical step for cable MSOs after they successfully created a mass market for their residential high-speed access cable modem services. Every one of the MSOs in this study is offering residential telephone service.

The MSOs have found that telephony is a great complement to their base video and Internet service offerings. Not only does telephony increase the MSO's revenue potential, the telephone service also provides the opportunity to offer triple-play bundles of video, high-speed data and voice services.

While the telephone service offered by cable companies is relatively new to the market, a large number of customers (ten million) have been convinced to switch from the ILECs to the MSOs with enticing cost savings and highly attractive bundles of video, voice and data service.

ILECs have countered by offering their own voice, high-speed data (DSL) and video bundles. Until recently, the ILECs had to rely on the resale of satellite service for the video service offering. The largest ILECs, namely Verizon, AT&T and Qwest, recently began deploying their own video services to compete with the MSOs. The ILECs have not yet been able to penetrate the residential video market to any significant level.

Without strong competition from the ILECs or satellite service providers for video, subscriptions to cable service have been steady and have ranged from 65 to 66 million over the last seven years. The population of cable video subscribers is expected to remain fairly flat through 2012. In the absence of greater competition, the digital cable portion of the cable services subscriber base is, however, expected to continue to grow at a substantial rate. Insight forecasts that digital cable subscribers will grow from 32 million to 50 million by 2012.

Although the competition for the residential broadband market is entering a more mature market phase, residential broadband households are still expected to grow from 46.6 million to more than 72 million households by 2012. DSL subscriber growth will outpace cable broadband connections through this period as more middle and lower income households subscribe to higher speed Internet services, as shown in the following figure....

Market Segmentation

By Cable Operator
Bright House
CableOne
Cablevision
Charter
Comcast
Cox
GCI
Insight
Mediacom
Suddenlink
Time Warner
Household Income Distribution
Residential TV Offering
Telephone Offering
Residential Internet Offerings
Telephone Line Gain by ILEC

By ILEC
Alaska Communications Systems
AT&T (with Bell South)
CenturyTel
Cincinnati Bell
Citizens Telecommunications
Embarq
Hawaiian Telecom
Iowa Telecom Services
Qwest
TDS
Verizon
Windstream
Household Income Distribution
Residential TV Offering
Telephone Offering
Residential Internet Offerings
Telephone Line Loss by MSO Competitor

By Household
Number of US Households
Household Distribution by Income
Projected Household Distribution by Income
Net Growth in Households by Income
US Internet Presence in Households
Household Internet Presence by Income Range
US Households with Internet Access
Dial-Up Households
Internet Presence by Income
Household Broadband Growth
Distribution of Broadband Type in Households