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Witness Testimony
Mr. Kevin Leddy
Competition in the Communications Marketplace: How Convergence Is Blurring the Lines Between Voice, Video, and Data Services
Good morning Mr. Chairman, Congressman Markey, and members of the Subcommittee. I am very excited to have the opportunity to share with you the details of how convergence - driven by technological advancements and fueled by years of steady investment - is enabling Time Warner Cable and our industry colleagues to offer American consumers a vast array of innovative new services, features and functions over one, integrated state-of-the-art network. At the outset, it is important to note that the transformation of networks designed for the delivery of one-way video service into digital thoroughfares capable of bringing consumers a "triple-play" of advanced video, high-speed data, and now voice service, is a direct result of significant capital investment. Since 1996, the cable industry as a whole has invested more than $85 billion in private risk capital to rebuild and upgrade its facilities, including $10.6 billion in 2003 alone. At Time Warner Cable, we have spent over $5 billion since 1996 on plant related rebuilds upgrading, enhancing and growing our network so that we could deliver a full suite of new services and products as quickly as they become available. As a result, ninety-eight percent of Time Warner Cable subscribers are today served by a 750 MHz cable system capable of carrying two-way broadband transmissions. But dollars invested and technological capabilities are only important to the extent they translate into products and services that are valuable to consumers. And I'd like to talk about some of those with you this morning, starting with our traditional video business.
Our Video Business Although video was once perceived as a mature line of business with little prospect for growth, digital technology has changed viewer behavior dramatically. No longer a one-way means of delivering a pre-set menu of programming, video technology today empowers the consumer by giving them control, convenience and choice - which have always been the hallmarks of cable television. New enhanced digital products such as Video on Demand (VOD), Subscription Video on Demand (SVOD), and Digital Video Recorders (DVRs) have made video programming a two-way interactive experience in which consumers can make sure that their viewing preferences match with their schedule preferences. Using these services and products, customers can access programming they want to watch when they want to watch it. They can rewind, fast forward, pause or stop programming and resume watching at a convenient time. They can program their personal digital video recording service to find, record, and store programming they enjoy -- as well as programming that meets criteria they set, and then watch it at their leisure. All these new products are driving digital penetration in America. There are now more than 22.2 million digital cable customers across the country. At Time Warner Cable, our digital video penetration has reached 41%. That's about 4.5 million digital subscribers, a 16% increase from the previous year. The number of VOD customers has more than tripled between 2002 and 2003. And although DVRs were only introduced to Time Warner Cable customers beginning in the late summer of 2002, we now have 458,000 DVR subscribers as of the end of the first quarter of this year. Based on the enthusiastic consumer response in this still early stage of deployment, we expect these numbers to continue to grow as these products become more widely available and more and more Americans realize their value. New technology also allows us to offer our subscribers the high-definition ("HD") programming being developed by broadcasters and cable networks. Time Warner Cable has carriage agreements with all of the major broadcast networks for the HD programming carried by the stations they own, and by year-end, our cable systems will offer an average of 15 HD channels each. As HD programming becomes more widely available, we will seek to incorporate it into our service offerings. We support the broadcaster' transmission of high-quality HD programming that is helping drive the digital transition. Aided by the drop in price for HD sets, consumers are responding. Last year, for instance, our HD subscribership grew 218%. Our Data Business As this Committee knows, residential high-speed data services are enriching the lives of more Americans than ever. And I am pleased to report that by the end of this year, cable modem service will be available to nearly 100 million homes. More than 90% of all the homes passed by cable systems have access. The seven largest cable MSOs have all deployed high speed Internet service nearly ubiquitously or will reach that goal in the very near future. At Time Warner Cable, we recently launched faster download speeds in all our markets, and we unveiled an all-new redesigned version of our Road Runner high speed Internet access service last quarter. We've also increased our spending on customer service, to ensure that our customers can derive the fullest benefit from all these new services. Consumers clearly have seen the benefits from cable modem service. Our residential Internet access customers now number over 3.4 million, which represents 18% of eligible homes passed. To enhance the Internet experience, we also offer our subscribers home networking, both wired and wireless, that allows multiple computers in a home to share a single Internet connection and to connect to one another. We offer wireless home networking for data using WiFi (802.11) technology and are considering deploying WiMax. Time Warner Cable is also offering a whole house solution for all parts of our service. This will include a multi-room DVR for routing video and voice service networked via the customer's existing in-home telephone wiring. Our Voice Business Perhaps the most dramatic example of how investment by the cable industry and new technology have "converged" to benefit consumers can be found with respect to the voice services long dominated by incumbent telephone companies. Advances in Voice-over-Internet Protocol technology - or "VoIP" as it has come to be known - have enabled Time Warner and other cable operators to use their new broadband networks to offer subscribers high quality, reliable, local and long distance telephony services. Now, for the first time, facilities-based competition is a reality. After several years of testing and developing a potential VoIP offering, Time Warner Cable launched "Digital Phone" service on a commercial basis to residential customers in Portland, Maine in May 2003, and we now serve over 11% of customers there. In addition to Portland, we have launched Digital Phone service in five markets: Raleigh, Kansas City, Rochester, Syracuse and Charlotte. Nine additional markets served by Time Warner Cable have turned up dial tone, but are still in the testing phase of their rollout. We plan to make Digital Phone operational throughout the majority of the Time Warner Cable footprint by the end of 2004. To the customer, Digital Phone feels just like conventional telephone service. Digital Phone customers can receive voice service over each existing telephone jack in their home; can maintain their current telephone numbers (nearly 85% do so); and have access to toll-free 800 calling, Telecommunications Relay Services for the disabled, Enhanced 911 (E911) services, and Directory Listings. Digital Phone also includes the capability to assist law enforcement agencies by permitting the interception, when necessary, of both call identifying information and call content in response to lawful requests. Time Warner Cable views this as a critical aspect of its service in this time of heightened national security and law enforcement concerns. Finally, Time Warner Cable contributes to both state and federal universal service funds in connection with our Digital Phone service. The upgraded, two-way capable, digital network that we have built during the past several years is the central component of the architecture used to provide Digital Phone services. And unlike some other VoIP services, which use the public Internet, Digital Phone traffic travels within our proprietary network. As a result, Time Warner Cable's Digital Phone service is delivered with quality of service standards designed to ensure that customers are provided with the same high quality of service they have come to expect from traditional telephone service providers. In addition to a facilities-based alternative to the incumbent local telephone company, the deployment of Digital Phone service by Time Warner and VoIP services by other cable operators also has the potential to offer consumers new features and functionality such as multimedia conferencing, interactive gaming, and other multimedia applications which will over time demonstrate the real benefits consumers can reap from the integration of video, data, and voice services over a single broadband network. Features like unified messaging, where emails and voice-mails could be checked and responded to on your TV screen is one possibility. Others might include a variable dial-tone feature, whereby callers can get immediate sports or weather updates. The Benefits of Convergence Time Warner Cable is leading the way in offering consumers the greatest possible benefits from offering all our advanced services over one enhanced digital network. Our upgraded network allows us to offer subscribers a robust "triple play" package of voice, video and data services at a discounted price. This offering has proven extremely valuable to consumers; in Portland, for example, over 75% of our digital phone customers take the "triple play." Our network's digital capability means that it will be capable of delivering additional services quickly to all consumers without having to invest in substantial new construction. We designed our current upgrades to allow us to transition to the all-digital world we see on the horizon. As use of analog technology fades, we will be able to add capacity through electronic upgrades. Combined with the additional capacity that naturally flows from the replacement of analog with digital - one retired analog channel allows us to launch nine or more digital channels - we are well positioned to serve our customers far into the future. Thank you again for the opportunity to speak with you today, and I look forward to your questions. Related Documents |
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