Cablevision deal including phone could trigger rate war with Verizon.

By Martha McKay, The Record, Hackensack, N.J. Knight Ridder/Tribune Business News

Jul. 7--Cablevision rolled out a steeply discounted package of phone, TV, and high-speed Internet service Monday -- a move that could lead to a price war with phone giant Verizon.

"The cable companies are gearing up to be the phone companies' biggest competitors," said Jeff Kagan, an independent telecommunications analyst.

Cablevision's offer, aimed at luring satellite customers to cable, targets new subscribers. For $90 a month, a new Cablevision customer can purchase expanded basic digital TV, broadband Internet access, and unlimited local and long-distance phone calling.

Sold separately, all three services would cost about $135 a month.

"Since Cablevision already charges the same amount for bundles without phone service, they are effectively giving unlimited local and long distance away for free," Kagan said.

Cablevision, which has about one million subscribers in Northern New Jersey, plans to offer the discounted rates for a year, after which it might raise them. It would still offer some kind of discount, a company spokesman said.

The company also plans to offer existing cable customers a chance to sign up for Optimum voice and broadband Internet service for $60 a month, a savings of about $20 a month off the regular price. This offer is limited to new customers of these two services.

Both cable and phone companies have moved to offer consumers so-called bundles, or packages, of service.

The companies hope customers will want the convenience of purchasing a range of communications services from one company on one monthly bill.

Cablevision's move threatens Verizon's dominance in the local phone business.

Like other Baby Bell phone companies, Verizon has been losing local lines in the face of increased competition from wireless, e-mail, and customers dropping second phone lines.

Now, the Bells must cope with Big Cable, armed with a telephone service, coming straight for them.

To shore up their defenses, the Bells have partnered with satellite-TV providers to offer discounted bundles of phone, TV programming, and Internet services.

Verizon offers a bundled package of phone, Internet, and TV service provided by the satellite company DirecTV in some states. The company has plans for a bundled offer in New Jersey this summer, according to spokesman Rich Young.

Verizon's offer in some states includes unlimited local and long-distance phone service, DSL high-speed Internet access, and satellite TV for about $119 per month, the company said. Some analysts believe the company may eventually include service from Verizon Wireless, a Bedminster-based partnership with Vodafone.

Verizon shrugged off the Cablevision announcement.

"The cable-TV world is filled with temporary promotional deals, so a marketing strategy like this is not surprising," said Young. "With Verizon you're getting access to our tremendously reliable network and access to services including directory assistance."

Cablevision introduced its telephone service last fall, and analysts say the company has about 100,000 customers. The phone technology -- Voice over Internet Protocol or VoIP -- operates over the cable network.

Unlike traditional phone service, which opens a direct circuit between callers, VoIP converts voice calls into tiny packets of data and sends calls over a data network and portions of the public Internet.

The service will not work if a customer loses electricity. Cablevision VoIP customers also must get a new phone number, although the company said it is working to enable customers to keep their home numbers when they switch.

Many companies have been rolling out VoIP services, including AT&T and Edison-based Vonage. All VoIP services require a broadband connection.

In a note to investors Monday, Oppenheimer analyst Thomas W. Eagan maintained a "buy" rating on Cablevision.

"For the cable operators, adding services such as VoIP to the bundle will remain a key differentiator, especially as satellite TV is packaged with the (Baby Bells)," the analyst wrote. "Our concern for the space is the problem of a price war."

A price war may not benefit the companies, but could be a boon to consumers, at least in the short run.

"This coming wave of competition will be a competitive free-for-all," said Kagan, "and the biggest windfall customers have seen in a long time."

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