Level 3 Communications Inc. and Sprint Corp. are among the telecommunications carriers seeking to exploit a growing trend: U.S. cable companies delivering phone service to tens of millions of video and Internet subscribers.

The biggest cable companies are expanding into the Internet phone market and are even expected to add wireless services, but they do not necessarily have the expertise, networks or relationships with all the local phone companies to cross over into the voice business.

This is where Level 3, Sprint and others such as AT&T Corp. and WilTel Communications come into the picture.

These carriers have the long-distance networks to carry traffic coast-to-coast and the relationships with local phone companies to complete calls. They also have the experience to help cable companies deliver such services as E911, wireless and hosted IP phone service tailored for small and medium businesses.

Partnerships with the cable companies represent a growth opportunity for at least one large carrier at a time when another area of its business is shrinking.

Level 3 has made the bulk of its sales by helping Internet providers connect their dial-up subscribers to the Web but that business is declining and the Broomfield, Colo., carrier expects the trend to continue for several years as Americans cut their slow connections in favor of high-speed Internet access.

Level 3 representatives emphasize the underlying infrastructure that has supported its wholesale dial-up business over the last six years is the same platform used to offer wholesale voice over IP services. The company says its local infrastructure covers 93 percent of the U.S. population.

In December 1999, Level 3 began offering communications companies a service to terminate IP calls, but the VoIP market took off slower than Level 3 and the broader telecom industry had anticipated.

While the cable TV industry has been preaching the advantages of the so-called triple play of voice, video and Internet services for years, large cable companies have stayed out of the phone business with a few exceptions - that is until now.

Level 3 generates a large portion of revenue from cable companies ‘but they also represent a very high growth area’ primarily as they expand into new areas, including voice over IP, says Sureel Choksi, executive vice president of services with Level 3.

Level 3 lists the six largest cable companies as its customers and announced a partnership in August with Charter Communications to help the St. Louisbased cable company deliver phone services to its customers. Level 3 is providing long-distance voice services and local interconnection services in select markets under the agreement.

Of nine major announcements in 2004 from companies planning to implement IP phone service - including a subset of the top cable operators - Level 3 has been awarded business in seven instances, according to Choksi. Level 3 has announced only Charter, though.

Level 3 also announced a long-term agreement in December with Comcast to provide the Philadelphia-based behemoth dark fiber to help extend its cable network, but Comcast spokesman Bob Smith says the deal is not specifically related to its planned voice offer.

Comcast has announced plans to expand IP phone service to 20 markets reaching 15 million homes by the end of the year, and make service available throughout its network by the end of 2006.

Comcast has experience in the phone business through its 2002 acquisition of AT&T Broadband; it has 1.2 million circuit-switched phone customers. Still, the company is expected to partner with carriers to connect its VoIP subscribers’ calls to the PSTN.

“Where we need connectivity between our network and the PSTN, we’ll seek vendors to do that,” Smith says.

Although Comcast, Charter and other cable TV operators are offering or gearing up to deliver IP phone service to millions of homes in 2005, they also are expected to expand into the business phone market where the requirements are more sophisticated. Level 3 and other carriers including Tulsa, Okla.-based WilTel are expected to reach out to the cable companies as they begin delivering hosted IP phone services to businesses.

“Their primary focus has been on rolling out VoIP services to consumers; but many are also thinking about - and over time I believe will launch - VoIP services to small, medium business,” Level 3’s Choksi says. “For business, I think its a 2005, 2006 opportunity.”

Time Warner Cable was the first large U.S. cable company to announce an agreement with a telecommunications company as part of its entrance into the IP phone market.

Since announcing a partnership with MCI Inc. and Sprint in December 2003, Time Warner Cable has launched service in 30 of 31 divisions commercially or on a test basis and anticipated ending 2004 with 200,000 customers.

Under the multiyear agreements, MCI and Sprint are terminating voice traffic to the PSTN, delivering enhanced 911 service, local number portability and carrying longdistance traffic.

Time Warner Cable was not available for an interview to discuss its partnerships with MCI and Sprint. MCI also was not available for this article.

Sprint executives have been forthcoming about Sprint’s relationships with the cable companies. In addition to the Time Warner Cable pact, Sprint has announced deals with Charter and Mediacom Communications Corp. and confirmed it was in talks with Time Warner Cable to help it offer wireless service. Sprint has struck partnerships with AT&T, ESPN Inc. and others to allow them to deliver branded wireless services over its national network.

“What is absolutely clear is cable companies want that whole package of communications: wireless and wireline, entertainment, data, voice,” says Sprint spokesman Jeff Shafer. “These relationships are much broader than simply providing a pipe.”

Adds Shafer: “We’re in discussions with all the major cable companies with how to address wireless.”

A consortium of cable companies is evaluating wireless alternatives, and Comcast is among the interested parties. “From our standpoint, I think we really are in the catbird seat, because with 21.5 million subs, I think any one of the independent wireless operators would be very keen to do something with us,” Comcast Executive Vice President and co-CFO John Alchin said at a Credit Suisse First Boston conference.

The extent to which cable companies outsource their phone requirements can vary widely depending, in part, on their sheer size. Carriers say they have created various services for cable companies, ranging from a specific product like interconnection to the PSTN to a turnkey solution encompassing numerous aspects of the phone business.

“We are seeing some customers outsource elements of their VoIP solution for quick market entry, while others are building a LEC-type replacement for their service,” says Kathryn Morrissey, president of AT&T Global Wholesale, in an e-mail.

Morrissey says “cable companies have always been and continue to be a key market for AT&T,” but she was vague in an e-mail when asked whether AT&T has struck deals similar to the one MCI and Sprint announced with Time Warner Cable.

“AT&T has ongoing relationships with many of the cable companies and continues to deliver services to them, enabling them to offer their customers VoIP service,” Morrissey says.