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DSL News
Telecoms Embrace Internet Calls to Defend Turf
Article #: 13
| Date: | | | Written By: | Jessica Hall | | Article: | Facing a growing onslaught of competitors and new technologies, the Baby Bells have rewritten their playbook to embrace Internet-based telephone services even if it means siphoning customers away from their own new long-distance products.
Qwest Communications International Inc. (NYSE:Q - news) and other local carriers said they will offer so-called voice over Internet-protocol telephone services (VoIP) that will cut calling rates by about 25 percent.
VoIP, which uses the same communications technology as the Web, also will help them better compete against cable television companies that are offering such service over their high-speed networks.
"VoIP for mass market is coming ... there's nothing anybody can do to stop it," said Verizon Communications Inc. (NYSE:VZ - news) Vice Chairman Lawrence Babbio. "Our philosophy has been to play in that environment."
By 2007, the U.S. IP telephony market may grow to more than 5 million subscribers, a five-fold increase from 2002, but still a small slice of the traditional phone service used in more than 100 million homes, according to research firm In-Stat/MDR.
SBC Communications Inc. (NYSE:SBC - news), the second-largest U.S. local telephone company, said on Thursday it launched certain VoIP services in 18 markets for business customers, and aims to reach 30 markets by the end of the year.
The technology pipes voice and data traffic over Internet-based networks using high-speed lines, cutting costs by directing traffic over the most efficient route. That compares with 117-year-old telephone technology that requires a dedicated line for a single stream of traffic.
VoIP calls also are cheaper because they bypass regulatory oversight, and escape taxes and fees assessed on traditional telephone service to funds service in rural areas, schools and libraries.
The Federal Communications Commission (news - web sites) will hold a public forum on Dec. 1 to examine what, if any, regulations should apply to Internet-based phone service.
"The Bells are testing the regulatory loopholes created as VoIP bypasses access charge regime. Before it becomes a large phenomenon that hits them in the pocketbook, they want to be the first to test the capabilities for themselves," said Yankee Group analyst Berge Ayvazian.
THE NEXT NEW THING IS FINALLY READY
Internet telephony has been hyped as the "next new thing" since the mid-1990s, but unreliable connections, fuzzy sound and cumbersome hookups slowed adoption.
Despite improvements, service for residential customers still may be spotty since it would rely on DSL or cable-modem hookups that lack the same quality as traditional telephone networks, analysts said.
Since customers have become accustomed to occasional hiccups in wireless (news - web sites) phone service -- such as dropped calls -- Qwest Chairman Richard Notebaert said some subscribers may be willing to swap guaranteed quality for savings on VoIP.
"Customers have said 'If you can give me VoIP and it costs me 25-percent less -- and OK it's not perfect, I want that choice,"' Notebaert said.
BABY BELLS TEST VOIP WATERS
VoIP services from cable TV companies mark a looming threat to the Baby Bells, which already are grappling with shrinking sales of traditional local phone service as subscribers shift to cell phones and e-mail.
Earlier this year, Time Warner Cable (NYSE:TWX - news) began offering a VoIP plan in Portland, Maine, and plans to expand into three or four markets by the end of the year. Cablevision Systems Corp. (NYSE:CVC - news) expects to be able to offer VOIP to all 4.4 million homes in its region by year-end.
"But it's not just a threat. It's also growth opportunity the telcos have been missing for some period of time. It's very hard to grow revenues when your installed base goes down," Ayvazian said.
Meanwhile, Qwest will offer its first VoIP service in Minnesota next month, taking advantage of a recent federal court decision that barred state officials there from enforcing phone regulations on broadband phone service.
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