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Internet Calling Posing A Threat To Landline Phone Companies
Wednesday May 19, 9:55 am ET
By Mike Angell


The regional Bell companies may have sighed with relief after surviving the telecom bust, but they may be sweating bullets these days.
Although many of their late '90s competitors offering broadband, wireless and fiber-optic services have gone bankrupt, a new crop of rivals has entered the fray.

And with new technologies, like wireless networking and the ability to send voice over computer systems, they're posing a serious threat to regional Bells.

"We're at a real inflection point with this technology," said Don Fitzpatrick, an IBM vice president.

The new technologies' threat is such that Standard &Poor's is concerned about the creditworthiness of the regional Bells.

But the Bells' losses may be other firms' gains.

On Tuesday, IBM teamed up with Cisco Systems to develop products for voice over Internet protocol networks. VoIP sends voice and data over the same networks. That reduces costs and boosts efficiency.

Barriers Coming Down

Many companies use outside telecom carriers for services such as voice mail and messaging. But by using VoIP gear, companies can manage those services in-house and bypass outside carriers.

IBM is an example of that. About 20,000 out of 319,000 employees are on VoIP networks. IBM plans to bring that number to 240,000 over the next four years.

Fitzpatrick says VoIP quality, long plagued by glitches, has become more reliable. "Barriers such as security, quality of service and ease of deployment - all these things have matured," he said.

The possibility of new technologies eroding carriers' revenue from voice services is one reason Standard &Poor's put some big telecoms on a credit watch in April.

S&P analyst Catherine Cosentino says firms like Verizon Communications, SBC and BellSouth face rivals that offer phone service over broadband data connections.

While regional Bells still carry the majority of voice traffic, more and more consumers are bypassing the old standbys when buying phone service.

Those rivals include big firms like AT&T and Cablevision Systems as well as small companies like Vonage. All provide VoIP services.

These firms offer plans competitive with those from traditional telecoms. Vonage has introduced a $30 per month unlimited local and long-distance calling plan for homes. That compares to the average $48 monthly bill for local and long-distance residential service.

Cosentino estimates the Bells could lose as much as $5 billion a year in revenue if VoIP offerings become mainstream.

Combined, the Bells made $91 billion last year from carrying voice.

And VoIP requires that customers have broadband. Only 26.2 million have broadband now. The majority of those are provided by the Bells themselves.

Still, if international voice service is any guide, the future is not looking so rosy for the Bells. Rates for international calls have dropped 80% over the last two decades. Much of that decline stems from cheap VoIP service carrying up to 12% of international calls.

Bypassing The Networks

Cosentino says VoIP will, over time, also drive down domestic phone bills. "These (Bell) companies are still the incumbents," she said. "There will be lost customers. It's just a matter of where the losses plateau."

In addition to VoIP, wireless technologies let people bypass traditional telecoms. One of the more popular types of wireless networking is known as Wi-Fi, which lets computer users connect to the Internet from a distance of 300 feet.

Calling card vendor IDT is testing a service that lets users make Wi-Fi phone calls. In effect, users bypass both the traditional telecom and cellular networks.

The service is being targeted to immigrants who want to make inexpensive overseas calls. IDT CEO Jim Courter says it has the potential to take away customers not only from traditional telecoms, but cellular carriers as well.

"There's been a lot of competitive pressure on wired carriers, but there hasn't been as much innovation in regard to mobile service," Courter said. "This is going to do to cell phones what VoIP is doing to Verizon."

http://biz.yahoo.com/ibd/040519/general_1.html