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AT&T Unveils Internet Phone Service Plans

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AT&T Unveils Internet Phone Service Plans

December 11, 2003

By Staff

(NEW YORK (Reuters) - AT&T Corp. (T.N: Quote Research said on Thursday it will provide Internet telephone service to homes in major U.S. markets next year, joining the fray of Baby Bells making the service a key part of their defense against new competitors like cable TV companies.

The technology pipes voice and data traffic over Internet-based networks using high speed lines, instead of the century-old telephone system.

Once derided for poor quality, the technology -- known as voice over Internet protocol -- has improved and now may appeal to consumers looking for cheaper calling rates, some analysts said.

AT&T, the No. 1 U.S. long distance phone company, already provides phone services using Internet technology to businesses. It said it plans to expand the service and offer a consumer equivalent in the top 100 U.S. markets next quarter.

Although Internet-based calling had been the focus of upstarts such as Vonage, the arrival of industry heavyweights such as AT&T could make the service a draw for the mass market.

"Vonage currently has close to 80,000 customers with its similar product, but does not have the brand name, distribution, financial resources or 35 million strong consumer customers on which it can draw," UBS Warburg analyst John Hodulik said in a research report.

"We believe AT&T will quickly become the largest provider of VoIP-based telephony when it begins service in early 2004," Hodulik said.

Regional phone companies, including Qwest Communications International Inc., Research, Verizon Communications (VZ.N: Quote, Research) and SBC Communications Inc. (SBC.N: Quote, Profile, have recently said they would offer voice services using Internet technology.

Cable television providers also have started using Internet technology to compete against telephone companies and round out their service packages which already include video and high-speed data services.

Side-Stepping Access Problem

For long-distance carriers, Internet-calling solves a big problem by allowing them to provide local telephone service without paying Baby Bells for use of their local phone networks.

Internet calls are considered information, rather than telecommunications, services, which allows long-distance companies to avoid access fees. Regulators are reviewing this issue.

The service also could offer rich margins, some analysts said.

Hodulik estimated that AT&T could have margins higher than 80 percent on a $35 a month offer, compared to 70 percent or lower when the company leases part of a Baby Bell's network to provide local phone service.

Other analysts said the flood of carriers into the Internet telephone market could further reduce calling rates and weigh on revenues and margins.

Still Room For Improvement

For now, Internet calling, however, can only be sold to the 20 percent of U.S. households that have high-speed broadband services, Hodulik said.

Despite some improvements, the quality of Internet-based phone service still falls short of traditional telephone networks. Although consumers have become accustomed to dropped calls and spotty coverage on wireless phones, people have higher expectations for service at home, some analysts said.

As a result, customers may use Internet service as a secondary service rather than disconnecting their home phones.

If the Internet phone service gets adopted by the mass market, however, that would accelerate the loss of traditional telephone lines in service -- which is the Baby Bells' bread and butter product.

This story also appeared in
  • America's Network, 12/11/03
  • Reuters, India, 12/11/03
  •, 12/11/03

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