South Florida Lagging In Voice-Over Internet Calls

South Florida Lagging In Voice-Over Internet Calls

December 21, 2003

By Ted Jackson

For years, the promise of dirt-cheap phone calls carried over the Internet has been dangled before consumers.

Now, many are saying, the revolution is here. In separate path-breaking announcements two weeks ago, long-distance giant AT&T said it will roll out Internet-based local calling nationwide next year, while cable powerhouse Time Warner said it will also offer the service in major markets across 27 states.

Although some small operators currently provide local Internet phone service, analysts say cable companies like Time Warner are the ones that are going to bring the technology to the mass market and threaten the local phone dominance of the Baby Bells.

"The cable companies are going to roll this out in a big way," said Charles Golvin, senior analyst at San Francisco-based Forrester Research.

But South Florida telephone customers could be left in the rear guard of this revolution. Local cable companies Comcast Corp. and Adelphia Communications Corp. have no immediate plans to offer Internet phone service here using the cutting-edge technology other cable companies are employing called voice over Internet protocol (VOIP).

Mired in one of the nation's most high-profile corporate scandals, Adelphia says it is too busy right now recovering from network under-investment by previous management to contemplate offering Internet-based phone service to its 450,000 Palm Beach County customers. Denver-based Adelphia is in bankruptcy after the founding Rigas family was alleged to have looted hundreds of millions of dollars from the company.

And Comcast, which has 840,000 subscribers mostly in Broward, Miami-Dade and Monroe counties, says it is "proceeding cautiously," with a South Florida launch of Internet phone service anywhere between one and three years away. The company, based in Philadelphia, said it will need to spend almost $150 million just on basic South Florida network upgrades after purchasing AT&T's cable assets here.

In many other parts of the country, cable providers hoping to undercut former monopoly carriers like BellSouth are busy introducing VOIP services. With VOIP, voice calls are routed cheaply and efficiently using technology previously used exclusively for moving Internet data traffic. The new technology represents a revolution in telephone network design not seen since innovations in the early part of the last century eliminated the need for operator-assisted local calls.

The relatively slow rollout in South Florida by cable companies of VOIP comes at a time when regulators in Tallahassee have just granted BellSouth a $3.14 per month basic service rate increase spread over three years, one of the largest ever approved for the carrier in the state. The decision is being challenged, which is likely to delay any implementation.

"Cable companies are one of the few entities that have the marketing muscle to compete with BellSouth," said Mike Twomey, president of Utility Watch, a Tallahassee-based consumer group. "It's unfortunate that they are moving so slowly to enter the local service market at a time when South Florida consumers need alternatives."

The phone rate hike was the centerpiece of a controversial telecommunications industry bill passed by the legislature earlier this year. The higher rates are supposed to stimulate telephone industry competition by encouraging new players like the cable companies to enter the local phone business.

So far, the bill has enticed only one major player, long distance giant AT&T, to join the local service fray in Florida. AT&T said it is unsure exactly when or at what price it will offer Internet telephone service in South Florida, but the company is currently testing the technology in Florida.

Easier To Use

Time Warner and AT&T are just the latest and largest entrants into what is fast becoming a crowded field for VOIP. Big communications players are in some ways playing catch-up with smaller companies like Net-2-Phone and Packet-8, which have been touting VOIP for years, as well as with VOIP market leader Vonage Digital Voice.

Both AT&T and Time Warner, as well as Vonage and the other smaller players, are using a variation of VOIP called voice-over-broadband, in which consumers route their voice calls over high-speed Internet connections. Using an adapter, customers easily connect their existing phones into their cable lines.

Once derided as suitable only for technologically sophisticated consumers, VOIP technology has now reached a point of "plug and play" user friendless suitable for mass consumption, experts say.

Previously, consumers had to purchase special hardware like computer microphones and install software, as well as navigate challenging Web sites, to take advantage of VOIP.

Experts also say Internet telephone quality of service, once characterized by frequent dropped calls, crackling voices and delays, is now almost on par with traditional phone service.

"There is now no question that VOIP will eventually be the preferred method by which voice calls are transported," said Forrester Research's Golvin. "It's not a matter of `if' anymore, but `when.'"

There are nevertheless some disadvantages to VOIP. It's still less reliable than regular phone service and is subject to interruption in a power failure.

With VOIP, calls are routed over lines in ways previously used only for transporting data. As with data, VOIP voice calls are broken up into little digital packets and then reassembled at the end of the call. That allows for more efficient use of phone lines than with traditional phone service, which dedicates each call to a separate line.

At the center of the new VOIP network are highly efficient software-based switches, called softswitches, which can easily and cheaply deliver new features tailored to individual needs.

For example, AT&T is testing features that block calls from certain numbers and that store call logs in computers, allowing for the creation of convenient electronic phone directories like with cell phones.

"What we have here is the marriage of the telephone and the computer," said AT&T spokesman Tom Hopkins. "We are going to be able to offer tailor-made features like never before."

Realizing The Promise

Edison, N.J.-based Vonage Digital Voice, whose nationwide subscriber base has expanded five-fold to 75,000 customers in just six months, currently offers VOIP service in Florida. Its packages of unlimited local and long distance calling are priced at $35 per month, compared to all-in-one packages from traditional phone service providers that typically cost about $50 to $70 a month.

Internet phone rates are so competitive partly because providers pay no access fees to the Baby Bells for tapping into existing networks to complete calls, a requirement if they used traditional phone technology. Also, because VOIP is regulated as a "data service," it is not subject to the myriad taxes and fees tacked onto regular phone bills.

Earlier this month, the Federal Communications Commission began hearings on these issues, raising the specter of increased VOIP regulation, something for which the Baby Bells are pushing hard. If they succeed, VOIP's cost advantages could be greatly diminished.

But in the meantime, the Internet telephone seems to be a technology whose time has come, even if South Florida consumers may have to wait a while longer to realize the promise of the technology.

The wait could be longer in Palm Beach County, where Adelphia dominates. Adelphia isn't even testing VOIP technology -- one of the few major cable companies that isn't -- much less contemplating a rollout. Company spokesman Paul Jacobson said Adelphia is just starting to reverse many years of technology under investment.

"We recognize that Internet telephony is a great opportunity," Jacobson said, but the company has lagged in network digital upgrades because of its fraud problems and needs to address those areas first, he added.

Comcast is "proceeding cautiously" with Internet telephone service, but is more aggressive than Adelphia. The company is expanding a VOIP test in the Philadelphia area and next year will test VOIP in three other cities, including Indianapolis and Hartford, Conn.

During a recent conference call, Comcast Cable President Steve Burke told analysts that Internet telephone services would "without a shadow of a doubt" eventually be a very large business for Comcast.