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Telecoms Warm To Internet Calls


Vonage In Print News

Telecoms Warm To Internet Calls, But Hype High

June 17, 2004

By Justin Hyde

WASHINGTON, June 17 (Reuters) - If there's one technology that's likely to dominate the hype at the telecommunications industry's SuperComm conference next week, Internet phone service is it.

And for all those rushing into it, that could mean trouble.
Some industry observers watching the push for voice over Internet protocol, or VOIP, see a brighter future for the companies selling Internet voice transmission equipment than the ones trying to use Voip to vault into telephone services.

"The services guys will reap the rewards in the short term. The equipment guys will reap the rewards in the long term," said Frank Dzubeck, a strategy consultant to the telecom industry and president of Communications Networks Architects.

Calls made using Voip are carried over data networks, making them less expensive than traditional phone services, which require a single dedicated line for each call.

Industry research firm Gartner Inc. forecasts that by 2008, about 17 percent of North American phone lines -- about 23 million -- will have been replaced with Voip service.

But with the market for telephone service already saturated by wired and wireless competitors, revenues from voice calling isn't expected to rise. That means that any new revenue a Voip provider wins will likely have come from some other carrier's bottom line.

Gartner analyst Elroy Jopling compares today's Voip market with the opening of the long-distance phone market, which spawned a trove of new competitors.

"As with most gold rushes, few became rich and most lost their 'grub stake' and left the gold field," Jopling said. "Consumer Voip will be no different."

Meanwhile, the advent of new Voip carriers -- including major U.S. cable companies -- opens up new markets for equipment makers, who see growing demand for hardware to manage Voip traffic.

The key for communications firms will be large customers, such as corporations and governments, said Roger Heinz, a vice president with Lucent Technologies Inc. (LU.N: Quote, Profile, Research) , which along with other telecom equipment makers will be showing their latest technologies at SuperComm next week in Chicago.

It's not about voice anymore," he said. "It's about converging all of your existing networks and services, all the e-mail services, all the voice mail services."

While Voip has been around for years, recent advancements have made it an attractive alternative to regular phone services for a growing number of customers. Those same advancements also make it far easier for companies outside the traditional "Baby Bells" to sell local phone service.

Even as big players ramp up, Voip competition has already begun to weigh on prices. Vonage, the largest Voip service, lowered its monthly charges last month, while AT&T Corp. (T.N: Quote, Profile, Research) lowered fees for its CallVantage service earlier this month. Another company, Primus Telecommunications Inc., (PRTL.O: Quote, Profile, Research) has launched a Voip service offering unlimited calls from North America to Europe for $20 a month.

Nevertheless, the costs of Voip are so much lower that profit margins can still be high even when services carry low prices, said Dzubeck.

"You never make money on hype. You make money when the real world starts to surface, and that's exactly where we are today," he said.

Companies launching Voip services say the opportunities are there for the right products. Covad Communications Group Inc.(COVD.OB: Quote, Profile, Research) , which sells high-speed Internet access, has begun rolling out a Voip service for small businesses, and plans a service for consumers next year.

"The equipment manufacturers are definitely going to see some significant increases, but the service providers are too, because Voip is such a greenfield market," said Ed Mattix, Covad's director of communications and branding. "You don't have to have a whole big chunk of the expected growth of that market to make a whole lot of money on it."



 
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†AK and HI residents pay $29.95 shipping. ††Limited time offer. Valid for residents of the United States (&DC), 18 years or older, who open new accounts. Offer good while supplies last and only on new account activations. One kit per account/household. Offer cannot be combined with any other discounts, promotions or plans and is not applicable to past purchases. Good while supplies last. Allow up to 2 weeks for shipping. Other restrictions may apply.

1Unlimited calling and other services for all residential plans are based on normal residential, personal, non-commercial use. A combination of factors is used to determine abnormal use, including but not limited to: the number of unique numbers called, calls forwarded, minutes used and other factors. Subject to our Reasonable Use Policy and Terms of Service.

2Shipping and activation fees waived with 1-year agreement. An Early Termination Fee (with periodic pro-rated reductions) applies if service is terminated before the end of the first 12 months. Additional restrictions may apply. See Terms of Service for details.

HIGH SPEED INTERNET REQUIRED. †VALID FOR NEW LINES ONLY. RATES EXCLUDE INTERNET SERVICE, SURCHARGES, FEES AND TAXES. DEVICE MAY BE REFURBISHED. If you subscribe to plans with monthly minutes allotments, all call minutes placed from both from your home and registered ExtensionsTM phones will count toward your monthly minutes allotment. ExtensionsTM calls made from mobiles use airtime and may incur surcharges, depending on your mobile plan. Alarms, TTY and other systems may not be compatible. Vonage 911 service operates differently than traditional 911. See www.vonage.com/911 for details.

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