Vonage VoIP Forum - Internet Phone Service

Internet Phone Service For Every Home Not Far Off

June 27, 2004

By Wesley Brown

LITTLE ROCK - Local phone service in Arkansas and the rest of the nation is nearing a big evolution, experts say, meaning that terms like WiFi, telephony and FTTH (fiber-to-the-home) will soon become part of our everyday language.

However, it is Internet phone service, more commonly known as voice-over-Internet protocol (VOIP) technology, that many feel will have the biggest impact on the landscape of the $100-billion-a-year telecommunications industry over the next few years.

"Clearly, VOIP is going to be very important over the next few years," said SBC Arkansas spokesman Ted Wagnon. "It is the most substantial technological advance in 100 years."

SBC, which operates about 950,000 access lines in Arkansas, is betting on the new technology. On Tuesday, San-Antonio-based SBC Communications - parent company to SBC Arkansas - announced a $4 billion to $6 billion expansion plan over the next five years to install a fiber optic network offering high-speed Internet access, voice communications and television programming. SBC officials would not discuss details of the expansion plan.

Jeff Kagan, a telecommunications analyst in Atlanta, said the move signifies SBC's attempt to further bundle services and take on cable companies such as Cox Communications.

"That's the trend, to have everything pumped through one broadband pipe," he said. "What we're seeing now ... is retiring the traditional phone network."

Scott Testa, chief operating officer for Philadelphia-based Mindbridge Software, said VOIP is going to "turn the consumer market on its ear."

"This technology is such a huge development," said Testa, whose company provides Internet management consulting. "It is here to stay. It is getting better and getting cheaper, and it is really the answer to true competition in the local phone market."

Wagnon said SBC is taking a businesslike approach to this new technology rather than simply jumping into it full-fledged.

"We think it is a really exciting technology, and we are following it closely and testing consumer VOIP technologies in the SBC lab," Wagnon said.

The draw of VOIP technology is that it converts phone calls to data and sends them across high-speed Internet connections. The system bypasses at least part of the conventional telephone network, which converts voices into electronic signals and carries them across wires.

Today, there are only about 200,000 subscribers to VOIP services, compared with 188 million conventional telephone lines and 155 million wireless customers, industry statistics show. Arkansas Public Service Commission figures show that there are 936,032 residential access lines in the state.

Still, there is some controversy and concerns about how this new technology will be regulated.

Earlier this year, the Federal Communications Commission launched an inquiry into proposing new rules for governing interstate phone calls that are made over the Internet.

So far, FCC Chairman Michael Powell has indicated that the federal government does not want to burden the Internet with the same bureaucratic rules that now regulate local phone networks like those owned by Verizon, SBC and CenturyTel.

However, local phone companies feel that the federal government should not allow Internet phone companies to operate without any rules.

SBC and the other Baby Bells - Verizon, BellSouth and Qwest - along with CenturyTel Inc., have argued that the current regulatory model created decades ago has been outpaced by changes in technology.

Wagnon and Marion Scott, the general manager for CenturyTel's Arkansas operations, both said that telecom rivals are avoiding paying local telephone companies for using the networks they invested in and built over the decades.

"These calls require a broadband connection and must still travel on telephone networks built and maintained by companies like CenturyTel," said Scott of the Monroe, La.-based rural telecom company with 203,700 Arkansas customer access lines.

Scott said VOIP providers are required to pay fees to local telephone companies to complete their calls, but they are attempting to avoid paying these fees for use of local networks by calling their services "information services" rather than "telephone voice services."

"As these providers avoid paying fees and take the most profitable customers, local telephone companies have less revenue to keep service affordable and make investments in new backbone infrastructure," Scott said, citing a study that says customers in rural areas could see an increase in basic rates of $25 or more per line as VOIP services become more common.

In Arkansas, there are currently very few choices for consumers in the state.

New Jersey-based Vonage, the largest pure play Internet phone company with nearly 200,000 subscribers nationwide, has rolled out service in Bentonville, Fayetteville and Little Rock over the past six months.

So far, Vonage has only signed about 1,000 users, according Louis Holder, Vonage's executive vice president of product development.

But IDC, a technology research firm, believes nearly 600,000 consumers in the United States will sign up for Internet calling services by the end of the year.

And many experts believe the new service will only take off when larger companies with bigger pockets get in the game.

When asked if the fledgling New Jersey-based broadband company will be able to survive when the consumers see it as a viable option to traditional landline service, Holder replied: "Absolutely."

"What you are going to see in a lot more competitors getting into the space," the Vonage executive said. "There will be a few big providers like the Bells, ourselves and a few cable companies. And then you will see the majority of (local phone) users switch to the VOIP because of the added services that it will be able to provide.

"The advantage that we have is being a smaller company rather than a larger company, which means we can move faster," Holder said. "Plus, we have two years' head start and are experts in this arena."

Although the consumer market still is a few years away from meaningful growth, the state's dominant phone company is already marketing VOIP services to businesses in Little Rock and Northwest Arkansas, one of the nation's hottest business economic growth hotbeds.

In May, SBC announced that business customers in Fayetteville, Rogers, Springdale and Little Rock can access its new VOIP service, which allows voice and data applications on a single platform.

Wagnon said that SBC Arkansas' business customers in these markets can buy all their telecom needs - wireless, landline, high-speed Internet, satellite TV and VOIP - in one bundle.

Still, Arkansas' local phone users across the state will have to wait a few years before they will have a number of VOIP choices from which to select.

Last week, AT&T said it now offers VOIP service in 46 of its 100 target markets. The company declined to say how many people have signed up for VOIP service, but Cathy Martine, AT&T's senior vice president for Internet telephony marketing and sales, said on a conference call on June 14 that the number of subscribers continues to increase weekly.

In late May, Comcast Corp. said it will offer telephone service over the Internet to more than 40 million households by 2006.

Comcast's VOIP service will be tested in systems in the Philadelphia suburbs, Indianapolis, and Springfield, Mass., this year, offered in half its systems by the end of the year and in 95 percent of its markets, including Arkansas, by the end of 2005.

This story also appeared in:

Fort Smith Times Record, 6/28/04