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VoIP: A Shot in Telecom's Arm

By Cynthia L. Webb
washingtonpost.com Staff Writer
Tuesday, November 16, 2004; 9:49 AM

SBC Communications is the latest Baby Bell to jump headlong into the world of Internet telephony, a move aimed at boosting its offerings in an increasingly competitive broadband marketplace and at catching up with upstart 'Net phone players like Vonage that have seen a surge in business as consumers look for cheaper calling plans.

But SBC's move also amounts to "the latest salvo in what's fast becoming a high-stakes race between phone and cable-TV companies. Both are hoping to woo customers with a full menu of phone, data and video services," USA Today reported.

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"None of the Bells have a choice," telecom consultant Raul Katz told USA Today. SBC senior VP Scott Helbing put it more directly: "It's a game of chicken, to a certain extent," he told the newspaper. "Cable operators have been pushing to get into our bread-and-butter business, and now we're going to get into theirs."
USA Today: SBC To Offer Net TV, Phone Service

SBC officially announced its voice-over-Internet-protocol (VoIP) service today. The San Antonio, Tex.-based company already has a trial run of the service in Los Angeles, Dallas, Chicago and San Antonio. "The long-awaited move comes nearly a year after Qwest Communications International Inc. launched its Internet calling service, or voice over Internet protocol, in its territory. Verizon Communications Inc., the nation's largest phone company, launched an Internet calling service earlier this year," the Wall Street Journal noted. "Phone companies are rolling out Internet calling to respond to startup rivals like Vonage Holding's Corp. and Skype Technologies SA, which have been offering cut-rate and even free phone calls for consumers using Internet technology. The startup companies have been successful so far, signing up hundreds of thousands of customers," the paper reported.
The Wall Street Journal: SBC Test VOIP Service Aimed AT Consumers (Subscription required)

USA Today noted, however, that SBC still relies on traditional phone service for its bottom line. That is the case for long-distance firms like AT&T and local phone monopolies (the Baby Bells) that are trying their own hands at Internet calling: "For all the buzz around Internet-based services, basic phone service -- delivered over old-fashioned copper phone lines -- still accounts for the bulk of the company's profit. Most of the big phone carriers probably would prefer not to sell Internet-based phone service, because it competes with their own higher-profit basic service. But SBC, Verizon and the other big carriers really don't have a choice. Cable companies are rapidly rolling out Internet phone service. ... At the same time, cell phones are gaining favor as a substitute for traditional 'wired' phones. The two developments, driven by advances in technology, are forcing SBC and the others to respond. Verizon, based in New York, already offers VoIP for consumers."

The Ann Arbor News of Michigan on Sunday reported that consumers are set to be the big winners in the VoIP wars: "Comcast Corp. and SBC Communications Inc. have already revved up their broadband engines to attract the coveted high-speed Internet customer. But the next two years could bring nothing short of an broadband arms race, as cable TV and Baby Bell phone companies joust to furnish your home's every communication and entertainment need. Phone companies say they're committed to spending billions to build fiber-optic networks capable of bringing high-definition TV, Internet services and phone systems directly to homes. Meanwhile, cable firms hope to cut into the phone market by rolling out Internet-based calling, possibly next year," the paper said. "For consumers, the rivalry could yield a cornucopia of new features -- and possibly lower prices - as the nation's seemingly insatiable thirst for a flash-like Web pace persists. But some observers wonder whether broadband proliferation will result in real competition -- or merely create cable-only or fiber-only territories. One thing is certain: The lines traditionally separating cable and telephone companies are blurring."
Ann Arbor News: Race Is On To Plug In High Speed Net Links

Meanwhile, back in Washington, VoIP providers must be celebrating the feds' decision to take the lead in regulating Internet phone services. In a ruling issued late Friday, the FCC "asserted their control of Internet phone service but have not yet fleshed out important details, including potential taxes and fees," CNET's News.com reported. More: "FCC Chairman Michael Powell has said he favors a light regulatory touch for VoIP. But complicating an already complex situation is how Congress might rewrite the nation's telecommunications laws when it revisits the 1996 Telecommunications Act. One Senate panel has already voted to impose what would amount to heavy taxes on VoIP providers."
CNET's News.com: Feds Claim Control Over VoIP, Leave Tax Issue Open

Pentagon Dials Up Some VoIP Action

Uncle Sam is hopping on the VoIP bandwagon too. The Defense Department has been running tests to upgrade its networks, including support of 'Net phone calls, on IPv6, a follow-on effort to expand on the current Internet addressing system, CNET reported.
CNET's News.com: Defense Department Test Net Phone Calls On IPv6

Telecom Capital Rising?

The blurring distinction between cable and phone companies also means more competition for the telecom sector, which has been in need of a revival since the dot-com bust and telecom fall-out of the late 1990s. The Washington Post yesterday reported that the Washington region's telecom sector is getting a boost from an increased appetite in wireless and security. But experts told the paper not to expect another massive telecom boom: "After four years of painful decline, the area's telecommunications business is starting to come back. The newer telecom companies are largely focused on such growth areas as wireless communications and security software. Many are small. And most get by without the dollars that used to flow from venture capital funds or from going public. Washington will continue to be a major center for telecommunications, analysts and investors say. The area is rich in technologists, lawyers, venture capitalists, skilled workers and the federal regulators of the telecommunications industry."

More from The Post: "But the telecommunications industry won't be the local economic driver it was during the 1990s, analysts say. Local employment in the industry hit 50,200 in March 2001, and venture investments in local telecommunications topped $1 billion in 2000. At last report, 33,700 people were working in the local telecommunications sector as of September, according to the Bureau of Labor Statistics. The area's venture investment in telecommunications dropped to $81.7 million last year, according to data from the MoneyTree survey conducted by PricewaterhouseCoopers/Venture Economics/National Venture Capital Association." Charlie Thomas, former chief executive of dot-com fall out Net2000 Communications, told the paper: "I see promising players, but if you're looking for the next Google, I don't know that we know what that is yet for this area."
The Washington Post: Telecom Shows Sparkles of Life (Registration required)

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