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NOVEMBER 11, 2003
By Alex Salkever Why the Bells Should Be Very Scared [Page 2 of 2] FAR AND WIDE. That's a key benefit often cited by businesses using IP telephony. With traditional PBX phone systems, changing locations and moving around a lot causes big headaches. But with IP-based PBX systems, moving around and getting messages delivered anywhere is a piece of cake. Best of all, Web surfers pay nothing -- not a red cent -- to use these service. That's a tough price for the Baby Bells to match. Of course, these systems can't tap into the phone network that still serves the vast majority of the population. But at outfits like IBM, the majority of whose voice communications are internal, outbound service, while still important, need not be the primary focus. Likewise, many consumers use their phones mainly to call close friends and family. That makes a Skype-style buddy list an easy way to circumvent the phone company. At the same time, companies such as New Jersey-based Vonage have stepped in to build businesses connecting VOIP users to existing phone networks. Vonage and its cohorts charge flat monthly fees covering all-you-can-use local and domestic long-distance service. Vonage's charges significantly undercut current local phone tariffs. And a Minnesota judge dropped a bombshell on the telecom world recently, ruling that Vonage is a data-services company and not a traditional phone company, which puts it largely beyond state regulations. No surprise that Baby Bell Qwest Communcations (Q ) announced on Nov. 5 that it was jumping into the consumer VOIP market in Minnesota. JUNCTION BOX. This evolving battle is likely to get more interesting. On Nov. 7, a small New York City outfit, Stealth Communications, launched a program that could make it much easier for VOIP providers to circumvent the public phone networks. Stealth announced what will serve as an Internet exchange point for VOIP providers. Just as big ISPs connect to each others' big pipes in "telecom hotels" and data-exchange centers, Stealth aims to create a single point of contact so that VOIP providers can connect to each other. That means if IBM wants to talk to, say, GE (GE ) and both use corporate VOIP, then they could connect through Stealth without ever having to traverse the far more costly public phone network. Should the concept catch on, then the Internet's relatively cheap bandwidth could, in short order, obliterate the existing phone systems for big companies, with consumers not far behind as they sign up en masse for Skype-like VOIP service clones. The result would be dirt-cheap phone service with no distinction between local, domestic, or international calls (see BW Online, 2/4/03, "Here Comes the Real Fun for Telecom"). The big telcos are hardly standing still. Like Quest, most are jumping into VOIP services and trying to compete. They do have some leverage in that they control the DSL infrastructure that delivers about a third of the high-speed consumer Internet connections in the U.S. FREE CHOICE. Further, VOIP has some technical hurdles to overcome. While copper-wire phone service works even in a power outage due to the electricity that phone companies pipe over their networks, VOIP connections would go dark under the same circumstances. Also, VOIP could undermine laws aimed at funding 911 services and guaranteeing phone connections to almost every U.S. household. That's why the Federal Communications Commission announced in early November that it will now examine regulatory issues surrounding VOIP. I wouldn't count on any major regulatory relief for the old world of copper wire, however. Most likely, the FCC and Congress will oversee the transformation without interfering with the choices already made by Big Blue and millions of consumers. Let a thousand phone companies bloom on the Net.
 Salkever is Technology editor for BusinessWeek Online. Follow his Nothing But Net column every week on BusinessWeek Online Edited by Douglas Harbrecht
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