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NOVEMBER 11, 2003
By Alex Salkever Why the Bells Should Be Very Scared Free voice calls transmitted over the Internet are fast becoming mainstream. To survive, today's phone companies must adjust, radically When IBM talks, Corporate America listens. So Big Blue created quite a stir on Nov. 7 when a top exec told a tech conference in Atlanta that it hopes to move 80% of its 300,000 employees to voice-over-IP phone systems by 2008. VOIP routes voice calls over data circuits using Internet protocol technology, circumventing traditional -- and far more expensive -- phone networks. The IBM (IBM ) announcement wasn't a total surprise for technophiles. VOIP has caught fire over the past two years with corporate customers. According to telecom tracker Dell'Oro Group, in the first quarter of 2003, the number of VOIP lines shipped as Internet phone equipment topped 1 million worldwide for the first time. And one of the highlights of Cisco Systems' (CSCO ) most recent quarterly earnings came from soaring sales of IP telephones used in VOIP. Still, the IBM announcement signifies that the end may be far nearer than previously thought for the legacy copper-wire phone networks that have built fortunes for the Baby Bells such as Verizon (VZ ) and SBC (SBC ) as well as AT&T (T ) and Sprint (FON ). When the largest tech company on the planet announces it no longer needs the phone company to manage its calls, you can bet the communications landscape has fundamentally changed. The IBM move should have executives at big telcos hustling into emergency planning sessions on how to transform their future business models to put less emphasis on phone-line growth and more into new lines of business. PEER-TO-PEER PRESSURE. It's not just the business landscape that's changing, either. When the telegraph gave way to the telephone, consumers gained far more control. Likewise, twisted copper is on the verge of giving way to the Internet -- and an era of unprecedented choice at very low costs. All of this is driven by a simple fact: Both consumers and businesses have a choice as to how they get their data delivered. Many homes can choose from cable modems, DSL, or even relatively high-speed satellite connections. In many metropolitan areas, businesses can already pick from half-a-dozen data providers to connect them to the Internet. Witness the latest creation from Niklas Zennstrom, the founder of wildly popular peer-to-peer file-sharing network KaZaA. In September, 2003, Zennstrom launched Skype, a free peer-to-peer telecom network. It allows any two Skype users anywhere in the world to speak to each other in real time over a broadband connection. Skype has a nifty interface that can tell users when they miss calls from other Skype users and a buddy list like instant messenger programs. CLEARER THAN A BELL. Other companies have tried to turn a PC into a phone by offering free voice calls over the Internet. But Skype offers voice quality that many users say is even better than regular phone lines. Zennstrom has promised that basic Skype voice service will always be free, though he plans to charge for additional services. And already, nearly 2 million people have download Skype onto their PCs -- up to 100,000 users have successfully used the system at the same time, the company says. Exchanging voice connections on a wide scale varies little from exchanging data files. Thus far, KaZaA has managed to keep its servers up and running, and it's doing so while handling enormous user loads with capital inflows that wouldn't amount to a rounding error for a Baby Bell. Clearly, Skype runs far cheaper than the Baby Bells or any other legacy telecom giant. In point of fact, Skype is just the most trendy example of this capability. Instant messenger products from AOL (TWX ), Yahoo! (YHOO ), and MSN (MSFT ) all have decent voice capabilities. Apple's (AAPL ) iChat offers voice quality as good as many cell-phone networks. All these peer-to-peer voice systems offer an invaluable benefit. They follow anywhere subscribers log on to the Net, from Tokyo to Timbuktu.
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