Phone frenzy
A spate of mergers signals a new era in telecom services
That's why AT&T in July announced that it would stop competing for residential local and long-distance business, although it will continue to support existing customers. In essence, the company concluded that unless it returned to the days when Ma Bell owned both the long-distance and local phone lines, it would be unable to compete against the SBC s and Verizons of the world under the new FCC rules.
Of course, it took more than a single shove to get long-distance carriers to the precipice. "What really killed the long-distance business were cellphones and the Internet," says Verizon's Peter Thonis, senior vice president of external communication. With the advent of low-cost nationwide cellphone plans, E-mail, and instant messaging, the days when consumers would pay hefty long-distance phone charges just to stay in touch with friends and family across the country were quickly coming to an end. Some consumers have, in fact, dropped their traditional landlines in favor of cellular service. And last year, cellular phone spending per U.S. household surpassed that spent on traditional phone services, according to TNS Telecom.
Further undermining traditional phone service has been the burgeoning use of the Internet to place calls. Known as voice over Internet protocol or VOIP (pronounced voyp), services like that from Vonage, the largest consumer VOIP company in the United States, offer users unlimited local and long-distance calling for a fraction of what companies like AT&T and Verizon charge for traditional phone service. For customers who already have a broadband Internet connection, Vonage charges $24.99 a month for unlimited nationwide calling. Verizon doesn't even deliver conventional local and regional calling for that price.
Net talk. Many VOIP customers are enthusiastic about the new technology. Bruce Phillips, an executive recruiter who switched his office phone service to Vonage in February and will soon plug his home in too, says he spends around $50 per month, down from $250 to $300. He also enjoys the special features, including the ability to change location but keep the same service and phone number. Clients and friends who call him don't know if he's in his office in midtown Manhattan, his home in Pleasantville, N.Y., or his girlfriend's house in Dummerston, Vt., "unless I tell them."
So in an "if you can't beat 'em join 'em" move, Verizon and SBC plan to beef up their VOIP services. Both companies have an advantage over VOIP-only firms like Vonage. Not only do they own the wires that ultimately reach consumers' homes (the so-called last-mile connection), but they can also offer high-speed digital subscriber lines--DSL--along with phone service.
In fact, part of the attraction for Verizon in procuring MCI is the long-distance hauler's extensive Internet infrastructure. MCI has 98,000 miles of fiber-optic connections and an Internet network that could circle the globe more than four times. These are the kinds of assets Verizon believes it needs to fend off upstarts like Vonage and to compete against high-speed Internet access from cable companies like Comcast and Cablevision. But so far, the cable companies have been winning the broadband battle. Adoption of high-speed cable Internet access has been about 1 1/2 times that of the phone companies' digital subscriber lines, according to technology research firm IDC.
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