Phone frenzy
A spate of mergers signals a new era in telecom services
That clearly worries the regional phone companies. "We don't have the only last mile," says Verizon's Thonis. "Every cable company has the ability to do VOIP." And that's not all. Cable companies have already become a triple threat with their television, Internet, and phone services. To compete on that level, the new generation of phone companies will have to introduce even more bells and whistles.
Plugging in. To that end, Edward Whitacre Jr., CEO of SBC, recently announced that the company planned to roll out bundled services that will include not only faster Internet access and VOIP but TV as well. To deliver on that promise, SBC plans to spend about $4 billion to upgrade its network, stretching high-capacity fiber cable to about 18 million households by the end of 2007. Verizon is making a similar investment and has already placed fiber channels within reach of about 1 million homes. These fiber networks have the potential to exceed the capabilities of cable TV networks and deliver not only movies on demand and online gaming but also features such as videophones.
Furthermore, the phone company newlyweds could go the cable companies one better by selling not just voice, Internet, and video service but also cellular service. Verizon Wireless, for example, has just added video downloads for $15 a month to subscribers using its high-speed cellular network. So now cellphone users can annoy fellow train commuters not only by yammering on their phones but also by watching music videos and special CNN news spots.
So will the new telecom landscape mean consumers have only two choices: their regional phone company or local cable company? Not necessarily.
Many industry analysts say that within a few years, all voice and data traffic will be transmitted using Internet standards, meaning that phone service is going digital. So companies like Vonage shrug off the merger mania. In fact, Vonage CFO John Rego believes the acquisitions will usher in a new era of competition and mobility. For example, Vonage plans to introduce a wireless phone that lets customers make VOIP calls over any public Wi-Fi network, such as those in coffee shops and hotel lobbies. Vonage videophones will follow later this year.
Nevertheless, these technological upheavals may mean there are more mergers on the horizon. Analysts point to the fact that BellSouth, Qwest, and T-Mobile still haven't found dance partners. And Vonage itself is a likely takeover target. But a dark horse may conduct the next scherzo in the telecom revolution. Companies like Intel and IBM are pushing new wireless technology called WiMax that delivers high-speed communications directly to homes. A single WiMax tower could cover an entire neighborhood.
One of the prominent WiMax backers is also a figure familiar to the telecom world: Craig McCaw, the cellular phone pioneer who sold his wireless company, McCaw Cellular Communications, to AT&T for $11.5 billion back in 1994. His new company, called Clearwire, is now using WiMax to circumvent phone and cable companies' exclusive last-mile connections. So far, Clearwire offers Internet service in only four U.S. cities. Of course, that's how McCaw started his original wireless business back in 1982, and it became the nation's largest cellular phone company.
Even with all these changes, telecom history just might be repeating itself. Upstart MCI was partly responsible for instigating the breakup of AT&T--the original, all-in-one local and long-distance company--back in 1984. Now, the rebellious child has matured. And it is beginning to look a lot like Ma Bell.
advertisement
