Phone, Cable Companies to Battle in 2007
Saturday December 16, 12:58 am ET
By Bruce Meyerson, AP Business Writer
As Phone and Cable Companies Prepare for Battle, IP Keeps Nipping at
Their Heels
NEW YORK (AP) -- Vonage tanked after its IPO. It's not entirely clear
anymore why eBay paid $2.6 billion for Skype. And the long-awaited
rollout of advanced TV services based on Internet technologies has
resembled the drip of a faucet.
It wasn't a banner year for some of the biggest names in Internet
Protocol, the technical standard that makes the Web hum. But the
technology itself continued to blossom, with newer innovations picking
away at every corner of the telecommunications business, from voice to
video to wireless.
No doubt the main event for 2007 will be the impending smack-down
between the traditional phone and cable TV industries. The regional
Bell companies, after losing millions of customers to rival phone
services from cable providers in 2006, are just starting to ramp up
their risky push into TV.
Verizon Communications Inc. expects its FiOS TV service will be
available to 1.8 million homes by January. AT&T Inc. finally appears
to be pushing past technological holdups with U-verse, maintaining the
IP-based service will be offered in parts of 15 markets by the close
of December.
The competitive response couldn't come a minute too soon, as cable
companies have had a field day in the phone business thus far. Just
over 6 million homes will have switched to cable phone service by the
end of 2006, a gain of 2.5 million for the year, the industry research
company TeleGeography estimates.
In advance of the TV push, Verizon and AT&T have battled back with DSL
Internet connections priced as low as $15 a month, hopeful of keeping
and winning households that can be sold FiOS or U-verse later. The
effort has borne some fruit: Although a rapid overall decline in
residential phone lines continues, the percentage of remaining homes
with phone and DSL service is growing fast, and the Bells are now
signing up more first-time broadband users than their cable rivals.
As the giants of phone and cable do battle, however, both sides will
find themselves flicking away at technological termites that threaten
to hollow their victories by offering new ways to communicate and
deliver content, always for less and sometimes for free.
Daily it seems, there's another renegade company launching some form
of calling or video that bypasses the normal mode of consumption,
usually by exploiting IP, a network language that reduces all forms of
communication into simple building blocks of data, one
indistinguishable from the next.
In the past month alone, a half dozen small companies have introduced
applications and services to enable cell phone users to make cheaper
wireless calls, many exploiting different elements of Voice over IP,
or VoIP, the technology also being used by the cable companies and
Vonage Holdings Corp.
Some of the new services, with names like Talkster, Efonica's
Mobilink, Jajah and iSkoot, mimic aspects of a long-distance calling
card -- providing cheaper rates by first connecting with a local phone
number -- while blending in new capabilities drawn from the world of
instant messaging and Skype. Other startups such as Raketu are
providing mobile VoIP calling by exploiting a phone's Internet
connection rather than the regular voice channel.
By adding online buddy lists to the mobile mix, these services can
enable a cell user to see whether friends are available before trying
to call them, avoiding a waste of time and precious plan minutes. They
also can enable quick-click dialing from one listing containing a
friend's various phone numbers, Skype account or IM identity.
It's entirely possible, maybe probable, that all these newcomers will
fail to catch on with enough people to ever resemble a real business.
To date, there's only been one Skype, which boasts 8 million
simultaneous users at peak hours. And while Skype has only grown in
popularity since being acquired last year by eBay Inc. for a stunning
$2.6 billion, it's not clear that success will ever produce pots of gold.
Yet collectively, Skype and all the would-be Skypes keep nibbling away
at the core business model of the telecom industry, which treats a
phone call and its length as something far more valuable than mere
packets of data traversing a giant computer network.
Driving home the contrary point of view, Skype is now launching an
unlimited calling plan for the United States and Canada costing just
$30 a year. That's roughly the same amount charged every month by the
Bells, cable providers, and even Vonage, whose stock has plunged more
than 50 percent since its initial public offering in May, a stark sign
of the competitive dangers investors see.
Meanwhile, with leading IM services playing up their own calling
features, there's a growing critical mass of online users with an
alternative way to speak without a regular phone. The big stumbling
block here remains incompatibility between different IM providers. But
should a few companies like AOL, ICQ, Skype and Yahoo ever decide to
bridge their services, the size of the resulting user base would
suddenly begin to approach the public phone network.
It's not that anyone foresees the imminent collapse of traditional
phone and cable providers. To begin with, the upstarts often don't
deliver the same level of reliability and sound quality as the
mainstream offerings.
They all also rely in some fashion on high-speed Internet lines to
deliver their services to end users. So while Skype phone traffic has
continued to balloon, the vast majority of those calls are placed over
DSL and cable broadband lines. Many are connected to traditional phone
numbers, producing at least some revenue for the owners of those wires.
TeleGeography estimates that Skype users are on track to make over 27
billion minutes of computer-to-computer calls this year, with about
half of them used for international long distance (all free). While
that sounds like a lot, it still represents just 4.4 percent of total
international traffic in 2006, up from 2.9 percent in 2005.
"Someday, all calls will be routed over the Internet," said Stephan
Beckert, research director at TeleGeography. "But the numbers suggest
that traditional international carriers aren't going to disappear
anytime soon."
Another key factor working in favor of the establishment is
convenience. Skype and other insurgents require users to jump through
an extra hoop or two: installing additional equipment or software,
punching in extra numbers or passwords, sitting at a computer, or
maybe leaving your computer running at all times.
These requirements make them that much less easy to use than just
picking up a phone or flipping on the TV.
Such simplicity and familiarity are the bread and butter on which big
phone and cable companies are banking to make their investments in
network upgrades and new services worthwhile. Even if their overall
customer base shrinks, they expect to sell more to each household that
stays.
Along the same lines, they too are exploiting IP technologies to
introduce new capabilities and greater integration between home and
mobile services. AT&T, for example, recently launched a video home
surveillance system that can be monitored and controlled on the
company's Cingular cell phones.
"Some customers are going to want to buy access from us (AT&T) and use
other technologies because it gives them an interesting value
proposition," AT&T Chief Financial Officer Rick Lindner said in an
interview. "But for some customers, they're going to want the
convenience of one provider.... That value proposition may not appeal
to 100 percent of all people, but it will appeal to the majority." |
