(AT&T+VOCLF)/ITXC = a tanking share price. Guys, this is a bad equation in my book:
AT&T and VOCLF are joined together in a private company called ITXC:
www5.zdnet.com
internetnews.com
On the surface it sounds wonderful UNLESS someone starts to charge regular long-distance access fees to IP companies. (Like maybe the Baby Bells won't take all that lost business lying down?)
<<U.S. Internet Phone Market Could Hit Snag: Technology Focus
Denver, June 11 (Bloomberg) -- Internet phone calls are booming as quality improves and consumers and businesses jump at the chance to slash bills in half.
That could change, though, with a likely challenge to Federal Communications Commission rules that make today's Internet phone calls so cheap.
At least one Baby Bell is expected to argue that Internet carriers must pay the same fees as any other phone company, and some predict that the FCC will agree. Higher prices could nip the fledgling Internet phone market in the bud, squelching service from Qwest Communications International Inc. and others and slowing plans from AT&T Corp. and the long-distance providers.
The odds are high that the (FCC) will impose access charges,'' said William Deatherage, an analyst at Bear Stearns & Co.
BellSouth Corp. already is taking issue with the lack of access fees, which are levied to cover the regional Bells' cost of completing long-distance companies' calls and can add as much as 10 cents a minute to the price of a phone call. The Atlanta- based Baby Bell said it soon will begin charging Internet phone companies to complete their calls, just as it does long-distance providers.
These companies are nothing more than long-distance companies in Internet clothing,'' said BellSouth spokesman John Schneidawind. ''There's no decision that has to be made at the FCC. Phone-to-phone telephony is subject to access fees.''
Racing to Build
Internet phone calls, once the realm of computer geeks and startup companies who often made international calls, travel over the global computer network for a fraction of the cost of traditional calls. They dodge access charges by sending voice communications over connections usually used to carry data, which are exempt from the traditional regulations.
Denver-based Qwest and others are racing to build and expand their Internet networks to take advantage of new, cheaper technologies. The aim is to grab a piece of the consumer Internet phone market that's expected to reach $2.5 billion in sales in 2004, up from $49 million today, according to Forrester Research of Cambridge, Massachusetts.
Forrester says Internet phone calls cost an average of 6.5 cents a minute. That's less than half the price of traditional long-distance calls, which average 14 cents a minute. The market researcher estimates there are now 20,000 to 50,000 consumer Internet phone users worldwide.
In February, Qwest introduced its Q.talk Internet phone service in nine cities including Los Angeles, San Francisco, Salt Lake City and Denver. With Q.talk, customers pay 7.5 cents a minute for long-distance calls.
And IDT Corp., a long-distance phone company, offers Internet calls for just 5 cents a minute in 50 U.S. cities for customers who sign up for its long-distance services.
Internet Protocol
AT&T, Qwest and others use so-called Internet protocol technology to reduce the cost of carrying calls on their networks. With IP, a phone call is broken into several ''packets'' of information, sent over multiple routes and reassembled at its destination. Traditional circuit-switched phone services use a single line for the duration of a call, making it more expensive for phone companies.
Increasingly, calls get carried over IP because it's cheaper,'' said Tom Evslin, chairman and chief executive of Internet phone company ITXC Corp. Evslin left AT&T in 1997 to form closely held ITXC.
(**** VOCLF and ITXC are connected)
Qwest is building an 18,400-mile, nationwide phone network that it says will be able to add more capacity than traditional phone networks, partly because of the IP technology.
Qwest shares have almost tripled since the company's initial public offering in June 1997 at $11 a share, adjusted for a two- for-one stock split. IDT's shares are up 26 percent so far in 1998.
Long Distance Fights Back
While Internet phone companies' biggest asset is the current regulation, traditional long-distance providers aren't standing still.
On top of working on their own Internet phone services, the companies are cutting internal expenses and becoming more efficient to trim the cost of regular long-distance services. In addition, access charges phone companies pay are falling -- thanks to government-mandated rules.
Indeed, Forrester estimates the difference in price between Internet calls and traditional ones will narrow significantly over the next few years, as traditional calls fall to an expected 8 cents a minute by 2002.
That leaves a small window for Internet phone companies to get established in the U.S. phone market.
The opportunity for profit is in the next few years,'' said Howard McNally, vice president at AT&T, in charge of the company's Internet phone service.
That makes the FCC's decision all the more crucial.
In an April report to Congress, the FCC said companies that provide long-distance phone service over the Internet could be subject to the same regulation that other long-distance companies bear. The companies also may have to pay into the so-called universal service fund, which helps keep phone service affordable for all Americans, the FCC said in its report.
Internet calls ''appear to be a telecommunications service because it is functionally the same as a long-distance phone call on the analog network,'' FCC Chairman William Kennard said when the report was released.
Case-by-Case Action
Kennard said the agency will decide case by case, in response to company petitions, whether a company's Internet phone service is subject to the access fees and universal service contributions.
So far the FCC said it hasn't received any petitions.
Meantime, AT&T is pushing ahead with plans to start selling its Connect 'N Save Internet phone service this year in several markets, charging 7.5 cents to 9 cents a minute. MCI Communications Corp. and Sprint Corp. also are studying whether to offer long-distance Internet phone services.
It's small companies like ITXC, though, that are likely to feel the most heat.
If Internet phone service gets more regulated, ''a company like mine will spend more time with regulatory compliance and less time on innovation,'' said Evslin of ITXC. ''Our costs will be higher so cost to the customer will be higher.''
That's one thing Evslin doesn't want. He estimates the Internet phone market will make up 80 percent of the U.S. and international long-distance phone traffic in 10 years, from less than 1 percent today. >> |
