Looks like AT&T will join the club! How will it affect VOCLF?
Will it speed the acceptance of telephony and therefore voclf's
acceptance? or take the wind out of voclf's sails? whatever this was bound to happen and sooner is better!
there are 2 articles here so scroll down past stock quotes.
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Can't beat em', join em'
AT&T to offer low-cost Net telephony
By Emily Church, CBS MarketWatch
Tue Jan 27 18:18:03 1998
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NEW YORK (CBS.MW) -- Using the Internet to make telephone calls has attracted thousands
of users for one reason: It's cheap.
But confusing standards and less-than-pindrop quality connections have kept the market pretty
small.
That could change quickly as capacity expands and begins to threatenÿ profits at traditional
telephone companies, which rely on less efficient public switch networks to transmit calls.
AT&T Corp. announced on Monday that it is getting into Internet-based long distance U.S.
telephone business-the first big telecommunications carrier to do so. The news was viewed
at once as a major concession. The company's stock dropped 5.8 percent on Monday in heavy
volume after the company also reported flat fourth-quarter revenues.
But, Internet analysts say the move gives AT&T a chance to position itself for the day when
voice and data integration over the Net reaches a wide audience, in addition to moving against
its Net-based competitors.
"There is a market out there that is entirely price sensitive, and AT&T doesn't want to be
excluded from that market," said Mark Winther, a vice president at International Data Corp.,
Framingham, Massachusetts-based consultants.
"I think it's very bold of AT&T to offer this, and it's the right strategy. Every time a new
product, a lower cost product comes into the market, the market expands, it doesn't stay the
same or contract," Winther said.
Working out the kinks
AT&T expects to begin testing its WorldNet Voice service in as-yet unnamed cities in the
second quarter. Under the plan, the company switches the way phone calls are connected.
Users pick up the same old phone to call home, but the call is routed in so-called "packets" of
data over the Internet.
Spokesman Mark Siegel said the company's lab is focused particularly on cutting the
"tick-tick" delay between conversations via the Internet. "We have worked very hard to
minimize that so that an Internet telephony call sounds almost as natural as a call over ordinary
telephone lines."
The new service is expected to carry state-to-state long distance calls over the company's
Internet backbone network for a price of 7.5 to 9 cents a minute, which is lower than any price
over the traditional land lines. Callers will be asked to pay for the service with a lump sum, up
front payment from which the cost for calls they make will be deducted over time.
The Big Question
The trouble for analysts, and investors, is that if WorldNet takes off it could hurt revenues at
AT&T as the low-cost service eats into the company's own customer base.
"Will the market grow or will AT&T eat its own business, and therefore reduce its own
revenue?" Winther asked.
The bottom line for the major carriers may be that they have no choice.
"What they clearly looking to do is to get into the low end of the market that is very price
sensitive to head off competition," said Sanjay Mewada, senior analyst at the Yankee Group.
"If you're going to lose your traffic minutes to somebody else, you might as well lose to
yourself."
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Still a Minnow
Internet telephony still accounts for a tiny fraction of long distance telephone calls in general.
IDC says of the about 760 billion minutes callers spent on the telephone last year , including
international calls, Internet telephony is thought to have represented around 2 billion minutes.
Yet, the IDC and telephony companies are forecasting Internet calling minutes are going to
increase dramatically.
U.S. long distance and international calls alone are growing by 12-13% a year. IDC expects
Net -based telephony to represent about 11 percent of the overall market in 2002.
Winther does not think AT&T is going to lose a large number of customers to the Internet
service. "What AT&T is looking at, at best, is displacing ten percent of their traffic" he said.
Internet telephony "remains a niche, but still it's a niche worth $5-6 billion year."
Competitive pressures
To some observers AT&T is jumping from the frying pan and into the fire.
"Too little, too late," said Gilford Securities's Otis Bradley. "Telephone companies have the
biggest vested interest in doing things the old way, and they are always going to be undercut."
The company's foray into the market "is great for the consumer, and smart, but still it will hurt
them more than its hurts anybody else," Bradley said, referring to the telephony start-ups
which don't carry AT&T's operating costs.
Some of these small companies, like New Jersey-based VocalTec are already offering
phone-to-phone, PC-to-phone and fax-to-fax over IP networks. A customer can download
VocalTec software for $49.95 now and make calls over their PC for nothing (exceptÿ the cost
of connecting to the Internet in the first place).
With some Internet carriers, the cost for a PC-to-phone call to say, Florida or Salt Lake City,
is somewhere around 5 cents a minute, below AT&T's price point.
"Anyone can undercut anyone's price, and (with AT&T in the market) prices are going to keep
going down," said VocalTec spokeswoman Jo Lee.
The Brand Name
What AT&T hopes to use for a leg up is its brand name. And, the company has an enviable
customer base to bring online for phone service via PC, particularly as the Internet moves
from being more than a medium for the transfer of data to conferencing as well.
The question of what telephony software callers are using might not be such a nagging issue
with such a large body of users as AT&T long distance customers, analysts said.
"The real power of IP-based communication is they can really achieve true integration of voice
and data, and we certainly intend to be active in applications that let people do that," Siegel
said.ÿ
Emily Church is an online reporter for CBS MarketWatch. The Associated Press contributed
to this report.
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