It's Cheap--and It's Available
IP telephony rollouts could further lower the
long-distance price bar
By Meg McGinity, Wireless Editor, and Dawn Bushaus,
Internet Editor
Even as they try to outdo one another with pricing plans that
are too good to be true, providers of long-distance services
are gearing up for even more price competition. The source of
that extra heat: IP telephony. Ironically, voice over IP got its
biggest boost yet in late January, when AT&T--the provider
that probably stands to lose the most from long-distance price
deflation--announced that it plans to trial an IP telephony
service.
AT&T's announced plan to offer by midyear domestic IP calls
at 7.5 to 9 cents a minute capped a flurry of voice-over-IP
announcements. Earlier in the month, Qwest Communications
International Inc. (Denver) launched a domestic IP voice
service (7.5 cents a minute) in nine U.S. cities, and IDT Corp.
(Hackensack, N.J.) announced an even cheaper service (5
cents a minute) using its Net2Phone Direct offering on calls
placed from Chicago and New York. Qwest says it will
extend its service to 16 more cities by July, while IDT has
promised service rollout in 50 cities by the beginning of this
month.
IP telephony's ascendancy as a low-cost service is helping to
spark a massive network buildout. Level 3 Communications
Inc. (Omaha, Neb.), a facilities-based carrier started by the
founders of WorldCom Inc. property MFS Communications
Co. Inc., is constructing a global IP network and plans to offer
IP telephony service in the U.S. by year's end. USA Global
Link Inc. (Fairfield, Iowa), a long-dista nce service provider,
announced last month that it's investing $1.2 billion in a new IP
network.
All this common activity belies some big differences in the
ways the providers are approaching IP telephony. For
instance, both Qwest and AT&T say they will route the voice
calls over their own IP backbones, but Qwest says it will use a
separate native IP network for its voice services. Although
AT&T hasn't announced how it will carry IP voice, the
provider probably will run that traffic over its AT&T
WorldNet Internet service, speculates Stephen Jacobsen,
senior vice president of consumer markets at Qwest.
WorldNet runs IP traffic over asynchronous transfer mode
(ATM), which requires IP traffic to be sliced into smaller cells.
"For AT&T to deploy a separate native IP network is
possible, but it's not going to be easy," Jacobsen says. "AT&T
is under a lot of pressure from a market and earnings
standpoint the last I checked."
Qwest is using IP gateways and networking products from
Vienna Systems Corp. (Kanata, Ontario) and Cisco Systems
Inc. (San Jose, Calif.) for its IP telephony service. AT&T will
not divulge what technologies it will use in its trials, nor will it
comment on the service quality it expects to deliver. Qwest
says its approach will enable it to deliver a high service quality.
But Qwest's play for the residential market may be
problematic, warns Fran‡ois de Repentigny, industry
consultant at market watcher Frost &Sullivan (Mountain
View, Calif.), He notes that AT&T WorldNet is favored by
business customers, and the provider has partnerships around
the world. The segue from the domestic market, where AT&T
can test and work out the bugs in the technology, into the
more lucrative international and business customer markets, he
believes, may be easier for AT&T with this service
established.
"In contrast Qwest is facing a double problem of rolling out the
technology and fighting a marketing battl e," says de
Repentigny. "The Qwest endeavor will bomb if it doesn't
redirect to the business customer."
Other providers say administrative, network management, and
service delivery costs could make it impossible to succeed on
the low margins that cheap domestic IP service will yield. "It's
too marginal for someone starting out to make money," says
Pete Wills, executive vice president and chief operating officer
at PSINet Inc. (Herndon, Va.), an Internet service provider.
"It may be acceptable for someone with a large base, but it's
not appropriate for Qwest."
This spring, PSINet plans to roll out a voice-over-IP offering
to intranet or multisite business customers. That service will
target international business callers, Wills says. Rather than
charge per minute for the calls, PSINet will base charges on
bandwidth used and will include both voice and data, says
Wills.
The real question for the near term is whether users will be
willing to tolera te the lower quality of voice over IP, says
Jason Comstock, group manager of Internet protocol
connectivity services at CompuServe Network Services
(Columbus, Ohio). "The gap is closing fast, but there is still a
quality difference," he says.
Providers like AT&T, IDT, and Qwest can promise higher
service quality because traffic is running across their own IP
backbones rather than across the Internet. Ensuring high
quality is imperative for AT&T because it's using its brand
name for the cheaper service, say analysts.
Still, until quality issues are totally resolved, some providers
appear content to stay on the sidelines. "Most of the market
clutter and noise on IP telephony is the same old downward
pressure on price, like dial-around products," says John
Heiman, director of IP telephony at Sprint Corp. "I'm not
going to announce an offering just to throw my hat in the ring.
It must be a sustainable business without the hype." |
