Publication Date: September 6, 1996

Related article - Internet Telephony Has Broad Implications for Business

For Telcos, It's Another Layer of Competition

By Ken Shulman

The advent of Internet telephony has many of America's local telephone companies either running scared or running for protection, and larger long-distance carriers jockeying for a piece of the action.

With 500,000 users and a market value of $3.5 million, Internet telephony is a phenomenon that is unlikely to go away, as much as some local telephone providers might wish it. International Data Corp. estimates the market will expand to $560 million and 16 million users by 1999.

"We are certainly aware of Internet telephony," says Glen Brandow, spokesperson for NYNEX/Bell Atlantic. "We do not have an official position on it. It is yet another competitor in an already overcrowded field."

In April, the America's Carriers Telecommunication Association (ACTA), a group representing 130 small long-distance carriers, filed a petition with the Federal Communications Commission to ban Internet telephony. The group argued that Internet telephony software providers are in fact telecommunications companies, and that they should be regulated and tariffed like common carriers in order to avoid the collapse of the regional telephone network, which is partially supported by the tax revenues it generates.

As of early September, the FCC had not ruled on the petition, but FCC chairman Reed Hundt gave some indication of the commission's leanings in a June 28 speech at the INET96 convention in Montreal, Canada. In his speech, Hundt commented that "the right answer at this time is not to place restrictions on software providers … or to subject Internet telephony to the same rules that apply to conventional circuit-switched voice carriers."

Proponents of Internet telephony—and those companies with a direct interest in the new technology—present it as an opportunity to increase competition and provide consumers with better telecommunications options.

"We believe that Internet telephony is as much an opportunity as it is a threat to local telcos," says Elon Ganor, CEO of VocalTec. "They are in the business of providing service. They shouldn't care what technology has to be used. Some of the telcos will run fast enough to be able to understand and exploit the new technology. Some of them will actually make more money because of it. All Internet phone technology has demonstrated is that the price of these calls can be significantly lower."

VocalTec is one of 15 companies that currently offer Internet telephony software or hardware products. Other companies include Quarterdeck, Camelot Corp., and Netspeak.

For the major telecommunications players—all of which have shown the foresight to secure a strong Internet presence—Internet telephony is just one more sector of potential revenue. "We are currently handling 40 percent of domestic Internet traffic and 60 percent of international Internet traffic that originates in the U.S.," says Robin Carlson, manager of corporate communications at Sprint. "There is some voice traffic. We don't yet know how much. The implications are that the local phone companies will be affected. But I think it is very premature to make a judgment about this. Our Sprintlink Internet division is already profitable. And we do not look at Internet telephony as competition at all."

"We see Internet telephony as an area that holds a great deal of potential," says AT&T spokesperson Mike Miller. "And we are very interested in understanding it better. Of course there are hurdles to be cleared, issues regarding quality of transmission, security, and international accords. I don't think there is any question that if the service is popular it will cause prices to drop. Internet telephony is just one more evolution in telecommunications, and one that we had anticipated."

Ken Shulman writes from Cambridge, Mass.

---

Related article - Internet Telephony Has Broad Implications for Business

---