ILECs answer VoIP phone threats

Incumbent long-distance carriers insist they are not sitting idle as fledgling voice-over-IP service providers skim voice minutes - and revenue - from their networks.

Skype is only the latest broadband voice-over-IP company to create a buzz by offering a free alternative to traditional telephone services. The company says about 1 million people have downloaded its peer-to-peer software that lets users call other Skype users without cost.

And Skype is not the only new game in town. Broadband VoIP service providers such as Vonage and 8x8 could be bigger threats to AT&T, MCI and Sprint. The heavyweights for years have watched voice-service revenue drop even without the VoIP competitors, which last week were encouraged by a Minnesota court ruling that could lessen regulatory burdens on them.

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Incumbent long-distance carriers insist they are not sitting idle as fledgling voice-over-IP service providers skim voice minutes - and revenue - from their networks.

Skype is only the latest broadband voice-over-IP company to create a buzz by offering a free alternative to traditional telephone services. The company says about 1 million people have downloaded its peer-to-peer software that lets users call other Skype users without cost.

And Skype is not the only new game in town. Broadband VoIP service providers such as Vonage and 8x8 could be bigger threats to AT&T, MCI and Sprint. The heavyweights for years have watched voice-service revenue drop even without the VoIP competitors, which last week were encouraged by a Minnesota court ruling that could lessen regulatory burdens on them.

AT&T and MCI companies are paying close attention to Vonage.

They do not seem as concerned about Skype, which requires users to download software and does not support connectivity to the public switched telephone network (PSTN).

"Everyone is watching Vonage," says Tom Valovic, director of IP telephony at IDC. "It has that disruptive potential that has been talked about with VoIP for many years."

Last month, Vonage announced that it had installed 50,000 access lines. The compsny offers unlimited long-distance and local calling for $35 per month. The attraction is that customers still can use their standard telephone, although they are required to install a device that connects to a RJ-45 telephone jack. Users can call anyone anywhere in the world.

Even though its own traditional voice revenues could be in jeopardy, AT&T sees the value of a broadband VoIP service. The telecom giant has been testing a broadband voice service with employees. And while MCI wouldn't say if it is readying a similar offering, the carrier is taking notice. So far, Sprint is mute on the subject.

While some of the incumbents are sharpening their broadband voice strategies, their competitors are proliferating.

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Skype is the brainchild of the people who developed Kazaa, which in addition to being a popular file-swapping system has turned into a major security and bandwidth headache for network administrators. It's not clear whether Skype presents similar issues, but one thing is certain: A lot of people are downloading the software, and it's sending traffic via Internet that would have otherwise traveled over the PSTN.

Another company in the same genre as Vonage is 8x8, which offers its Packet8 broadband VoIP service to consumers and small businesses. Packet8 service starts at $20 per month for unlimited calling.

Besides the fact that the services let users lower their monthly telephone expenses, these packages are truly flat-rate. When AT&T, SBC or Verizon offers a flat-rate package, users see a handful of service fees related to state and federal regulations on their monthly invoice. Until recently, Vonage and 8x8 didn't have to worry about these regulations.